This clear message is being translated through Bitcoin prices which have gone "parabolic" and are actually now as high as the price of gold. Incredibly, the price of one Bitcoin traded at $1,250 this morning, the same market price as one ounce of gold.
While every veteran trader has heard about the Tulip Mania in the 1600's, today's action in Bitcoin prices spurred me to do a little research and pass along a few "bits" of information here. At its peak in 1637, a single tulip bulb was said to be sold for 10 times the annual income of a skilled craftsman. In the classic book titled "Extraordinary Popular Delusions and the Madness of Crowds" as published in 1841, author Charles Mackay claims that at one point in in the madness 12 acres of land in Holland were offered for a single Semper Augustus tulip bulb.
I am almost 60 years old now and I have witnessed dozens of speculative manias, but none even remotely approaching the mania currently unfolding in Bitcoin prices. The great Sir Richard Branson recently "blessed" the whole concept of Bitcoin prices with his heralded announcement that Bitcoins would now be accepted for advance payment on his planned future commercial space flight venture. And the financial media is loving every minute of this madness, as stories circulate of about millions won (and lost) in this fascinating arena.
So what does it all mean, and where do we go from here?
For the Bitcoin, I think it will end very badly for most investors in this market. I sincerely believe that Bitcoins will soon be compared to Tulips as the speculative bubble here collapses. Right now, as far as I know, the Bitcoin is NOT legal tender in any country in the world. Look-a-like virtual currencies are already proliferating and it's just a matter of time before "Regulators" from every major country rein in the excesses in this fringe market by outlawing these products, or regulate them to extinction, or introduce their own virtual currencies.
Of course, my view of the final chapter on Bitcoin prices is "just one man's opinion" and probably worth what you are paying for it (nothing!), but never-the-less I think it may be noteworthy.
So what about Gold? Can we learn anything from the dramatic rise in Bitcoin prices that may help us gain an edge in this oldest of (real) currencies? I think the answer is a resounding YES!
Right now, China appears to be buying the entire world's newly mined production of Gold every month. It's incredible to me that so much Gold is being bought by one single buyer apparently "under the radar" and without significant price distortion. What's the story here? It appears to me that China would like its currency, the Yuan, to be a major global reserve currency, just like the U.S. Dollar is now. The Chinese Government sees the massive global debasement of currencies now underway, and it naturally wants to protect itself from the obviously negative consequences of this debasement. To the Chinese, Gold may be THE answer, or at least their single best answer to this problem. I strongly believe that China will "soon" announce some sort of Gold backing to the Yuan. The timing is unclear, of course, but it's not hard to imagine that an announcement like this could happen anytime over the next two years. Of course, Gold prices would soar and every other major world economic power would have to consider Gold as a reserve to their own currency. Where could Gold prices be in five years under this scenario. I don't think it's a stretch to forecast a Gold price exceeding $10,000/oz, especially after witnessing the current speculative climate for Bitcoin prices. And for Silver, prices could easily jump to more than $200/oz over the same 5-year period.
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