Fueled by speculation that a bitcoin ETF could be approved by the Securities and Exchange Commission in the next week or so, the price of bitcoin has risen steadily, finally surpassing the cost of an ounce of gold on Thursday.
As of press time, one Bitcoin was worth $1,273 according to CoinDesk's Bitcoin Price Index, and an ounce of gold was worth $1,244, according to precious metals retailer APMEX.
The market capitalization of all outstanding bitcoin also surpassed $20 billion for the first time in bitcoin's history, according to Coinmarketcap.
The SEC is expected to make a decision on a bitcoin ETF proposed by Tyler and Cameron Winklevoss, the former Olympians who now run the cryptocurrency exchange Gemini and venture fund Winklevoss Capital, by March 11.
U.S. investors currently have limited options for obtaining exposure to bitcoin in their investment portfolios, particularly in tax-advantaged accounts. Recent studies have shown it to be uncorrelated to other asset classes, indicating it could help diversify a portfolio.
"It’s primarily high net worth individuals and family offices that are buying right now," says Spencer Bogart, head of research at Blockchain Capital, a cryptocurrency venture firm. "Their thesis is this is their opportunity to get in on a hot IPO before it goes public" -- if the ETF is approved.
Bogart has previously projected that, if the SEC does give its blessing to a bitcoin ETF, at least $300 million could flow into the cryptocurrency in the ETF's first week alone. However, he puts the odds of approval at less than 25% due to the SEC's conservative nature. A contract betting on the bitcoin ETF approval on cryptocurrency derivatives platform BitMEX is currently at 45%.
If not approved, the price could slump. "The further we see the price go up before a big decision, the greater that downside risk is," says Bogart.
The decision will cap a nearly four-year-long quest by the Winklevoss twins to offer the ETF, which would trade under the ticker symbol COIN. If not approved, two other filings are waiting in the wings -- one by blockchain services firm SolidX, whose proposal is distinguished by its offer to insure the bitcoins from loss, and Grayscale Investments, which currently offers the Bitcoin Investment Trust (GBTC), a private placement to wealthy investors, who can trade their shares after one year.
Bitcoin's price has managed to rise this year despite regulatory crackdowns in China, where many exchanges offered no-fee trading. The closer scrutiny in what was the largest market for bitcoin trading caused the price to plummet in early January from $1,130 to $775 over a few days. Some Chinese cryptocurrency exchanges even temporarily halted withdrawals in order to upgrade anti-money laundering processes.
Despite its reputation, some researchers have shown that the price of bitcoin in 2016 was about as volatile as that of oil. And the price has mostly been uncorrelated to that of gold, but in 2015 and 2016 was slightly negatively correlated, suggesting that some investors may have exchanged gold for bitcoin, according to the white paper "Bitcoin: Ringing the Bell for a New Asset Class," co-authored by ARK Invest and Coinbase.
"A lot of people have conviction that the technology isn’t going to go away," says Bogart. "The price and the market cap could go much higher -- but they could also go much lower. We could see a $100 bitcoin later this week."
Thursday, March 2nd, 2017
Laura Shin hosts the Unchained podcast (Google Play, iTunes, Stitcher, TuneIn) and wrote The Millennial Game Plan. Disclosure: I own some bitcoin and ether.