Will Bitcoin Destroy the Gold Market?

Will Bitcoin Destroy the Gold Market?

In the first article, I discussed whether Bitcoin and crypto currencies might present a threat to the stability of the current financial system. Now I am moving over to discussing the gold market and other alternative investments that may be among the first to feel the effects of the cryptocurrency revolution

Both these questions came to me very strongly now that Bitcoin has reached and surpassed the quite amazing price target of $10,000 per coin.

Bitcoin is the digital peer to peer currency launched around 2009 with little or no monetary value at the time. It was even discussed back then whether it would ever have any use or monetary value. Now each unit is worth approximately $10,000, varying from day to day as it trades and there are about 17 million Bitcoin units outstanding, giving a total market value of around $170 billion to the current Bitcoin currency supply. The maximum number of Bitcoins that are available to be found or ‘mined’ was set at 21 million but that process is gradual since Bitcoins are essentially mined essentially by maintain the ledger of transactions and his takes computer power and work, as does mining precious metals for instance.

Now as Bitcoin has hit $10,000, speculation has raged as to what maximum value it might reach. Some have speculated it might go to $500,000 to $1,000,000 per coin. This is extravagant in my personal view but that is not investment advice.

A good place to look is https://coinmarketcap.com/ which currently states as of 1 Dec 2017 that the total market capitalization of all 1320 of the cryptocurrencies it monitors is $332 billion, with the lion’s share in Bitcoin ($188 bn), Etherium ($45 bn), Bitcoin Cash ($24.5 bn), Ripple ($9.9bn), etc. All of the top 16 have over $1 billion and even number 50 on the list, Veritasium has a market cap of $196m!

The total crypto value is already 1/3 of a trillion! Bitcoin currently has 56% of the crypto market.

Comparing this to gold in the financial system in various forms:

Bitcoin capitalization                                               $187bn (2 Dec 2017 https://coinmarketcap.com/)

Cryptocurrencies total capitalization                        $332bn (2 Dec 2017 https://coinmarketcap.com/)

Central bank gold reserves (31,500 tonnes*)          $1.30 trillion

Investment gold (40,000 tonnes*)                           $1.64 trillion

Total investable gold (71,500 tonnes*)                    $2.94 trillion

Gold jewellery (89,200 tonnes*)                             $3.67 trillion

*Source: World Gold Council. Values calculated using 1 Dec 2017 gold price of $1279.80/oz

This table shows my hypothetical Bitcoin estimates from the previous article in comparison to the gold market:

Date	Bitcoin market capitalization	Total cryptos market capitalization	Bitcoin’s share of cryptos	No of Bitcoins in Circulation*	Price per Bitcoin	Cryptos compared to size of gold market**
1 Dec 2017	$188 billion	$332 billion	56.6%	16.7148 million	$11,239.80	0.11x
8 Dec 2017	$269 billion	$427 billion	62.9%	16.7281 million	$16,104.20	0.17x
?	$1 trillion	$2 trillion	50%	17 million	$59,000	0.68x
?	$5 trillion	$10trillion	50%	20 million	$250,000	3.40x
?	$10 trillion	$30 trillion	33%	20 million	$500,000	10.20x

*I am allowing for the potential increase in the number of Bitcoins towards the maximum limit of 21 million.

** I am comparing the total crypto currency hoarding with the total value of all investment and central bank gold (likely almost the entire world supply of bars and coins).

Further increase money flows into the cryptocurrencies would likely cause significant diversion of funds out of gold.

I personally would not be surprised to see a 1 or 2 trillion dollar market capitalization for cryptocurrencies in the near future. This would reach or possibly exceed the total value of all central bank gold reserves ($1.3 trillion) and approach the total value of all investable bars and coins ($2.94 trillion). At that point, there is a danger that cryptos will be a serious competitor not only to gold but also other alternative investments in the same universe such as silver bullion, gold and silver miners (junior exploration companies and even senior producers) and even perhaps other precious metal and commodities investments, which also tend to be inversely correlated to the value of the US dollar and are used as a hedge to depreciation of the conventional currencies.

I this is already happening. Bitcoin is zooming, while gold and silver, which are other alternative forms of currency, are languishing. The libertarian political mindset is common both to precious metals freaks and Bitcoin freaks so these markets are competing for that money. Cryptos are winning, hands down. How far will it go? What will happen when Bitcoin futures open on the same platforms as gold and silver futures in December 2017?

Signs of this occurring include the World Gold Council Gold Demand Trends report from 9 November 2017, which states that overall gold demand in the 3^rd quarter of 2017 had fallen 9% year on year, mostly due to less money flowing into the Gold Exchange Traded Funds (ETFs). However, bar and coin demand was up a little and central bank buying was also up.

In the more extreme scenarios, there is the possibility that cryptos could replace gold and precious metal investments as the Go To alternative investment to hedge against the conventional markets and currencies. It’s not impossible that a bubble in cryptocurrencies could cause a crash in precious metals if it continues to progress rapidly.

Right now, it’s too early to tell whether gold demand is seriously dented by cryptocurrency demand. However another sign is that the famous precious metals site www.kitco.com now has Bitcoin and crypto quotes on its front page and as of a few days ago, there is also some technical chart analysis of cryptos being done by their analyst Jim Wyckoff. This is on a site that actually sells precious metals bars and coins! Presumably this information is being presented because of popular demand and surely shows a shift of interest from precious metals into cryptocurrencies.

Famous financial author Doug Casey said in a recent Kitco interview at the Silver & Gold Summit that Bitcoin: may be the 'Gateway Drug' To Gold and that $50,000 Bitcoin was possible, especially in the light of the war on cash. I agree in some ways but I don’t think that cryptos are necessarily a gateway to gold, unless the cryptocurrencies bubble bursts, at least for a while. There could be big swings from gold into cryptos before the see saw goes the other way. It’s very difficult to call. Frank Holmes doesn’t agree with me. He thinks that stock market offerings (IPOs) are being swamped by the number of initial coin offerings (ICOs)

References:

https://www.youtube.com/watch?v=Zbq5hB6nVQ8

Bitcoin: The 'Gateway Drug' To Gold - Doug Casey

https://www.youtube.com/watch?v=WdvPXuJK1CY

Cryptos Are Taking Over Markets But Not Gold - Frank Holmes

https://www.youtube.com/watch?v=WCx1BVKBy9I

Gold's Cycle Shows Metal May Retest Lows of $1,050 - Wells Fargo's 2018 Outlook with John LaForge

https://www.youtube.com/watch?v=xU9oVos9BlY

JIM ROGERS TALKS BITCOIN PRICE / U.S. DOLLAR / GOLD / FUTURE FOR THE WORLD & 2018

https://www.youtube.com/watch?v=XC2ZVei91fc

Poor Nerds Become Millionaires Thanks to Bitcoin. Fascinating interview with Rick Falkvinge Bitcoin Cash 'CEO' on Russia Today

https://www.gold.org/research/gold-demand-trends

http://www.kitco.com/news/2017-12-04/Jim-Cramer-Gold-Is-Losing-Is-Luster-To-Bitcoin.html

© D Bellamy 2017

If you enjoy my writing, please support me at: 


https:/www.paypal.me/daveswebpages

Will Bitcoin Destroy the Current Financial System?

Will Bitcoin Destroy the Current Financial System?

This question has come to me very strongly now that Bitcoin has reached and surpassed the quite amazing price target of $10,000 per coin.

As I write this on Word 2007, I just noticed that Bitcoin has a red line underneath it; it was not in the dictionary. I just put it into the dictionary. I wonder if the new versions of Word Processors have this word? Does the Oxford English Dictionary have it? They need to have it in there, now.

On my Dell UK style laptop computer keyboard, I have the dollar sign $ and the British pound sign £ (SHIFT 4 and SHIFT 3 respectively). Pressing CTRL ALT 4 gives me the Euro sign €. Where is the Bitcoin B with two vertical lines through it? Is it in the Wingdings font yet? It needs to be.

Bitcoin is the digital peer to peer currency launched around 2009 with little or no monetary value at the time. It was even discussed back then whether it would ever have any use or monetary value. Now each unit is worth approximately $10,000, varying from day to day as it trades and there are about 17 million Bitcoin units outstanding, giving a total market value of around $170 billion to the current Bitcoin currency supply. The maximum number of Bitcoins that are available to be found or ‘mined’ was set at 21 million but that process is gradual since Bitcoins are essentially mined essentially by maintain the ledger of transactions and his takes computer power and work, as does mining precious metals for instance.

Now as Bitcoin has hit $10,000, speculation has raged as to what maximum value it might reach. Some have speculated it might go to $500,000 to $1,000,000 per coin. This is extravagant in my personal view but that is not investment advice.

The limit is likely to be dictated by the total amount of money in other currencies that is available to be able to be put into Bitcoin. Of course, since currencies fluctuate and often depreciate and since central banks print money by doing quantitative easing among other things, the total number of currency units tends to increase over time. However the Bitcoin supply is fixed at 21 million units maximum, though this will not be reached for some years. I am going to use a number of Bitcoins of 20 million because it is a round figure and it is likely to be reached in the next few years.

We need to look at various monetary stores of value and compare them to Bitcoin. In my view, the total value of Bitcoin could go to $1 trillion as a feasible target. This is because 1 trillion is an attainable number for a valuable entity in the current world of investment. For example, Apple’s total stock market value has been threatening to reach the 1 trillion level - and this has in itself been a hot issue for the last year or two as to if or when this will happen.

We must also consider that there are numerous other crypto-currencies such as Etherium, Bitcoin Cash, Bitcoin Gold and others about to be released such as Ucoin cash. The total market value of these is the same order of magnitude as Bitcoin itself. Bitcoin’s “market share” of the total has been slowly falling since these new crypto-currencies have grown from a standing start, even though in general the value of most of them has been skyrocketing.

A good place to look is https://coinmarketcap.com/ which currently states as of 1 Dec 2017 that the total market capitalization of all 1320 of the cryptocurrencies it monitors is $332 billion, with the lion’s share in Bitcoin ($188 bn), Etherium ($45 bn), Bitcoin Cash ($24.5 bn), Ripple ($9.9bn), etc. All of the top 16 have over $1 billion and even number 50 on the list, Veritasium has a market cap of $196m!

The total crypto value is already 1/3 of a trillion! Bitcoin currently has 56% of the market.

The website http://us.spindices.com/ gives useful information about the market value of the largest American companies. All of the top 10 companies in the Standard & Poors S&P 500 index had values over $300 billion at the end of November 2017, with Apple at the top at $887 bn. The current money in cryptocurrencies is thus about equivalent to the market value one of the top 10 companies in the USA. This is significant but not yet disruptive, since the total value of the 500 companies in the index is actually about $22.6 trillion.

Bitcoin capitalization	$187bn (2 Dec 2017)
Cryptocurrencies total capitalization	$332bn (2 Dec 2017)
Procter & Gamble market value	$229 billion (end November 2017)
Bank of America stock market value	$276 billion (end November 2017)
Apple Inc stock market value	$878.22 billion (on 1 Dec 2017)
Central bank gold reserves total	$1.35 trillion (32,754 tonnes on 1 Dec 2017 gold price of $1279.80/oz)
UK M1 money supply	$1.13 trillion (£853 billion)
UK government debt	$2.07 trillion (£1.56 trillion, 81.58% of UK GDP)
UK GDP	$2.54 trillion (£1.91 trillion)
US M1 money supply	$3.59 trillion
US Federal Reserve balance sheet	$4.42 trillion (up from under $1 trillion in 2008 because of QE)
US banks total balance sheet	$16.6 trillion
US government total debt	$20.574 trillion (2 Dec 2017 http://www.usdebtclock.org/)
US S&P500 total stock market value	$22.6 trillion (end November 2017)

It doesn’t seem out of order to imagine Bitcoin’s market cap going to 1 trillion with 50% of the total market, giving $2 trillion in cryptos and a Bitcoin price of $60,000 per coin. This would give Bitcoin a capitalization similar to Apple Inc, the most valuable company in the world and a value approaching to that of the total central bank gold reserves.

What would be the implications of this? This really means that $1 trillion would have exited the conventional financial system and gone into Bitcoin and perhaps $2 trillion into cryptocurrencies in aggregate. This would divert that money from the economy and perhaps numerous other markets, such as the gold market, the commodities markets, the stock market, the government and other debt markets as well as from savings accounts and bank deposits.

What level of money flow into cryptos would endanger other investments and how would this happen?

Well, $2 trillion flowing into cryptos would be equivalent to about 9% of the value of the S&P 500 stock index. It is also greater than the value of any individual company, more than the value of all central bank gold reserves, more than the UK money supply and about 12% of the total money in US banks. This would surely start to move markets. Of course the flow into Bitcoin is coming from the whole world but it could be concentrated in certain areas, especially where there is a perceived need to move money out of another asset that is insecure.

I see several dangers. Excessive money flows into Cryptocurrencies could cause:

1.       Diversion of funds out of the precious metals, the mining stocks and other ‘alternative’ markets;

2.       Fall in value of weak or vulnerable national currencies that are being converted into cryptos;

3.       Hyperinflation in vulnerable countries.

4.       Diversion of funds out of general stock markets – possible stock market crash;

5.       Diversion of funds out of pension funds by savers causing bankruptcy of funds;

6.       Draining of bank savings accounts causing bank illiquidity or insolvency;

I think item (1) is already happening. Bitcoin is zooming, while gold and silver, which are other alternative forms of currency, are languishing. The libertarian political mindset is common both to precious metals freaks and Bitcoin freaks so these markets are competing for that money. Cryptos are winning, hands down. How far will it go? What will happen when Bitcoin futures open on the same platforms as gold and silver futures in December 2017?

So how about a vulnerable economy like Venezuela (Items 2 and 3)? Here are some stats from the IMF compared to crypto values:

Bitcoin capitalization                             $187bn (2 Dec 2017)

Cryptocurrencies total capitalization      $332bn (2 Dec 2017)

Venezuela GDP                                   $215 billion (2017 IMF estimate; down from $236bn in 2016)

Venezuela total savings                         $9.1 billion (2017 IMF estimate; down from $15.4bn in 2016)

We see a large shrinkage of Venezuelan savings and GDP over the past year, measured in US dollars. That might be due to a fall in the Venezuela bolivar currency but could also be due to money leaving that country and into Bitcoin. Already, Bitcoin’s value is approaching the total GDP of this crisis-ridden country and it could easily absorb all of Venezuela’s savings of $9.1 billion.

There is actually a strange parallel between the inflation rate in Venezuela and the price of Bitcoin. Is this a coincidence? I think possibly not.

There will always be poor mismanaged nations that will get hit by the markets. However, what about the world’s financial system that itself is debt ridden and riddled over recent decades with asset bubbles, crashes and market manipulation by the central banks by bailing out their chosen friends when they lose money?

So at what point might we see items 4, 5 and 6, where the largest sectors of the investment sectors and the mainstream financial system could be endangered.

To me, that would require a real mainstream mania in Bitcoin and the cryptos that would divert several trillion dollars or more from the other investment markets. Essentially most people are probably not spending Bitcoin so it is hardly functioning as a currency. In my view is functioning as a hoarded asset, much like gold in the early 1930s during the Great Depression. Ten trillion dollars equivalent going from conventional currencies into cyptos would probably be a major threat.

Some hypothetical levels for Bitcoin compared with today:

Date	Bitcoin market capitalization	Total cryptos market capitalization	Bitcoin’s share of cryptos	No of Bitcoins in Circulation*	Price per Bitcoin	% of size of major US markets**
1 Dec 2017	$188 billion	$332 billion	56.6%	16.7148 million	$11,239.80	0.8%
?	$1 trillion	$2 trillion	50%	17 million	$59,000	5%
?	$5 trillion	$10trillion	50%	20 million	$250,000	25%
?	$10 trillion	$30 trillion	33%	20 million	$500,000	75%
?	$21 trillion	$70 trillion	30%	21 million	$1,000,000	175%

*I am allowing for the possible increase in the number of Bitcoins towards the maximum limit of 21 million.

** I am comparing the total crypto currency hoarding with the size of the main US stock and bond markets using $20 trillion US debt and $20 trillion valuations of S&P500 ($40T total). One could instead use a figure for the total world money supply of approx $90 trillion in which case the percentages would be less.

I personally would not be surprised to see a 1 or 2 trillion dollar market capitalization for cryptocurrencies in the very near future.

I would think that if either of the bottom two scenarios were to arrive, then the world’s regulated financial system would be in some danger and the effects on our over indebted fragile western world economies would encourage government action to curtail the crypto markets or at least cap them.

We know from the Roosevelt gold confiscation in 1933 and other executive orders passed over the years that governments can turn on a dime and enact arbitrary laws at any time. The effects of these on peer to peer decentralized systems like the cryptocurrencies are difficult to judge.

In the meantime it will be fascinating to see what happens in the crypto market. Some hedge funds are already invested in Bitcoin. Bitcoin futures are scheduled to start trading in mid December 2017. What will be the effect if financial institutions can bet against Bitcoin in the futures market? Will crypto currency Exchange Traded funds come soon? The mainstream is not quite there yet. The cryptos are still at the Wold West stage.

In a fascinating interview on Russia Today (linked below), Rick Falkvinge, the ‘CE’ of Bitcoin Cash, the Bitcoin Cash 'CEO' discusses cryptocurrencies versus the current financial system. He sees deep and lasting implications for the conventional system and a sea change in the monetary world. I also link to an interview with the evergreen investor Jim Rogers that talks about this and all kinds of topics.

In the end, we cannot tell whether this initial bubble of speculation will take a hit before the mainstream comes in with products or whether it will just add to the current mania. A useful comparison might be the Internet bubble of 1999--2000. Even though there was a big wipeout in valuations of internet companies in 2000-2002 due to unrealistic expectations and a bubble mentality, the internet continued to grow at a steady pace and became the universally used utility that it is today, with major new corporations coming into existence even since the initial bubble ended. We have to wait and see whether similar events can happen in the crypto market and whether it will become part of the mainstream money universe.

References:

https://www.youtube.com/watch?v=XC2ZVei91fc

Poor Nerds Become Millionaires Thanks to Bitcoin. Fascinating interview with Rick Falkvinge Bitcoin Cash 'CEO' on Russia Today.

https://www.youtube.com/watch?v=xU9oVos9BlY

JIM ROGERS TALKS BITCOIN PRICE / U.S. DOLLAR / GOLD / FUTURE FOR THE WORLD & 2018

© D Bellamy 2017

If you enjoy my writing, please support me at: 

https:/www.paypal.me/daveswebpages

Northern Dynasty chart compared with Novo and Garibaldi

Novo Resources and Garibaldi Resources just had big runs and fairly big cool offs on their charts, something like Northern Dynasty did about 10 months ago.

I always wonder what to do when a chart has an initial big run and blow-off top. Northern Dynasty might be giving clues but I really need a chart that did this 5 years ago for a useful comparison:

This is also better than gold and silver!

This is also better than gold and silver! John from MGTOW is Freedom lighting his cigar. The guy is amazing. i hope you don't mind, John. You're a must watch every day on YT. 

https://www.youtube.com/channel/UC4DyPLVr8OsvTtShvPEEk4w

Well, he was until his channel was removed by YT. He can still be found on The Prepared Mind channel but how long will that last? MGTOW is Freedom was much more fun listening.

This is better than any gold and silver

Quite elegant bullish geometries in current gold chart.

There are some quite elegant bullish geometries in current gold chart. I can't say that I am convinced in any way but I like the look of them.

For ages now (since Jan 2016), I have been watching the thin blue and thin black pitchforks, so happy was I when gold hit $1124, when it hit and bounced off the base of my blue fork that I didn't notice until now that there is a larger (thick) black fork almost but not quite parallel to the first one.

With a bullish hat on, the blue fork would represent what Jim Sinclair called an uptrend and the black one would represent a power uptrend if it were to govern price action.

I note that there has been a lot of trading on the lower line of the thin black fork lately. The very start of the bullish move was along that line (at bottom centre on the chart, circled below) and defined the slope of the move. The large fork is about twice the depth of the small one, therefore the recent trading has also been along the lower quartile line of that fork.

In any case, the new larger black fork is almost parallel and would be very bullish if it governs trading. Note also the action along the dotted red line.

Adding some more red lines shows that the $1045 low may be a key geometric point in this market. Lots of stuff radiating from there:

Solid red line shows the lining up of three lows. The two steeper dotted red lines show lines of initial support that became resistance. In that case, these bullish slopes have been rejected as too steep. so we could perhaps assume the market will never catch up with those lines.

The shallowest red dotted line is support at present with three recent touches. A move above $1280 would take trading in to the central portion of the new black fork, which would be very nice indeed.

The bearish case would be re-ignited if the price goes below the lower red line and especially if it breakes below the lower black line in the low 1200s.

If you enjoy my writing, please support me at: 

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No adjustment to models and April CPI inflation comes in very close to my forecasts.

April 2017 USA CPI inflation has come in very close to my forecasts, made on this blog during early April.

No adjustment to models and April CPI inflation announcement on 12 May 2017 comes in at 2.2%, very close to my forecasts made more than a month ago:

http://1000gold.blogspot.co.uk/2017/04/cpi-inflation-forecasts-for-march-and.html

The models I have followed most closely are geometric gasoline and geometric oil with 2 month moving average data being used for the latter. These models forecast 2.28% and 2.33% for April CPI, even without any adjustment in the models to take into account March's figures.

So what we appear to have is slowly falling inflation because of the slowing in year over year increases min oil and therefore gasoline prices. Sub 2% inflation probably beckons (according to the BLS figures anyway) for later in the year, as shown in the above link.

© D Bellamy 2017

Gold holding on to $1264 by its fingernails.

Gold is struggling to hold on to $1264 right now and struggling to avoid breaking below the black line on the chart below. It's holding on for dear life as I write at $1264.30/1265.30 Bid/Ask. If it doesn't, the $1150-1260 range is again in play (gold triangle). I referred to this area as no man's land. Note also the large amount of trading along the black line in 2017, an attempt by the bulls to regain control.

The decision point may be when the black line and green line meet (horizontal support/resistance meets the black line at $1264):

Gold jumps over $1250 and $1264 resistances to land around $1280

Gold jumped over $1250 and $1264 resistances to land around $1280, back in the black pitchfork and therefore back into the initial uptrend channel of the potential new bull market: