Gold and Bitcoin: There Are Buyers on Both Sides of That Trade

By Jacob Cohen Donnelly Jul 30, 2014 6:24 PM EST

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NEW YORK (InsideBitcoins) — You know a currency is really starting to gain steam when those who would otherwise buy gold are liquidating so that they can buy bitcoin. Around 2006, the price of gold started to aggressively increase. It was less than $600 at that time and by the end of 2011, it had nearly tripled in price.

Bitcoin has operated on an even more aggressive trajectory. For the majority of 2013, it was priced at relatively modestly, ranging from a few dollars up to a little over $200 per bitcoin by November of 2013. By the beginning of December, it was hovering right around the $1,150 price range.

Since then, gold and bitcoin have both settled from their highs. Since the beginning of June, bitcoin has hovered in the $550-$675 range. Gold has hovered around the $1200-$1400 range since the middle of 2013.

Working both sides of the trade

Traders of bitcoin are often traders of gold – and there is an argument for both sides of the transaction.

“I think [gold sellers buying bitcoin] are selling a small percentage of their holdings for Bitcoin in order to speculate in its upside potential that they are unable to get with gold. Gold can only increase in value a very limited amount, while bitcoin is still very early in its long term price appreciation,” said David Moskowitz, founder of Coin Republic.

Torgny Persson, CEO of Bullion Star, takes the other side of the trade. “Bitcoins is, based on its history so far, a risky and volatile speculative investment with the price fluctuating significantly. Gold on the other hand is stable over time keeping its purchasing power.”

For investors looking to diversify their holdings, selling some of that gold for bitcoin might allow for potential upside. It’s similar to the often heard investment advice that suggests people buy bonds, but also buy stocks. The bonds would be there for security, but stocks would allow the portfolio to grow.

“Bullion buyers in general see the value of an asset class which can’t be destroyed through government printing,” Moskowitz said. That’s a benefit both sides can agree on. Both bitcoin and gold are by and large out of the government’s hands – it can’t produce more of either.

Caught in a gold trap

But with rising investor interest in both asset classes, there is naturally going to be nefarious behavior. Right now, Coinabul.com is in a federal class action suit for failing to ship gold that they had sold for bitcoins.

“Defendants run an online marketplace called ‘Coinabul’ where consumers may exchange ‘bitcoins’ — a new form of digital currency — for physical denominations of silver or gold,” the lawsuit states. “Unfortunately, rather then delivering the metals promised to their customers, defendants chose to capitalize on the lack of effective regulatory oversight in this burgeoning industry, and instead defrauded their customers out of millions of dollars worth of bitcoins.”

What is dangerous for prospective bitcoin-for-gold buyers is the fact that Coinabul is the first organic result in Google when you search for “Bitcoin for Gold.”

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