Bitcoin, Ethereum and Gold

by JDH on December 19, 2020

Three charts for your viewing pleasure:  all three are one-month charts, as of the morning of December 19, 2020, with a red horizontal line drawn from the short term high that occurred early in December.  First, gold:

As you can see, gold is back to about where it started the month, around the $1,880 level, very volatile but relatively unchanged for the month.

Next, Ethereum.  (Technically Ethereum is the name of the blockchain, the underlying technology, and the cyrpto currency built on top of the Ethereum blockchain is called Ether, but the common parlance is to conflate the two, so I’ll do that too):

Of note, Ethereum has crossed slightly above it’s early December high, and as I write this is holding comfortably about the $640 level.  Finally, the big one, Bitcoin:

The December 1 high was around $19,916.  That level was obliterated en route to the all-time high of almost $24,000, and Bitcoin remains close to those levels.

How does one interpret these three charts?

While all have held their own this month, clearly the cyrptos are more volatile than gold.  More upside, but more downside.

It would appear that gold has passed through it’s December doldrums, as it almost always does, and is poised for it’s typical first quarter of the year surge.

The small blue lines on the chart at left show the last two year’s for gold.  The first three months of the year are strong.  The summer can be weak, or strong, so we’ll have to see what happens in 2021, but the point is that the end of December is NOT the time to sell gold.

Bitcoin is siphoning some investor interest from gold.  There are lots of media reports of big institutions and hedge funds taking a small slice of their gold allocation and putting it in Bitcoin.  The market cap of Bitcoin is something like $500 billion, and the above-ground gold is somewhere around $9 trillion, so it wouldn’t take much of a shift to make Bitcoin go way up.  That’s what we are seeing now.

That’s not to say Bitcoin won’t crash again.  It always does, but it always comes back, so the way to play it is buy when there is a crash, and hope history repeats itself.

Of greater interest is Ethereum, which has performed better than gold, but lags Bitcoin, because it’s not the “name brand”.  That will change.  Once a hedge fund learns how to buy Bitcoin, it’s easy to say “let’s throw a few dollars at Ether to diversify our crypto holdings”.  They will, and that’s why Ethereum is likely to be the crypto story of 2021.

Full disclosure: I don’t own any Ethereum, I’m just throwing out some theories.

I’ll leave it to you to ponder them.

Have a great Christmas.  See you on Boxing Day.