Bitcoin has left stocks, bonds, and gold in the dust in 2016.
The digital currency has more than tripled in value, while the S&P 500 and SPDR Gold shares rose in upper single digits; and all three investments outperformed the iShares 20+ Year Treasury Bond, which declined in value.
|SPDR Gold Shares (GLD)||8.53%|
|Bitcoin Investment Trust Shares (GBTC)||+153.09|
|SPDR S&P500 (SPY)||+9.77|
|iShares 20+ Year Treasury Bond (TLT)||-1.48|
Source: Finance.yahoo.com 12/29/2016
What could explain Bitcoin’s big lead over other investors?
A number of factors. Like the growing divide among investors regarding the state and the outlook of the US economy and the Federal Reserve’s unconventional monetary policies, for example.
On the one side are those who still have faith in the Federal Reserve and the health of the US economy, and think that stocks and bonds are the place to park their savings. On the other side are those who have lost faith in the Federal Reserve and the US economy, and are looking for alternative investments to park their money — like gold or Bitcoin.
Then there are the renewed concerns over the break-up of trade wars, and the return of the old fiscal easing and huge budget deficits that feed into inflation, which undermines faith in national currencies.
Also shaking up the public’s confidence are attempts by certain nationalgovernments have been trying to manipulate their own currencies,particularly India and Venezuela.
Prime Minister Modi has been trying to fight corruption, a widespread problem in India. And President Maduro has been trying to fend off capital flight from the ailing Venezuelan economy. While both policies have had some success in achieving their objectives, they have also undermined public confidence in national currencies as a store of wealth; and boosted demand for Bitcoins, the only currency that cannot be manipulated by governments.
Adding to the luster of Bitcoin are a couple of advantages which the digital currency has over gold.
Convenience is one of them. Bitcoin is a more convenient medium of payment than gold is. And the supply of Bitcoin supply is expected to be limited to 21 million. By contrast, the supply of gold, on the other hand, is expected to increase anytime its price rises, as higher prices fuels mining for more gold.
To be fair, gold has its own advantages, too. It can be used as an outright gift– to make jewelry, or to manufacture certain products.
Still, past performance isn’t a guarantee for future performance. Besides, Bitcoin has only been around for a short period of time. That’s why investors shouldn’t rush to pour their savings into the digital currency.