What is driving the recent bitcoin price surge?

7 March, 2017

For the first time ever, a single bitcoin is now worth more than an ounce of gold. Recently, the price of bitcoin surged past the price of an ounce of gold, with the price of a single bitcoin reaching $1,271 while the price of gold per ounce stood at $1,235.1

Consequently, some proponents of bitcoin refer to it as "digital gold." Just a year ago, the price of 1 bitcoin was a mere $421.60, meaning that the price of the cryptocurrency has more than tripled over the past 12 months. Interestingly, gold continues to trade at approximately the same price as last year. Gold has continued to increase in price, but not at the same rate as bitcoin.

The latest surge in value comes after the digital currency's longest period ever at holding a value over $1,000. During recent months, bitcoin has also experienced a period of incredible volatility.

Factors driving bitcoin's price surge

One factor that may have contributed to price surge in bitcoin is an upcoming decision to be issued by the Securities and Exchange Commission.2 That decision involves whether a bitcoin exchange-traded fund will be approved. Venture capitalists Tyler and Cameron Winklevoss proposed the ETF four years ago. The SEC is expected to release the decision on March 11. If approved, the ETF would be the first bitcoin ETF in the United States, and it would result in the purchase of approximately $300 million in bitcoin. The move could potentially double the cryptocurrency's value.

Recent high values also reflect the growing confidence investors and traders appear to have in the digital currency. This is despite the fact that the Chinese central bank has moved to place restrictions on bitcoin exchanges, forcing those exchanges to freeze withdrawals temporarily.

Bitcoin has become so popular that some proponents now believe the cryptocurrency could be edging out traditional assets as an alternative asset. The digital currency does have many properties that are similar to gold. For instance, both offer a store of value that is not controlled by a single company or country. Additionally, both gold and bitcoin are scarce.

The digital currency also offers a number of advantages over gold, including the fact that it can be traded more easily. It's also important to note that the number of merchants around the world who accept bitcoin has increased. More than 100,000 merchants around the world now accept the digital currency as a form of payment, according to International Business Times.3 Consequently, the number of consumers using bitcoin has also increased. Investors have become more comfortable with the idea of purchasing bitcoin, particularly when traditional markets are experiencing duress.

While detractors once felt that bitcoin was simply a fad, it cannot be denied that this new asset class is not going away and offers many benefits that gold cannot match. Even so, concerns remain. For instance, even eager investors with an interest in purchasing bitcoin will find there are few available avenues for doing so. Bitcoin has been classified as a commodity by the Commodity Futures Trading Commission, which puts it on par with gold.

There is one key difference between gold and bitcoin, however. The total market capitalization of the digital currency stands at approximately $20 billion. This makes the market for bitcoin much smaller and consequently far more volatile than gold.

The pending decision by the SEC regarding the Winklevoss EFT could have a significant effect on the value of bitcoin. Many critics still claim that the price of bitcoin is destined to eventually crash; however, for the moment, there appears to be no evidence of an impending implosion of the bitcoin market.

Investors who are weighing whether they should invest in a Bitcoin ETF would need to weigh both the pros and cons carefully. On the positive side, bitcoin has proven it has long-term staying power. Additionally, despite the fact that bitcoin is sometimes viewed somewhat suspiciously, the digital currency does seem to be doing well with regulators in the U.S. as well as in other countries. While there are some potential drawbacks, including volatility and potential susceptibility to hacking, bitcoin is not the only investment subject to volatility, or even criminal pursuit. Gold has also been known to fluctuate. Furthermore, cyber criminals have proven time and time again that they are more than capable of breaching practically anything.

Certainly, bitcoin does hold risk, but it can also offer tremendous opportunity for those with appetite for risky investments.


1) NBC News. Bitcoin Value Surpasses Gold for First Time in Currency's History

2) Marketwatch. Bitcoin is now worth more than an ounce of gold for the first time ever

3) IB Times. Bitcoin now accepted by 100,000 merchants worldwide