Surpassing Gold: A New Safe Haven Investment
The markets have been hot over the past several months.
The Dow, S&P 500 and Nasdaq have surged double digits since the U.S. presidential election. Year to date, palladium is up 11.5%, cotton is up 10%, silver is up 10%, platinum is up 7% and even gold and copper have gained…
Natural gas has struggled… But with the arrival of spring, that’s not out of the ordinary. And volatility has fallen… But with almost everything else having risen, that’s also not a surprise.
But there’s an asset that’s blown apart the performance of the markets and every other commodity.
Last July, I told Energy & Resources Digest readers to prepare for this boom…
And “digital gold” hasn’t disappointed.
Bitcoin is often referred to as “digital gold” or “Gold 2.0.”
It’s the world’s favorite cryptocurrency (or digital currency).
I told investors nine months ago to expect bitcoin to rocket higher. That’s because of something that happens every four years that just happens to coincide with the U.S. presidential election cycle.
Blockchain reward halving.
It’s complicated. But all you really need to know is that the new supply of bitcoin is cut in half every four years.
And the price of bitcoin has taken off every time this has happened… because it takes something like bitcoin – which is rare and finite – and makes it even rarer.
In July, following the halving, bitcoin was trading at $627.
Today, it’s trading at $1,240.04.
The cryptocurrency’s price has doubled since July. And “digital gold” is now worth more than gold.
Last Thursday, bitcoin’s price surpassed that of gold for the first time ever.
Gold is currently trading at $1,222.90 per ounce.
Now, gold is rare.
In 2016, mines produced 3,236 tonnes of gold. Now, each metric tonne is equal to 32,150.7466 troy ounces. So new mine production last year totaled 104,039,816 ounces of gold.
But bitcoin is even rarer. And supply is tightening.
Bitcoin by design is a finite resource set at just 21 million possible coins. It was designed to be the exact opposite of every other currency in the world.
To mine bitcoin, miners use high-powered computers to solve complex equations called “blockchains.” Once a miner completes a block and provides proof of their work, they receive bitcoins as a reward.
When bitcoin was created by Satoshi Nakamoto, he designed it so it would take 100 years to mine all 21 million bitcoins. It takes four years to complete 210,000 blockchains. For every 210,000 blockchains solved, the number of new bitcoins and rewards are halved.
During the first 210,000 blockchains, 10.5 million new bitcoins were issued, as miners could receive a maximum of 50 bitcoins per blockchain. During the second set of blockchains, 5.25 million new bitcoins were created, as rewards were halved to 25 bitcoins per blockchain. And now, during the third set of blockchains, 2.625 million new bitcoins will be issued as miner rewards drop to 12.5 bitcoins per blockchain.
The current value of the entire bitcoin market is worth more than $26 billion.
The value of just the 104 million ounces of gold mined last year at current prices is worth more than $127 billion.
Every metric ton of gold is worth $39.32 million.
Simply because of market size and reduced supply, bitcoin should continue to leave gold in the dust…
But there’s more.
Wonder Twin Powers, Activate!
In 2016, bitcoin gained 120%, making it the world’s top-performing currency. And so far this year, it has surged 28%. That outpaces the performance of the markets and gold. The S&P 500 is up 5.7% so far, while gold is holding on to a 4.7% gain.
As I wrote in July, the Winklevoss Bitcoin Trust ETF (Nasdaq: COIN) is on deck for approval from the Securities and Exchange Commission.
And the decision could come this week.
It will be the first-ever SEC-approved bitcoin ETF… And that could create new increased demand for bitcoin, much like precious metals ETFs did for gold, silver, etc.
Currently, there are only over-the-counter bitcoin ETF options. These are small and not very liquid.
But the Bitcoin Investment Trust (OTC: GBTC) has rallied strongly in recent weeks to more than double the gains of the SPDR Gold Trust (NYSE: GLD)…
If we go back to November 8, the bitcoin trust is up 41%… The gold trust is down 4.6%.
Over the past year, the bitcoin trust has gained 157.4% as the gold trust has gained 3.2%.
But the premium on the bitcoin trust is high. For example, one share of the Bitcoin Investment Trust trades at $139. One bitcoin is worth $1,240.04. That means each share of the trust is trading at a 12% premium to the underlying asset.
For comparison, the SPDR Gold Trust trades at $116 per share. An ounce of gold is $1,222.90, or roughly a 5% discount.
The expectation is that the SEC will approve the Winklevoss Bitcoin ETF. If it’s a little illiquid, it may trade with a 1% or 2% premium.
I expect bitcoin to continue its surge. And if the SEC approves the Winklevoss Bitcoin ETF, that creates new demand and introduces new investors to the market.
We already know how many bitcoins can be mined over the next four years… and new supply shrinks every four years after that. That pushes the price of bitcoin higher. It can’t be diluted.
And that’s a perfect storm for gains.