By Bryan Rich
November 29, 2017, 4:30 pm EST
The adoration for Bitcoin has been growing by the day, though no one understands how to value it.
CNBC went on “watch” the other day for Bitcoin $10,000. Today it traded above $11,000 and then fell as much as 21% from the highs.
Here’s a look at the chart.
Remember, gold went on a tear from sub-$700 to above $1,900 following the onset of global QE (led by the Fed). Gold ran up as high as 182%. That was pricing in 41% annualized inflation at one point (as a dollar for dollar hedge). Of course, inflation didn’t comply. Still, nine years after the Fed’s first round of QE and massive global responses, we’ve been able to muster just a little better than 1% annualized inflation. So gold is a speculative trade. It’s a fear trade. And it’s volatile.
If you bought gold at the top in 2011, the value of your “investment” was cut in half just four years later. That’s a lot of risk to take for the prospect of “hedging” against the loss of purchasing power in the paper money in your wallet.
Now, Bitcoin is becoming a pretty polarizing “asset class.” The gold bugs get very emotional if you argue against the value of owning gold. Those that own Bitcoin seem to have a similar reaction. But Bitcoin, like gold, is a tough one to value. You buy it because you hope someone is going to buy it from you at a higher price.
So is Bitcoin (cryptocurrencies) an investment? Sophisticated investors that are involved, likely see it as similar investment to a startup. It has traction. It has a lot of risks. It could go to zero. Or it could pay them multiples of what they pay for it. But they thrive on diversification. When they have a large portfolio of these types of bets, when a few payoff, they put up nice returns. Bitcoin may be one of the few, or it may not.