When Bitcoin was released in 2009, it was meant to be a digital currency and an alternative to traditional money.
And for several years it more or less functioned in that role. But no longer.
This is because the price of Bitcoins are way too volatile and way too expensive to function as a currency.
As the Bitcoin price chart below shows, the price of Bitcoin has gone up about 17x this year, reaching over $16,000. Also, daily price changes in excess of $1,000 have recently been relatively common.
Because of this, very few continue to accept Bitcoin for payments.
This, of course, is what happened to gold.
Even as recently as the 1930's people commonly paid for things using gold coins. And up until 1971, when President Nixon took the U.S. off the gold standard, the price of gold was fixed by the U.S. government at $35 per ounce.
After 1971 the price of gold was allowed to move and it recently was selling for $1,245 per ounce.
People buy gold because they want a non-currency based store of value, or they believe inflation is going to take off.
They also buy gold because it's somewhat easy to move and can be used to avoid government interventions such as currency controls and taxes.
Bitcoin shares these attributes, but because it's digital it's even easier to move and even better at avoiding government intervention - especially currency controls.
For these reasons, it appear many Asians - and particularly Chinese - have been buying Bitcoins this year.
Speculators have also jumped in and, combined, created the steep price increase shown the chart above. A similar thing happened with gold.
So in many ways, Bitcoin is already the new gold.
We've long suggested small businesses stay away from Bitcoin and we continue to do so.
Having said that, we bought 40 Bitcoins in 2012 for $11 per coin and sold them about a year later for $122 a coin. While hardly a bad investment outcome, those 40 Bitcoins are worth over $600,000 today. Ouch.
So it could be we're not the right people to be giving out Bitcoin advice.
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