This "Investment" Gained 300,000%!

3,000-baggers don't come around every day. I'm not talking about the thinly traded penny stock of some development-stage company that promises to cure cancer, commercialize nuclear fusion, or rejuvenate the libido of every aging male.  Instead, I refer to the parabolic appreciation of the Bitcoin -- a potentially revolutionary alternative to global fiat currencies.

Since dollar-denominated trading of the Bitcoin began in April 2010, the currency's ascent has dwarfed the respective gains of about 30% and 100% for SPDR Gold Shares (NYSE: GLD  ) and iShares Silver Trust (NYSE: SLV  ) , proxies for traditionally favored currency alternatives gold and silver.  Even more remarkably, Bitcoin isn't backed by any physical commodity; it's an entirely digital currency.

Say what?
I'm no techie, and our space here is limited, but the Bitcoin is essentially a cryptography-based peer-to-peer currency that functions independent of any central bank.  The creation of cryptographer Satoshi Nakamoto, and currently administered by Gavin Andresen, the Bitcoin system is designed to function as a genuine alternative to the dollar and other modern-day currencies. The value of these currencies are increasingly linked to the decisions of individual human personalities -- think a certain bearded, balding former Princeton professor

The Bitcoin system attempts to improve upon its paper peers by using a distributed network to generate new Bitcoins, and doing so at a predictable rate that slows over time. So far, however, those controls have led to anything but stable currency value. Instead, the Bitcoin has rocketed from $0.003 in April 2010 to around $9 to $10 recently, with the monster move above $1 coming only in the last couple of months.

Clearly, such wild appreciation -- not to mention the daily up and down volatility -- creates a pricing challenge for participating merchants, which, in case you were wondering, include purveyors of Alpaca socks and blue canary nightlights. Theoretically, though, volatility should lessen as the Bitcoin economy expands. 

So am I saying that you should give up on stocks and precious metals, download the necessary software, and start "mining" Bitcoins? Well, no, although the latter move couldn't hurt (aside from the cost of electricity and your hardware resources). Instead, along with the appreciation of gold and silver in recent years, the simple existence of Bitcoin is yet another wheezing canary in the coal mine regarding the fate of many paper currencies.

Bitcoin's large-scale success, should it materialize, would indicate a whole new level of public distrust for gaping government deficits and central bank tactics that seemingly bounce us from one bubble to another.

Meanwhile, I recommend that all investors have at least some exposure to hard assets. In the precious metals space, Fools should heed the advice of my colleague Christopher Barker and get physical with one or all of Central Fund of Canada (AMEX: CEF  ) , Sprott Physical Gold Trust ETV (NYSE: PHYS  ) , or Sprott Physical Silver Trust ETV (NYSE: PSLV  ) . In terms of natural resources, Chesapeake Energy (NYSE: CHK  ) has made smart moves to boost operating efficiency, while Denbury Resources (NYSE: DNR  ) has been busily growing its production and geographical footprint.

Whether you're a self-described goldbug, or just casually concerned about the value of the dollar, you can monitor relevant macro trends by adding tickers in this article to My Watchlist. Just don't expect them to trade in Bitcoin denominations … at least, not yet.

The Motley Fool owns shares of Sprott Physical Gold Trust ETV and Denbury Resources. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Mike Pienciak owns shares of Sprott Physical Gold Trust ETV and Denbury Resources, but holds no financial interest in any other company mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is immune from central bank mood swings. 


Read/Post Comments (6) | Recommend This Article (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2011, at 4:34 PM, csantiago702 wrote:

    I recently estimated potential demand (and price) for Bitcoin in the long run -- the analysis and data should be of interest to you:

    http://cs702.wordpress.com/2011/05/29/on-the-potential-adopt...

  • Report this Comment On June 01, 2011, at 6:57 PM, PXTrials wrote:

    Suprisingly, an article about bitcoins left off the single largest bicoin exchange.

    https://mtgox.com/

    Here you can place buy or sell orders, and see lots of technical info about bitcoins, including the order book & depth, price history, candlesticks & volume.

    Anyone interested in Bitcoins needs to check this site out.

  • Report this Comment On June 02, 2011, at 2:00 AM, oneman2 wrote:

    If you want to mine for Bitcoins using your GPU (Video Card), which is the only effective way, after you get the bitcoin client running, hop over to: http://kradminer.com (Firefox 4 is required)

  • Report this Comment On June 02, 2011, at 4:22 AM, unemployed2 wrote:

    spare some change, anyone?

    129YpUXry4w6kQPHgEQgyzhjeUn5ZMbvNW

  • Report this Comment On June 28, 2011, at 10:51 AM, btcvc wrote:

    Anyone who has been wasting their money on penny stocks should really be looking at Bitcoin. Penny stocks are so manipulated by Market Makers that there is virtually no chance of making any substantial amount of money. They are literally ponzi schemes.

    Bitcoin is backed by faith in encryption and the internet, and I have a lot more faith in encryption then I do in any government in the world at this point.

  • Report this Comment On October 05, 2011, at 2:10 PM, Diplomat33 wrote:

    The key with penny stocks is doing your research and looking for ones with both value and potential. Any penny stock that is trading at under $1 probably is not worth it. If they are that cheap, it is usually for good reason: they don't have much value! I look for penny stocks between $1 and $5. I like LSTG. The company recently got $15 million to continue exploration and development of their mines. It is estimated that they could be sitting on about $18 billion worth of gold and sliver. A lot of potential there!!

    To your trading success,

    James H.

    http://buildnesteggpennystocks.blogspot.com/

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