It is definitely bubble time for the world’s two most popular cryptocurrencies. Bitcoins were trading at $2,237.37 apiece and units of ethereum were trading at $181.99 on the morning of May 22, 2017.
The rate of growth for cryptocurrencies is extraordinary; Coinbase calculated that bitcoin’s value increased by $1,646.74 in the 12 months between May 22, 2016, and May 22, 2017. Bitcoin also gained $847.13 in value so far in May 2017; the granddaddy of cryptocurrencies was trading at $1,390.24 on April 30, 2017.
Ethereum’s rate of growth was even more incredible, it’s value increased by $104.75 in May 2017. A unit of ethereum was trading at $77.24 on April 30, 2017, and $181.89 on May 22, 2017.
The cost of a unit of ether increased by $131.61 over the past year Coinbase calculated. Ethereum was trading at $14.01 a unit just 12 months ago on May 22, 2016.
Precious Metals are No Match for Cryptocurrencies
The cost of a bitcoin exceeded the price of a troy ounce of gold by nearly $1,000 on May 22, 2017. The spot price for a troy ounce of gold on May 22, 2017, was $1,262.75.
Not surprisingly a unit of ether was also beating gold by over $140 on the same day. A gram of gold was trading at $40.60 an ounce while ethereum was trading at $181.99.
Silver was not even in the ballpark, an ounce of that precious metal was trading at $16.94 an ounce on May 22, 2017. A gram of silver was trading at just 54¢ on the same day. Platinum was also being left in the dust, a troy ounce of that metal was fetching a spot price of $941 and an asking price of $946 an ounce on May 22, 2017.
If this continues we will see a major meltdown of precious metal prices any day now. The biggest loser will be gold as money pours of it and into cryptocurrencies?
Should we be Scared of Cryptocurrency Prices?
The answer to the above question is yes; we should be scared to death of cryptocurrency prices. There are two likely explanations for the ludicrous alt coin prices and they are both absolutely frightening:
Explanation One: investors are panicking because they think assets like stocks, bonds and real estate are about to collapse. So they are dumping as much money as possible into highly-liquid assets such as cryptocurrencies. There is some evidence to support this thesis: last month hedge fund billionaire; and former Goldman Sachs partner, Mike Novogratz revealed that he has 10% of his money in ethereum and bitcoin.
Explanation Two: bitcoin and ether are in an unsustainable bubble that’s about to collapse. The price is shooting up because the herd is rushing to get in on the bull market before it collapses. Market history teaches us that the stupid money and the knee jerk investors always jump in at the top the bubble. If this is the case it might be a good time to buy Litecoin which was trading at just $25.18 on May 22, 2017.
The scariest explanation is one, because it might mark the beginning of a major economic downturn. The fear of the collapse the stock and real estate bubble in the United States might be driving the cryptocurrency bubble. One reason for that is American investors have discovered bitcoin, another is that Chinese investors are rushing for the exit and bitcoin is the fastest exit.
Either way it is now a lousy time to buy either bitcoin or ether because they look grossly overpriced and close to collapse. It also looks like a great time to buy litecoin because Mr. Market has not discovered it – yet.