FUNDAMENTAL ANALYSIS
FX
Gold requires higher prices for the remaining reserves to be mined. Right now, gold is not profitable for new mines so production is slowing rapidly, but at higher prices, more gold comes on line although in decreasing amounts.
Thus Bitcoin is a currency that is essentially a digital version of gold. Once you understand that, you understand Bitcoin. Like gold it can be held within the system anonymously (“my wallet”) or held outside the system. Like gold, it only has a value because we attribute it to have a value.
Chart 5: Gold Price – monthly chart
forecast. People were desperate for gold. (Chart 4)
After that bubble, Gold went down for year before exploding once more. (Chart 5)
Why I find the gold analogy fascinating is that Bitcoin has many of the attributes of gold.
Firstly, there will only ever be 21 million of them. No more can ever be created, which is part of the genius of the design.
55% of all Bitcoins in existence have already been “mined”. Mining is the process of Bitcoin creation that takes
truly enormous computing
power and gets more and more difficult to do as less and less are left to be mined.
Chart 6: BTC Mining Difficulty Source:
blockchain.info Source: Bloomberg Finance This is just like gold.
65% of all of the world reserves of gold have already been mined. Gold becomes more and more difficult to get out of the ground as the low hanging fruit has been taken and more technology and more money is needed to do so.
Unlike gold, no one as yet can offer leverage on it.
OK, let’s ourselves.
Chart 6 shows the mathematical difficultly of mining for Bitcoins: (the scale is essentially computing power required)
not get ahead of
FX TRADER MAGAZINE January - March 2014 39
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