So far this year, gold (GLD) has fallen 23% relative to the U.S. dollar (UUP), while bitcoin has risen 4,600%. This is quite the precipitous contrast.
Perhaps this is just coincidental. Gold, after all, has always been volatile and subject to multiyear cycles relating to many factors including demand, inflation, the economic cycle and investor perceptions of global political stability.
And maybe bitcoin is just a speculative bubble marked by illiquid parabolic lunacy. As more fast money piles in, the higher it goes, with the price flying above $600 Monday on MT.gox.
So maybe comparing the two assets is not really telling us much of anything at all. One happens to be selling as it does from time to time, while the other is subject to the frenzied speculation inherent in bubbles.
Sure looks like a bubble.
Though some might argue, of course, that this is what things look like when the world moves away from old physical money to new electronic money. Compare it to how, in the Internet age, we have moved toward electronic commerce and information consumption. Add to this reports that the Department of Justice and the SEC are telling the U.S. Senate Committee, ahead of hearings on Monday, that bitcoin is a legitimate financial instrument.
As the virtual currency is still in its relative infancy, there's far more to come with the bitcoin story.
Chart courtesy of TradingView