Luke Parker, 04 Jul 2016
The first half of 2016 was another great showing for Bitcoin, particularly the whiplash-inducing Q2 that came after an uncharacteristically flat Q1. Bitcoin’s price was $433.98 at close on January 1, according to popular bitcoin exchange Bitfinex. The price rose to close at $674.74 on June 30, representing a 55.5% gain in the first half of 2016.
The level of gains is nothing extraordinary for bitcoin, but compared to other investments such as currencies, securities, and whole asset classes, bitcoin is outperforming them all once again.
Since 2010, when bitcoins were first traded for another currency, bitcoin has been the world’s best-performing currency every year except 2014.
Even with the poor performance that year, relatively long-term investments over a few years easily overcome the downtrend. In June, ARK Investment Management LLC (Ark Invest) and Coinbase published a report called ‘Bitcoin: Ringing the Bell for a New Asset Class’ proposing that bitcoin is part of a new and useful asset class called cryptocurrency.
“Bitcoin exhibits characteristics of a unique asset class—meeting the bar of investability, and differing substantially from other assets in terms of its politico-economic profile, price independence, and risk-reward characteristics.”
– Ark Invest and Coinbase report
An independent calculation performed by finance publication Money Morning’s research team agreed with the Ark Invest report, finding that investing in bitcoin over the past three years would have gained an annual return of almost 82%. “While it would not be smart to put all of your money into Bitcoin (or any one investment),” said David Zeiler of Money Morning, “anything that can deliver a CAGR of more than 80% over three years makes a strong case for a 2% to 5% chunk of your portfolio.”
Soon after the Ark Invest report, Bitcoin had recently been named by many in the mainstream media as a new asset class, like gold, that can help investors hedge, diversify, and balance their portfolios. Although it may not seem fair for bitcoin to compete both as a currency and as an asset class at the same time, so far bitcoin has been holding its’ own very well as both. According to the Ark Invest report, bitcoin’s one-year return as of May 6 was 93%.
Investing in bitcoin over the past one to five years, according to the report, would have produced superior returns to all other asset classes except for the two year period. Investors would have gained 71% investing for three years, 206% in four years and 174% in five years.
“For the balance of its short life, bitcoin has provided investors with stellar absolute returns, above and beyond that of any other asset class.”
– Ark Invest and Coinbase report
Ark Invest’s report also examined potential returns if an investor had invested $10,000 in various asset classes four years ago. The authors concluded that bitcoin, which would be worth nearly $1 million now,“have outperformed the other broad asset classes by 56 to 212 fold,” the report reads.
Again, the only time period to be concerned about bitcoin’s performance is the two-year investment period.“A $10,000 investment made in bitcoin two years ago, would barely be at break even today,” the report explained. However, other asset classes did not perform much better and bitcoin, in fact, went from being the worst-performing asset during this period to the third best, they added.
The worst case scenario for bitcoin so far: the 3rd best asset class
Excepting only individual stocks, commodities top the chart of being the best performers out of all asset classes, which is fitting to those who describe bitcoin as the first digital commodity.
Lean hogs reportedly produced the best return in the capital markets, besides cryptocurrencies, during the first half of the year. This was fueled by a shortage of hogs in China and a subsequent price spike, which then propelled U.S. pork exports. Subsequently, lean-hog futures rose 39.3%.
For the same time period, Bitcoin grew 55.5%, 16.2% higher than anything in the capital markets.
U.S. stock market benchmarks such as the Dow Jones Industrial Average or S&P 500 did not perform well, gaining only 2.9% and 2.7% respectively. The United Kingdom’s FTSE 100 index performed slightly better, gaining 4.2%. While the U.S. stock markets were relatively flat, Asian stock markets took a much bigger hit with Nikkei down 18.2% and Shanghai down 17.2%.
Bitcoin’s performance was so indisputable in 2015 that famous Swiss investor Marc Faber, also known as ‘Dr. Doom,’ acknowledged its performance early this year. “When you talk about doom and gloom for this year, 2016, I have to point out that in 2015, with the exception of people that held bitcoins, the performance of all asset classes has been poor,” Faber said.
Technically, that part isn’t true if you consider the bitcoin-backed investment funds that are available now. Barry Silbert’s Bitcoin Investment Trust (GBTC) started the year trading at $64 and ended its half-year performance at $119.55, an increase of 86.80%.
Needham & Company, LLC, a nationally recognized investment banking and asset management firm focused solely on growth companies and their investors, initiated coverage of Bitcoin Investment Trust (GBTC) in March with a buy recommendation. The firm reportedly forecast bitcoin price to hit $1,896 by 2020. Meanwhile, Wedbush Securities, which also covers GBTC, predicts the price of bitcoin to reach $17,473 in 2025.
The Swedish financial company XBT provider saw its two bitcoin-backed Exchange Traded Notes (ETNs) rise in value. The company has been in the news recently for being acquired by Global Advisors (Jersey) Limited (GAJL) after losing its guarantor when KnC Group filed for bankruptcy, prompting Nasdaq Nordic to halt its trading immediately. Bitcoin Tracker One and Bitcoin Tracker EUR resumed trading following the acquisition by GAJL and immediately rose over 40% on June 16.
For the first half of 2016, Bitcoin Tracker One rose 52.78% to close at $27.88 on June 30 from the price of $18.25 at the beginning of the year. Bitcoin Tracker EUR started trading at $19.95 at the beginning of the year and closed at $29.69 at the end of the half year, which is a 48.82% gain.
After the first four months of sideways movement dominated by constant debate over Bitcoin’s block size, the price of a bitcoin broke out on May 27th and has been trending upwards nearly every day since.
Many factors have been named as a primary cause of the upward momentum, most notably the upcomingbitcoin block size reward halving, and China’s strong and continued devaluation of the Yuan. Interestingly, the date of the breakout is the same as the bankruptcy filing for KnCMiner, which made the majority of bitcoin mining chips worldwide.
It has long been the case that bitcoin moves on news in China because the high volume of trade there makes up the majority of bitcoin trading. The price responded to several such news items during Q2, especially the one that came the very last week of June, while the Brexit vote came in at the same time. Worldwide markets crashed and bitcoin’s price jumped over 8% as most others fell, giving bitcoin the spotlight for the day as thenew safe-haven asset class.