Bitcoin and Ethereum are the top two cryptocurrencies in the world. Over the past month, their price has risen dramatically, creating a great deal of buzz in investment circles. What does this mean to those who own gold and silver?
The increased activity surrounding these two bellwether cryptocurrencies indicates a broadening base of people who see a future for cryptocurrencies in general. This is a positive sign, as the world begins to rethink payment systems, currencies and how the attributes of money (medium of exchange and store of value) can be managed.
Yet this development also has many traps. The barriers to entry in the cryptocurrency world are relatively small. Nearly every day, new currencies are being introduced through “initial coin offerings” (ICO). Just like an “initial public offering” (IPO) for stocks, ICOs carry a tremendous amount of risk with them. Of the hundreds of ICOs flooding the market, few will find long term success.
A Currency – or Not?
The price volatility of Bitcoin and Ethereum begs the question – aren’t cryptocurrencies supposed to be, well, currencies? By definition that implies they should at least be a stable medium of exchange. Yet the cryptocurrency market looks more like a stock market, and a speculative one at that. So what are they? Where is the “store of value” attribute of money? These are questions that the investment market, along with the money and banking system, will eventually have to answer.
Meanwhile, with cryptocurrencies being in a state of flux and debt based national currencies increasingly coming under stress, there has to be an anchor. Gold and silver have played that role throughout recorded history, across borders and for all currencies. We doubt that this time will be any different.
Cryptocurrencies like Bitcoin and Ethereum will see their prices swing wildly as the world begins the guessing game of who will be the winners and losers in the new world of money and banking. New cryptocurrencies will rise and be touted as the next “sure thing.” Some may succeed. Most will fail spectacularly. Meanwhile, gold and silver will continue to be a safe, tangible store of value while this volatile world of cryptocurrencies sorts itself out.