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Friday, March 10, 2017

Why Is Bitcoin Worth More than Gold?

Why Is Bitcoin Worth More than Gold?

By this time next week the SEC will issue a decision on whether or not to recognize an ETF designed to replicate the performance of the digital currency, bitcoin. If approved, the ETF (COIN), would make it easier for people to invest in bitcoin, so now might be a good time to offer an explanation of the currency to the uninitiated, in as simple terms as possible.

A single bitcoin, a digital currency that exists as a computer record, is now worth more than one ounce of gold, a rare yellow metal which can be held in your hand, and the boost that could come from the ETF would probably ensure that that is the case for some time to come. For some, this might be a mystery: How can something that exists only in computers be worth more than a metal that has been a store of value for centuries?

Regular readers may be aware that I have written extensively on this subject in the past, but have recently stopped covering it. The reason for that is simple: I said what I had to say and felt I had no more to offer on the subject. I was then and still am a believer in bitcoin. It took me a while to come to grips with the concept because, like many, when I first heard of it, I couldn’t see how something "created out of nothing" could have any value.

That value existed only because people believed it did and it took me some time to understand that in many ways that was no different to the pieces of green paper that I had in my pocket. Dollars have value because people will accept them in exchange for goods and services, and in that respect bitcoin is no different. What is different is that as long as that confidence remains, bitcoin will increase in value over time whereas dollars will decrease.

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