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Is Bitcoin Driving Gold Prices Lower?

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Bitcoin’s record-setting advance since the start of the year has left other asset classes out in the cold. As gold continues to struggle below $1,300, some analysts have noted an inverse correlation between the two asset classes.

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Battle of the Safe Havens?

Gold has long been valued as a safe haven and store of value capable of shielding against economic, financial and geopolitical risks. Although the yellow metal has lost much of its luster, it remains the go-to haven asset for investors concerned about the future. Case in point: gold has risen several times this year on geopolitical tensions between North Korea and the West.

At the same time, gold has been unable to break above $1,300 a troy ounce with any real conviction. Gold futures traded on the Comex division of the New York Mercantile Exchange appear to have peaked north of $1,350 in September before crashing back down.

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Indeed, 2017 has been a frustrating year for bullion, with prices following a predictable pattern of peaks and troughs. That being said, the metal has still managed to add around $100 since the beginning of the year.

Bitcoin, on the other hand, has enjoyed unrivaled success, culminating in a yearly gain of around 1,200%. The world’s most traded cryptocurrency spiked above $19,500 last week in anticipation of the first-ever cryptocurrency futures contract. Prices have since pulled back, but remain strongly bullish as institutional capital enters the market.

Although bitcoin cannot be entirely described as a safe haven, it is being used exactly in this way by investors. Its finite supply and shrinking producer base over time give it unique attributes that haven-seeking investors may find appealing.

Strategist Weighs In

As CCN reports, ACG Analytics analyst Larry McDonald believes the growth of bitcoin could weigh on gold prices more acutely in the near future. According to McDonald, the cryptocurrency asset class is equivalent to roughly a quarter of liquid tradable gold. That figure has increased manifold over just one year ago. As the $450 billion cryptocurrency market grows, it may continue to eat away at the yellow metal.

Meanwhile, Phillip Streible of RJO Futures said bitcoin futures will play an important role in how gold is priced. Speaking to CNBC’s Power Lunch, Streible said gold stands to benefit should bitcoin futures go bust. At the same time, bullion may continue to lose its shine should bitcoin and the crypto asset class more generally push higher.

“Bitcoin has stolen a large market share of gold,” Streible said.

There were no signs of a crash on day one of CBOE’s bitcoin futures contract. After initial volatility, the contract provided a boost to the spot price, eventually sending BTC/USD above $17,000. That being said, the rally wasn’t nearly as convincing as the one that occurred last week. With its latest upsurge, bitcoin controls more than half of the total cryptocurrency market when evaluated on total capitalization. In terms of volume, it accounts for roughly half, according to data provided by CoinMarketCap.

Institutional traders will soon get their fill of bitcoin futures. CME Group is planning on launching its own contract on Dec. 18. Nasdaq is reportedly working on its own bitcoin-linked derivatives product for next year.

On Monday, the Security and Exchange Commission’s public filing system also showed two new applications for a bitcoin exchange-traded fund (ETF). REX and VanEck have each submitted a proposal to the securities regulator to create their own bitcoin ETF. Some analysts say it is only a matter of time before cryptocurrency enters the multi-trillion-dollar ETF market.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 352 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Opinion

Institutional Interest in Cryptocurrency Is Rising, and It Is Not Surprising

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The multi-week rally in cryptocurrencies has not gone unnoticed by the world’s major financial institutions. According to a recent survey conducted by Thompson Reuters, one in five traditional financiers is considering cryptocurrency trading as early as this year.

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A Compelling Study

In a survey of more than 400 financial firms, researchers at Thompson Reuters concluded that institutional trading of cryptocurrencies could rise substantially this year. Among those that indicated a willingness to trade digital assets, 70% are planning to do so in the next three-to-six months. An additional 22% is planning to enter the market between six and 12 months from now.

The survey provides actual figures on a phenomenon we’ve observed since the cryptocurrency market bull rally began – namely, that banks are closely examining client interest in the digital asset class to determine an appropriate entry point. Some are farther along than others, such as hedge funds already trading cryptos and Goldman Sachs, which is already building its digital asset division.

Interest is likely to rise further as cryptocurrencies appreciate in value. The market peaked at $437.4 billion on Tuesday, a gain of nearly $190 billion from the Apr. 6 swing low. At current levels, the cryptocurrency market is at roughly half of its all-time high.

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Changing the Conversation

The results of the survey also challenge the underlying assumption that banks are only interested in blockchain and not the currencies that run on them. While this may have been true 12 months ago, cryptocurrencies have emerged as a viable asset class that provide alternatives to the current system.

However, opponents of cryptocurrency still get hung up on arguments over the intrinsic value of digital assets. They often invoke rhetorical questions like what’s bitcoin actually worth?  Of course, the same question can be directed at fiat currency, whose authority rests with the state but whose value depreciates almost yearly due to inflation.

That’s the conclusion researchers at the Federal Reserve Bank of St. Louis reached three months ago in a primer on cryptocurrencies. In addition to arguing that bitcoin “could over time assume a similar role as gold,” researchers Aleksander Berentsen and Fabian Schar reminded readers that “state monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either.”

While bitcoin’s short history has been filled with wild swings, the history of “state monopoly currencies” isn’t much different when taken as a whole. (An extreme yet true example: Zimbabwe’s national currency got inflated out of existence a few years ago.) As we’ve seen repeatedly throughout history, states can’t always convince the public that their currency is worth more than the paper or cotton it is printed on.

“This is why decentralized cryptocurrencies are a welcome addition to the existing currency system,” the researchers said.

The findings of the Reuters survey may not amount to much in the grand scheme of things, but in the meantime do provide a new starting point for how we debate institutional interest in cryptocurrency.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 352 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Bitcoin

Crypto: Searching For Value

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Over the course of the past week or so I have spent lots of time thinking and writing about how cryptocurrencies represent solid value relative to stocks, bonds and other commodities like gold or oil.  While the pragmatic investor looks for fundamental reasons to buy  itcoin and finds a mixed picture, the value investor rationalizes this point entirely.

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The value investor takes note of the 60%+ price decline, reads about all the bad news about crypto regulation, slow speeds and security issues.  Then the conclusion is drawn that there is more risk in Facebook, Tesla or other stocks that in bitcoin, ether or other cryptos.

If all this makes sense, you probably want to consider a value investing strategy.

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The Good News Has Been Getting Better

If you are a fan of crypto in general and bitcoin in particular, the big picture is smothered with regulatory issues.  Seems like everyday a government in some region of the world is issuing threats or taking actions to restrict adoption.  This is not going to change until someone declares victory against criminal activity of all sorts. This, of course, will never happen so we need to put these headlines on the back-burner of our thinking.

If we are able to accomplish that, the crypto community has been making out sizable progress on one very key issue: transaction speed and costs. If all the regulators in the world were to suddenly disappear, the future of bitcoin would not be worth a dollar unless improvements in speed and cost were made.  Well, that is starting to happen.

The Lightning Network’s (TLN) latest release has now been operational for a very short period and already the number of nodes has jumped to almost 850 and over 2,200 channels.  Without trying to come across like a member of the geek squad, the more nodes and channels, the better.

The best reason to explain this surge of participation is The Lightning Network can process about 50,000 transactions per second.  That is a far cry from the average of less than 10 that bitcoin has been running. Beyond this compelling offer is the fact that transaction costs come down dramatically as well because TLN consumes far less energy.

Because all eyes are watching for TLN to set the bar by which Ethereum’s Raiden Network must match, every little glitch that occurs will be magnified.  The thing to remember is that TLN is not the final solution, not by a long shot. Before it is over, bitcoin, Ethereum and others will need to compete in a world of tens of millions of transactions per second.  Otherwise, we have all been fooling ourselves.

Investors Looking For Leadership

The Lightning Network developments illustrate an important point.  Improvements in speed are one of the truly decisive issues to be tackled.  But closing the gap between 8 transactions per second as bitcoin has been configured up to now and the tens of millions of transactions needed to compete is a long multi-step story.

The evolution of cryptocurrencies today compares closely with the Internet circa 2003 following the bursting of the dot.com bubble.  Crypto has passed through its speculative phase and now the focus is shifting from all of the bazillion possibilities for blockchains and smart contracts over to putting together the bazillion details of delivering the services.

So, with all respect to the crypto expert Thomas Lee, who holds a price target of $25,000 on bitcoin in 2017, the price of cryptocurrencies may more closely track fundamentals unless or until somebody makes a spectacular breakthrough that can solve the twin problems of speed and security in lightning speed.  

Say, for example, bitcoin were to end 2018 closer to $12,000, that might sound disappointing. That is still more than a 70% upside with less implied volatility. That would be a good thing in the eyes of many regulators both in and outside of government.  

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 63 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Opinion

Opinion: Despite Recent Woes, Bitcoin Could Hit $30,000 This Year

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After a tumultuous start to the year, bitcoin is set for a dramatic surge in value by the end of 2018, according to David Drake, the crypto commentator and founder of investment firm LDJ Capital. Drake is betting big on bitcoin after last week’s Group of 20 ministerial meeting failed to establish an overarching framework for regulating cryptocurrency.

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Drake’s Bold Prediction

In an interview with Bloomberg last week, Drake predicted bitcoin would reach $30,000 by year’s end. Although he didn’t go into detail about his estimate, it’s more or less in line with several other forecasts calling for a price-per-coin of $25,000 or above.

Bitcoin experienced “a cold winter” in the first quarter, according to Drake, with prices failing to set even a single record high. The digital currency was last seen trading at $8,435, having declined by nearly half since the beginning of the year. Prices recently traded as high as $11,600 before succumbing to bear market pressure.

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In Drake’s view, bitcoin remains the undisputed king of cryptocurrency, proclaiming that some of the lesser known coins are “fraudulent” and “strange.” When capital returns to the market, it will likely flow into bitcoin first.

Assessing Drake’s Forecast

Although nobody would have questioned Drake’s prediction three months ago, investor sentiment has radically shifted recently. Regulatory uncertainty, a fear-mongering mainstream media and perhaps weaker demand at the institutional level have all weighed on markets.

Bitcoin fell below $6,000 in early February as part of a protracted slump in the cryptocurrency market. A parade of central bankers and supranationals masquerading as cryptocurrency experts contributed to the declines by calling bitcoin a “threat to financial stability” and warning that “policy intervention,” even “preemptively,” would be needed.

While FUD-induced volatility is nothing new for bitcoin, the agenda has shifted significantly over the past three or four years. When the author began covering bitcoin back in 2013, cryptocurrency was synonymous with dark web criminal overlords, hackers and other clandestine activities. Those elements still exist, but very few credible voices believe they are the only actors benefiting from bitcoin.

Fast forward to today and the conversation is all about bitcoin’s threat to financial stability and the pending regulatory witch hunt. In the process, traditional media has flat-out lied about the direction of these and other developments (see: Mainstream Media Is Misinterpreting Bitcoin Regulation Again).

Given bitcoin’s previous rally to $20,000, Drake’s forecast is very reasonable – even in such a narrow time frame. To understand why, consider the following:

  • Massive price swings are not uncommon for bitcoin. Whereas stock market can take years to gain 20%, bitcoin can do it in a few days.
  • Bitcoin’s fundamentals haven’t changed very much from when prices were valued near $20,000. If anything, the outlook is much brighter thanks to ongoing efforts around scalability and privacy (for example, bulletproofs are considered a major crypto breakthrough).
  • There’s lots of evidence that demand for cryptocurrency is rising. Some of the more notable examples of this trend are the rapid growth of online exchanges, institutional efforts to bring bitcoin and other cryptos to traditional investment circles and continued growth of ICOs.

However, in Drake’s view, bitcoin’s growth will be based on something more fundamental than all the above:

“The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin. This would happen over the next decade, but it could go faster,” he said.

Although the jury is still out on Drake’s single currency hypothesis, investors are slowly returning to bitcoin after dabbling in in the more obscure altcoin market. Bitcoin’s share of the market is much higher today than it was in early January when the crypto universe crossed $800 billion in value. At last check, bitcoin controlled roughly 44% of the global cryptocurrency market, with roughly 39% of all trades being made in BTC.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 352 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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