Bitcoin has been surging in value since mid October and gained more than 20% yesterday alone. At one point, it hit a yearly high of more than $491 (see chart).
In August, bitcoin fell to a low for 2015 near $200 amid turmoil in the Chinese and global stock markets. But bitcoin transaction volume has been growing. Blockchain.info data shows that unique bitcoin wallet addresses—which are how users manage and trade bitcoin—are at an all-time high. Some have multiple bitcoin addresses, but such a spike suggests there are new users as well.
It’s not entirely clear what’s driven the most recent price gains. There is an assertion in an article on the front page of the FT today that the gains are due to Chinese people flocking to bitcoin in a giant pyramid scheme run on a Russian fraudsters website:
The price of the cryptocurrency bitcoin surged on Wednesday to its highest in more than a year amid a wave of Chinese testimonials for a “social financial network” called MMM, which bears the hallmarks of a pyramid scheme.
New members of MMM have to buy bitcoins to join the scheme, which is the brainchild of Sergey Mavrodi, a former Russian parliamentarian since jailed for fraud.
Although the article is unbalanced and simplistic, the truth regarding the root cause of the price movement of any market is of course much more complex – and there are many supply and demand issues to be considered.
Most bitcoin experts once again see Chinese demand as key. As China has been devaluing its currency, the yuan, throughout the year and the Chinese are aware of the growing risks posed to the yuan and indeed the dollar and other fiat currencies.
Also, their recent experience of the stock market crash has made bitcoin and, of course, gold more attractive again. Hence the surge in demand for gold in China again. China’s gold buying rose 7.83% year on year to 814 tons in the first three quarters, industry data from the China Gold Association (CGA) showed yesterday.
There are increasing concerns of capital controls in China and Chinese investors and companies are seeking to diversify internationally and move savings and capital out of China.
Bitcoin is an easy way for people to swap out of yuan. Goldman Sachs analysts estimated earlier this year that 80% of bitcoin volume is exchanged in and out of the Chinese yuan. Once converted to bitcoin, the owners can then swap back into other fiat currencies and indeed, physical gold.
We see value in having an allocation to bitcoin and see it as complementary to owning physical gold and silver. It is clearly more volatile than gold and even silver and is not proven as a hedging instrument and safe haven asset. Therefore, it is more speculative and merits having a lower allocation than gold and silver bullion.
Today’s Gold Prices: USD 1107.30, EUR 1024.40 and GBP 724.75 per ounce.
Yesterday’s Gold Prices: USD 1118.00, EUR 1024.09 and GBP 724.99 per ounce.
Gold lost $10.20 yesterday to close at $1107.50. Silver was also down by $0.20 for the day closing at $15.09. Platinum lost $8 to $953.