In 2013, the price of the most popular cryptocurrency, Bitcoin, increased fivefold. This is a very impressive feat for an investment that’s not bound to any commodity. On the other hand, gold, the most precious physical commodity in the world that traditionally acts as a hedge to economic catastrophes, fell by 10%.
What on Earth happened?
According to precious metals experts, Bitcoin’s popularity is increasing because it is being supported by the younger, more tech-savvy people who trust encrypted technology over a physical commodity that is believed by so-called conspiracy theorists to be manipulated by central banks.
“Many hard-currency loyalists who sought refuge to the safety of gold out of protest against central banks’ erosion of currency value are now fleeing to Bitcoin,” said Ashraf Laidi, Chief Global Strategist at City Index/FX Solutions.
It’s strange, really. When the price of gold goes down, some say that the central banks are behind its decline, but when its value increases, nobody’s saying anything about manipulation or conspiracy. Investors can find today’s gold price here and study its shifts over the past few years. Gold prices are unpredictable since they’re affected by the changes in the economy, like any other commodity, but there is room for manipulation.
Bitcoin is the newest player to join the world of investing. Bloomberg, Yahoo, and others have recently added its price to their stock ticker, and its surging prices mean that a lot of investors trust it… for now, at least.
Bitcoin’s resilience is yet to pass the test of time. After all, computer software can be hacked, and when an investment is not backed by any physical commodity, should the economy collapse, problems could arise.
But that’s not to say that altcurrency is a bad form of investment. With proper backup, altcurrencies are a force to be reckoned with. It’s new, young investors trust it, and it has the momentum needed to catapult it to greater heights. This is why Bitcoin believers Melvin Ng and David Gallo, founders of Mina Financial Inc., have created a commodity-backed altcurrency called “Minacoin”. According to the founders, Minacoin will provide the benefits of Bitcoin, but backed by gold in order to bring the best of both worlds to supporters of backup currencies.
“Although gold has a more stable value, it’s really hard to transfer,” Gallo said. “With Bitcoin, it’s easy to transfer but we’ve seen the volatility over the last year when it went from $100 to $1000, down to $400 again.”
Minacoin, which is estimated to open a few weeks from now, is backed by a stash of gold capped at 21 million. Each coin is backed by one milligram of real-world gold. So technically, it will work like gold-backed ETFs except that the transaction will be like using Bitcoin.