Bitcoin is on course for posting its 8th consecutive weekly gain (longest series of advances since late 2013) and is up 113% from its January lows. The recent break out in momentum emerged from last week's decision from the European Court of Justice to classify Bitcoin as a currency rather than a commodity, which means it will be exempt from VAT, thereby, improving its chances of being traded in an exchange.
The ruling boosts Bitcoin's credibility as an alternative asset/investment at a time when central banks' currency devaluations (direct and indirect) as well as gold's directionless behaviour over the last 2 years despite falling inflation. Similarly, we could see banks and brokerages continue investing in crypto currencies as they market them as investable vehicles.
After Mount Gox
The burst of the Bitcoin bubble occurred last year upon the collapse of Mt. Gox exchange. But that only encouraged the creation of safer and better capitalised alternatives, with stronger technological structure and even regulation. The likes of Circle.com are acting as a digital custodian, offering secure network architecture and audited by a national cybersecurity firm. Prepare to witness a new round of similar firms multiply in the years to come to accommodate demand for crypto currencies.
Displacing gold as a safe-haven?
Over the past two years, we saw episodes when Bitcoin temporarily assumed a safe-haven role as gold was hit by disinflation concerns and the Fed added to QE and when it later stood reluctant to tighten policy. Bitcoin surged in June-July amid surging market expectations of a Greece exit and the revelation that China held less gold in its reserves than had been anticipated. Last week's court ruling should push exchanges, brokerages and banks to launch bitcoin-related instruments such as ETFS, aimed at trading, hedging and speculation.
Bitcoin's medium of exchange will only grow from here. Its "store of value" status may not be a consideration for today, but will become so next year.
