A year ago I wrote about the comparative dynamics of three outstanding kinds of money of different generations – the older generation was represented by gold, the 20th-century generation was represented by the Dollar (Index) and for the modern generation I used the cryptocurrency Bitcoin (BTC). I think some of you have just discovered the serious value of Bitcoin as it just crushed the rivals doubling its value. The dollar index (DXY) gained only 8% as gold showed negative dynamics in 2015. Below I put the result of the poll you voted on a year ago for the 2016 year performance.
Chart 1. Voting results January 2016: You Bet On Safety
I noticed that there are a plenty of gold bugs among regular readers as gold gathered the most votes. The second position went to bitcoin and it shows that there are many modern enthusiasts among our readers. It looks like the least amount of optimism was felt about the US dollar’s future although it didn’t rank the last in 2015. Let’s see, in the chart below who the winner was.
Chart 2. Bitcoin Vs. Gold Vs. Dollar Index in 2016: Deja Vu!
The majority of readers’ votes turned out to be wrong. Another brilliant victory of the cryptocurrency which scored even more than in the previous year hitting a 120% handle. It is amazing that bitcoin gained the maximum by the end of the year, making a Santa Claus Rally, which is more common for gold’s behavior.
At the start of 2016 it wasn’t obvious that the digital currency (blue line) could gain anything at all as it hit the minus 20% mark (the normal range for it) amid profit taking. It recovered above the zero point only in April and then rocketed above a whopping 80% level gain in June at the $773 mark. This sky-high level attracted sellers who pushed the price to $465 low with a temporary stop at the $600 level. The gain melted dramatically from 81% down to just 22% falling below a rising gold. This deep correction was just a step back before a new takeoff as the price started to smoothly elevate higher in August, this time without violent price action until the last week before the Christmas. By that time Bitcoin gained back its losses and crossed the 80% mark again. And then the above mentioned Santa Rally broke the 100% handle and on the 4th of January (not shown here) it scored almost 160% level at $1140, the level not seen since November 2013! The performance of Bitcoin in 2016 has significant difference compared to 2015 – this time it has obvious steady uptrend with huge volatility.
The dynamics of gold (orange line) in 2016 was described last month. This metal wasn’t at the top even among other metals so there is nothing I can add. It gained only 8.5%.
The US dollar (index) (red line) scored just 3.7% by the end of 2016. The fiat currency is an ultimate loser and it justified the lowest bet level made last year. Its price line looks flat like a skyline with the narrow range between -6% and +5% marks.
The “kid” again stole the show. I put an interesting statistics chart below for your information.
Chart 3. Confirmed Bitcoin Transactions Per Day: Exponential Growth
On the chart above, you can see the rapid exponential growth of the amount of daily confirmed Bitcoin transactions, which tripled in the last 2 years hitting the 300, 000 mark. This shows the stable growth of Bitcoin’s usage around the world. To compare the amount of SWIFT (interbank) payments is stable at 10-13 million transactions per day for the past 3 years. It surely can take some time to reach this level of fiat currency transactions, but it doesn’t look impossible anymore.
I need your valuable opinion again for this year and I encourage you to vote below:
Chart 4. Gold/Bitcoin Ratio: High-Pressure Around Parity
Last year I was expecting a “dead cat bounce” in the ratio dynamics with a crucial resistance at 5 BTC level, which wasn’t even approached. The intermediate resistance set at 3.5 BTC mark either wasn’t triggered. The ratio topped the 3.3 BTC mark last February and then dropped down heavily to 1.67 BTC low last June.
Another good, but the last attempt higher was taken in August, during which the ratio reached the 2.9 BTC mark. But this gain was short-lived and the ratio closed the month much lower at 2.3 BTC. Last October the ratio broke further down below 2 BTC mark and this opened the way to a firm slide to the parity, not seen from the end of 2013 amid very low volatility. The strong support at this magic 1.00 BTC, where the prices of these instruments are equal, held well for the second time.
The ratio is now squeezed between the two blue trendlines and the pressure is rising as the range narrowed dramatically. The support sits on the parity where both the lower trendline and the previous bottom level are crossing. The gold/bitcoin ratio almost reached the upper trendline located at 1.5 BTC level last week. The breakup of it would start the reversal to the upside, which means the strength of the gold over bitcoin. The drop below parity has no visible supports except the zero point, which is much farther than it seems to be.
It’s so exciting to see how quickly the digital era develops. Who could imagine that something that did not exist a decade ago already reached the value of the perpetual favorite?
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.