Cryptocurrencies such as the famous Bitcoin have made the news in recent years. Some analysts feel that they may become a viable alternative to the traditional credit card while others tout their anonymous nature, which is ideal for performing discrete transactions with other parties.

However, it’s interesting to note that Bitcoin is now being valued as a commodity. To illustrate this fact, Bitcoin is currently priced more than gold in terms of equal amounts.  

To appreciate the potential ramifications of how Bitcoin could impact the marketplace in the future, it is important to examine the present gold prices and how they relate to cryptocurrencies. 

Has gold lost its luster?

At the time that this article was written, gold was hovering around $1,233 per ounce. Some investors are surprised at this bearish flavor, as a handful predicted that gold would benefit despite everything that is going on in the Trump administration.

This simply hasn’t happened, and while we have witnessed some modest gains, the yellow metal still seems to be floating amidst the flotsam and jetsam of uncertain times.

Let’s look at Bitcoin price. Bitcoin is currently valued at approximately $2,600, a far cry than the price of gold. This has investors questioning whether Bitcoin will eventually become a viable form of trading.

Indeed, there have already been some who have capitalized on such upward momentum in the past. The main questions involve the mechanics of Bitcoin, who is using them and if they can be traded in the same manner as gold.

A closer look at Bitcoin

The first thing to note is that the value of the Bitcoin is impacted by similar variables which can cause gold to fluctuate.

Some examples include:

  • Supply and demand.
  • Market volatility.
  • The ability to secure the Blockchain (a digital ledger of transactions).
  • The impact of the media.
  • Geopolitical events and investor speculation.

Having said this, the main reason why Bitcoin has gained value is that additional countries such as Japan and China are becoming more lenient in regard to transactions made with this type of currency.

It is also important to point out that recent malware attacks have caused many tech-savvy individuals to begin considering the Bitcoin as a secure alternative to other forms of electronic transactions that may be subject to data theft.

The main question is whether the general investor will eventually be able to become involved within the cryptocurrency sector.

Can Bitcoin be traded like gold?

Gold has risen 10 percent so far during 2017. The Bitcoin has gained an incredible 153 percent. So, it is clear to see why some might be interested in a Bitcoin investment.

However, is it possible to trade this electronic currency using the same techniques as a gold trade?

The primary takeaway point is that Bitcoin can be traded within private Bitcoin exchanges.

Some can view it much in the same way as a Forex transaction, as the investor is essentially exchanging the value of one currency for another. It is still not known if these exchanges will become more prevalent in the future.

The utility of Bitcoin

Bitcoin has already featured prominently in large transactions. For example, a yacht valued at an impressive $11 mln dollars was purchased as far back as 2014. We can only assume that other private transactions have occurred for far more virtual money.

Will we witness a time when Bitcoin trades like gold? What we can say for sure already now is that its current momentum has definitely caught the attention of investors. 

- By Ron Short

Ron Short began his career as a portfolio manager working with FTSE 250 companies in the UK. He now lives in Spain, where he enjoys a career in financial writing.