Bitcoin prices have surged higher through 2017 accelerating to fresh all-time highs in early December and topping out near $19,000, after beginning the year near $1,000 per bitcoin. Bitcoin is a digital currency, which has gained popularity as an investment vehicle, as it attempts to spread as a currency. The market cap on bitcoin has sky rocketed, rising to $276,143,747,979, absorbing more than ¼ trillion dollars, which has stolen some thunder from precious metals such as silver. Silver coins and silver bars prices have felt the effect of dollars moving into bitcoin, but once a pullback occurs, prices of silver will begin to benefit.
What is Bitcoin?
Bitcoin is the most popular and widely held crypto currency. A crypto currency, also known a digital currency, is a record of a transaction that is build using block chain technology. Block chain is a platform that keeps a record of every transaction that every occurred in a stream, which helps prevent fraud. In theory you can track back and see all the transactions that occurred with your specific bitcoin.
A Real Life Example
Imagine you receive a $100 dollar bill, that you know is not new, and you were able to look back in time and see all the ways that the $100 bill changed hands over time. This timeline is the block chain platform where bitcoin resides.
Is Bitcoin a Fad?
The question of whether bitcoin is a fad or asset class that is here to stay is yet to be known. It has yet to receive widespread acceptance from vendors around the globe who are willing to accept payment in bitcoin. Many have claimed, including J.P CEO Morgan’s Jamie Diamond that those who purchase bitcoin will eventually will be sorry.
Has Bitcoin Stolen Silver’s Thunder
The price of silver started to face headwinds in late August just as bitcoin prices were beginning to accelerate higher. The amount of thunder that in theory could have been stolen from silver coins by bitcoin can be seen by looking at a chart of bitcoin relative to sliver.
The ratio of bitcoin to silver started to accelerate in late august and has increase more than 5-times since the beginning of August. It appears that the surge in bitcoin assets, has taken money away from safe haven assets such as silver coins and gold bars. The question many investors have is how much further could it go?
Irrational Exuberance?
Obviously markets can remain irrational for extended periods, and one way to gauge and overextended market is to use the relative strength index. The relative strength index, which was developed by J. Welles Wilder is a momentum oscillator that measures accelerating and decelerating momentum, as well as, overbought and oversold conditions. It does this by measuring the average gain divided by the average loss over a 14-day period, and creating and index from 1-100. Index levels above 70 are considered overbought while levels below 30, are considered oversold.
The ratio of bitcoin to silver prices is now overextended. The relative strength index is printing a reading of 85.63, which is the highest on record, which means the ratio of bitcoin to silver prices is overbought.
Whether bitcoin prices will come back to earth or whether silver prices will surge higher is still up for debate but what can be said is that the relative value of silver is low, and likely to recover relative to bitcoin which has stolen some silver’s thunder. If you are interested in adding silver coins or gold bars to your portfolio please give Treasure Coast Bullion a call and ask for a free investor kit.
Read more by Treasure Coast Bullion Group, Inc - Staff Writer
