Explainer: Bitcoin is ‘digital gold’ on the threshold of a new bull market –

Australian investors looking to diversify their portfolios may take a look at cryptocurrency, which could be on the verge of another bull market.

Bitcoin (BTC) is the Grandaddy of digital currency and is even starting to challenge gold for investor interest, albeit as an early-stage competitor.

Dan Held is a crypto-currency expert and business development director for San Fransisco-based Kraken, an exchange that trades Bitcoin.

“The new asset class – crypto currencies or crypto assets — hasn’t been around for very long, only since 2008,” he told Stockhead. “It’s a very new industry.”

The percentage of the world’s population that own Bitcoin is still very low. Bitcoin’s low market penetration could work in its favour as it shows the market has yet to reach maturity, Held said.

In the US and Europe there are higher rates of ownership at about 5 per cent of the population, but — despite large institutional investors, banks and hedge funds beginning to look seriously at Bitcoin — this is lower than ownership rates for older asset classes, like equities.

The crypto currency market is valued at $US300bn, and Bitcoin is roughly $US180bn of this.

The ‘halvening’: the start of Bitcoin’s new bull market

Held said Bitcoin typically has a four-year market cycle — a boom and bust cycle, if you like.

This is related to the halving, (pronounced halvening), event for Bitcoin that happens approximately every four years, most recently in May.

“Essentially the rate of issuance drops in half, year-over-year, until it eventually reaches 21 million coins. When halving occurs half as many Bitcoin are created,” said Held.

The relatively fixed supply curve for Bitcoin and low market penetration gives Held confidence about the currency’s future.

“We are at the precipice of a new bull market,” he said.

In terms of timing it is a good time to get in, even at current Bitcoin prices of around $US9,100 ($13,000) each.

Investors put off by this sum can buy smaller Bitcoin units called ‘Satoshis’ — after the fabled founder of the currency unit — that represent 100 millionth of a Bitcoin.

Gold Vs Bitcoin

Held calls Bitcoin “digital gold” and said it is starting to compete with the “old gold”.

At the heart of the investment case for Bitcoin, as with gold, is the issue of trust.

Trust in government and currency issuers to do the right thing; that is, not devalue a nation’s fiat currency by printing or creating too much of it.

In today’s world, governments and central banks are under enormous pressure to keep the financial system going by providing it with fresh injections of currency.

But issuing too much currency can lead to inflation in an economy whereby more currency is required to purchase the same amount of goods or services.

Unlike traditional currencies such as the Australian dollar or Euro,…