We Love Bitcoin, But Stop Comparing It To Gold

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Includes: COIN, DGL, DGLD, DGP, DGZ, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDW, GLL, GTU, GYEN, IAU, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: Orange Peel Investments

Summary

Bitcoin is getting compared to gold more and more because the prices of 1oz and 1BTC are similar.

Other than that, there's no reason to compare the two.

We're still long term bullish on BTC and we reiterate some longer term price targets.

By Parke Shall

Those that read us know that we have been Bitcoin bulls for quite some time. With the price of 1BTC now approaching $1300, the question of whether or not we are staying in or cashing out has come up several times.

We wanted to write today to inform readers that not only are we staying long bitcoin, but we will, as we have been saying in the past, continue to add small amounts on any dips. We had a short term bitcoin price target of new all-time highs for this year that we reiterated in a previous article out in December 2016. In December of 2016, with bitcoin at $800, we stated that "Bitcoin Would Soar Through $1200 in 2017".

Now, it is time for us to focus on our multiple year long-term outlook for bitcoin. We don't believe that $5000 or even $10,000 is out of the question eventually, though it may take many years for the digital currency to reach that point. Needless to say, we remain bullish.

We know that bitcoin is becoming more and more of a news item over the last couple of weeks, as its price has run up significantly to now over $1200 per BTC. Anytime there's a price movement in any type of security like this, it makes the news. Many times, when penny stocks or other lesser-known securities rise in value, the media covers them without adequate understanding of what they are and how they work. Bitcoin is no different.

It has been getting more and more media coverage this past week yet the media, for some reason, continues to want to compare the price of one BTC to 1 ounce of gold. Yes, it is true that bitcoin has passed 1 ounce of gold in value. What does this mean? Absolutely nothing.

As bitcoin bulls, we would love to sit here and give you some convoluted meaningless answer as to why the price of one bitcoin passing 1 ounce of gold is meaningful, but there is really no common denominator basis of comparison between the two. You can put gold and silver on a ratio because you can reduce both metals to weight. You can't put bitcoin on a ratio with gold because one is a physical item with weight and a somewhat unknown but relatively finite supply and the other is a digital product that exists only online or in cyberspace.

So if you are a member of the financial media and are reading this, stop comparing the price of gold with the price of bitcoin.

Moving on, we could spend many paragraphs and many pages defending bitcoin as a storer of value. We could also, as generally Austrian thinking economists, make the argument that it has no value because it doesn't really exist. We think the answer for the short term is going to be somewhere in between. It exists because people are buying into it (not unlike Federal Reserve notes). It is a storer of value because it is limited in its supply. We have maintained in many of our articles that the major risk to bitcoin is the fact that it exists on an infrastructure that must be in place in order for it to be transacted. Whereas one person can go and hand gold to another person if the entire infrastructure of the world is brought down, bitcoin doesn't exist without our smartphones, our computers, and the Internet.

With this all said, we have written many articles over the last year talking about why would be buying the dip in bitcoin at various circumstances. After the Bitfinex crash, we came out and said that we would be buyers and after that, we wrote that we thought the digital currency was going to easily eclipse $1000 and then move through new highs. So far we have been right on.

Now let's talk about our outlook for the future. Despite bitcoin being incorrectly compared with gold, it continues to come up as both a hedge and a storer of value. Well you can take dispute with either of these, it is quite obvious that the public believes both of these to be appropriate. We do as well. Like any other financial asset that is in demand, it doesn't really matter what the ultimate product is, it only matters what the demand for said product is.

With the big banks and even the central banks working on different ways to incorporate the Blockchain into their business, it is obvious there has been buy-in on a major scale for a bitcoin. Many have argued that other digital currency's may come and take the place of bit coin and we actually believe just the opposite. We believe that because bitcoin was the original digital currency that it is going to have the most staying power and legacy status for many years to come. Other digital currencies may gain value on the fact that bitcoin has value, but there's only going to be one bitcoin at the end of the day.

In a world that is increasingly switching to digital, it is going to be tougher and tougher to make a case against bitcoin as long as large banks and governments continue to buy into the technology. There is no doubt that the blockchain technology is going to be the next step for a number of corporations and potentially a number of governments.

Investors need to realize that 100% of capital is at risk when they are dealing in such a speculative asset with very little track record behind it. With that said, we believe the bitcoin is going to remain in demand, become further accessible to retail spiking demand, and will have its credibility continue to improve going forward. While there are a varying group of long term estimated price ranges for bitcoin between $0 dollars and $1 million per bitcoin, depending on how seriously it is taken as a hedge against the financial system, we certainly don't think that the digital currency is going to stop growing in value anytime soon.

Over the course of its lifetime, we believe bitcoin is still in its extreme infancy and we would not be surprised to see the price eclipse $2000 by the end of the year this year. Further, our long-term targets for BTC remain between $2000 and $5000 for the next year or two. At this point, we may see corrections and we may see some stagnation but ultimately the most important point is that in the finite amount of supply and growing demand are going to continue to push prices much higher in the future. We remain long bitcoin.

Disclosure: I am/we are long BITCOIN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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