Setting a new record high on Friday, the price of Bitcoin surpassed the value of gold for the first time. A the end of the trading week, an ounce of gold traded for approximately $1,228, yet Bitcoin ended at $1,290.13 per unit, according to a report from CNBC.
The value of the crypto-currency has been on the rise recently, up more than seven percent just this week. While there are likely multiple factors for bitcoin’s price growth, the latest financial news is likely fueling the digital currency’s historic increase.
Bitcoin price has been climbing lately largely due to speculation as the Securities and Exchange Commission is on the path to approving the first U.S. Bitcoin exchange-traded fund. Two investors, brothers Cameron and Tyler Winklevoss, filed the ETF application with the SEC almost four years ago.
The final decision from the SEC on whether the ETF can be listed will be handed down later this week. Should the SEC allow the bitcoin ETF, it will make it much easier to buy the digital currency and be the first EFT of this type available in the U.S. market.
To date, there are two other bitcoin EFT applications pending with the SEC. Grayscale’s Bitcoin Investment Trust and SolidX Partners both submitted paperwork to the regulatory agency last year.
In a letter to investors, Dan Morehead with Pantera Capital noted bitcoin’s price might continue to rise as the virtual currency becomes more popular and widely accepted. Per a report by Fortune, he suspects the price per unit could reach as high as $2,288 before the end of 2017.
Just in the last 12 months, bitcoin’s price has surged nearly 214 percent, up from $407 per unit in March 2016. Since January, a unit of the crypto-currency has gained 30 percent in value.
It wasn’t just the increasing trade value of bitcoin that helped it surpass the price of gold. Over the previous 12 months, gold has fallen nearly one percent. Gold took another hit last week after the Federal Reserve announced a potential hike in U.S. interest rates is coming soon.
Both gold and bitcoin are considered alternative assets, meaning investors typically use these financial instruments to protect themselves against monetary losses sustained in more traditional investments like stocks and real estate. When bitcoin was first created, many financial experts thought it would eventually replace gold as a “safe haven.” Yet, this is unlikely to happen unless bitcoin becomes easier to buy and its price history becomes more stable.
Likewise, investors see a major difference between gold and bitcoin. Gold is a physical asset that can be held and touched. It is a precious metal that has been valued for countless generations and civilizations. Bitcoin, on the other hand, did not exist before 2009, is only available in the digital world, and is mostly unfamiliar to investors.
While bitcoin’s price rising above gold’s price is a milestone for the crypto-currency, there really is no comparable correlation between the two assets. Gold price varies based on supply and demand, while bitcoin price can change quickly simply by reaction to market speculation
“The gold supply is 180,000 tonnes of ‘above ground’ gold, valued at $7 trillion. The bitcoin market value is $20 billion, so gold vs. Bitcoin is psychological more than anything,” Fran Strajnar, CEO of virtual currency research firm Brave New Coin, told CNBC. “The comparison is perhaps a positive signal that bitcoin is being commoditized. But Bitcoin is not a commodity, while gold has been a commodity for thousands of years.”
If the SEC denies approval of the Winklevoss Bitcoin ETF, Strajnar sees a crash in the digital currency’s price. Due to “qualitative risk to investors,” he doesn’t think the regulatory agency is ready to support the creation of the financial instrument.
Bitcoin is often used by people who want to remain anonymous during financial transactions and is the preferred currency when buying drugs or other illegal products online. Even though the price of Bitcoin surpassed gold’s price last week, the effect is likely temporary and in line with investor speculation about the pending bitcoin EFT approval and the falling value of gold.
[Featured Image by Ethan Miller/Getty Images]