When we think of commodities, we tend to think of valuable resources that can be traded, but not often used as currency. Crude oil, natural gas, and numerous base metals fall into this category, and we have discussed precious metals, which are arguably the most well known trading commodities. These are resources that investors have been dealing with and monitoring for years, making the overall commodity market fairly set in its ways. But for a few years now a new commodity has been emerging, and it comes in a different form than the ones we’ve become accustomed to. The new resource is Bitcoin, which was initially designed as a digital alternative to conventional currency, but has since evolved into something more.
To be clear, it still functions as a digital currency, which means it’s created and held electronically and exists exclusively in the digital space. A simpler way to understand it is that Bitcoin is essentially code with value. It’s initially acquired by people who conduct a complex mathematical “mining” process, but at that point it’s out in the world and can be traded. In the early going, this was more of a concept than a working process. But Bitcoin has since proven its value, and can now be used in countless stores and online marketplaces as a legitimate substitute for ordinary currency.
Even so, many who keep close tabs on Bitcoin have come to view it as a commodity rather than a currency. The United States even officially classified it that way when its Commodity Futures Trading Commission declared that all cryptocurrencies are “properly defined as commodities.” That’s not a worldwide ruling, nor does it affect people’s ability to use Bitcoin as a currency alternative where possible, but it does speak to how the outlook has shifted since the cryptocurrency first emerged.
As a result of the spreading idea that Bitcoin can be traded, rather than acquired, stored, and used, people have begun to treat its price charts like those of any other commodity or stock asset.
But it should be noted that Bitcoin is a fairly volatile asset, as a commodity. It’s still relatively new, and as such it still seems to be figuring itself out. Some of the factors that investors will be keeping an eye on include government regulation of cryptocurrency usage, merchant acceptance of Bitcoin payment, and any new developments in competing assets and relevant technologies. Even with a clear eye on these factors, it’s difficult to predict what’s going to happen next with this commodity. Just a year ago people looked back at a 2013 high value near $1,000 as a pinnacle for Bitcoin, but it topped $3,000 earlier this year. And yet, projections for the price’s future range from crashing back down dramatically to surging toward $10,000 or higher.
For now, investing in Bitcoin remains a somewhat risky prospect, whereas some other major commodities are valued for their relative stability. But it’s still something worth monitoring over the coming months and years.
Indrajit is a professional blogger and trading system developer. Amibroker expert, WordPress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.