The value of the U.S. dollar continues to fall, and the PowerShares DB U.S. Dollar ETF (UUP) is falling even harder, dipping to a three-year low on Monday. Theories abound as to what’s ailing the dollar. The juiciest one has to do with cryptocurrencies.
Bitcoin, Ethereum and Litecoin, all digital currencies, have been on a tear of late. Bitcoin is up nearly 357% in the last year, Ethereum up 1,914%, and Litecoin up 1,117%. During that time, the U.S. dollar has lost more than 3% of its value, and the UUP has tumbled 2.7%. Lately, the disparity between digital currencies and the greenback has been even more pronounced. Take a look at this six-month chart comparing the movement in Bitcoin (red line) and the U.S. dollar ETF (a barely visible blue line).
The visual is pretty stunning. And some think it’s more than mere coincidence.
Here’s what Ronnie Moas of Standpoint Research said in an interview with CNBC about the wide-reaching impact of cryptocurrencies.
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“In my view, the genie is out of the bottle, and cryptocurrencies will continue to rise and take market share away from stocks, other precious metals, bonds and currencies.”
Moas went on to say that he believes Bitcoin prices can reach $5,000, or 80% higher than they are now, by next year, and that Ethereum could more than double. Meanwhile, the U.S. dollar has been losing value since March. Does that mean the dollar is disappearing and we’ll all be using digital currency within a few years? Hardly.
According to the Cambridge Center for Alternative Finance, there are approximately three million cryptocurrency users around the world, 72% of whom use Bitcoin. That’s nothing to sneeze at. But when you consider that 318 million people in the U.S. alone use the dollar—and 358 million people globally—digital currencies look like the penny jar at your local gas station. Digital currencies are undeniably red-hot right now, and could remain so for another year, as Moas predicts. But the risks of investing in such a volatile, illiquid currency are considerable.
As our Chloe Lutts Jensen warned in June after an overnight flash crash in Ethereum, “Ether”, Bitcoin and other digital currencies can be very rewarding investments, but they’re still very young markets without the (relative) stability and safeguards of the stock market.”
With so little history (bitcoin was invented in 2009), the future of cryptocurrencies is fairly uncertain. Despite the recent weakness in the U.S. dollar—which I think has much more to do with the strengthening euro than skyrocketing Bitcoin—the dollar isn’t going anywhere. And some analysts are actually bullish on the dollar, and by proxy the U.S. dollar ETF, as the Fed continues to raise interest rates in the coming years.
Personally, I wouldn’t invest in the dollar, Bitcoin, Ethereum or any other currency. Stocks are a much safer, easier-to-understand asset. And with the bull market in full swing and volatility at multi-decade lows, they’re a higher-reward proposition than the dollar and a lower-risk play than any cryptocurrency.
If you’re struggling for ideas on which stocks to invest in with the market near all-time highs, we’re here to help! Click here to subscribe to any one of our 12 investment advisories—none of which recommend a digital currency.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!