Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18
More on that Gold and Silver Ratio 'Deviant Conundrum' - 13th Jun 18
Silver Shares? Nobody Cares - 13th Jun 18
What Happens to Stocks, Forex, Commodities, and Bonds When the Fed Hikes Rates - 13th Jun 18
Gold and Silver Price Setting Up for A Sleeper Breakout - 13th Jun 18
Tesla Stock Analysis - 12th Jun 18
What Happens Next to Stocks when Russell Goes up 6 Weeks in a Row - 12th Jun 18
Gold vs. Stocks: Ratios Do Not Imply Correlation - 12th Jun 18
Silver’s Not-so-subtle Outperformance - 12th Jun 18
Why You Should Brace Yourself for Big Financial Changes - 11th Jun 18
Inflation to Skyrocket When Fed Reverts to New QE & Interest Rate Cuts - 11th Jun 18
Stock Market Topping Pattern or Just Consolidation? - 11th Jun 18
Study: What Happens Next to Stocks When the Put/Call Ratio is Very Low - 11th Jun 18
G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - 11th Jun 18
SPX Unshackled - 11th Jun 18
When Trump Met Fibonacci And Won - 11th Jun 18
FREE Theme Park Entry with Cadbury's Choc's! Legoland, Alton Towers, Chessington.... - 11th Jun 18
Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - 10th Jun 18
End of the World Stock Market Chart! - 10th Jun 18
All US Homes Are Overvalued - 10th Jun 18
Thorpe Theme Park London Car Park Exit Nightmare - Drivers Beware! - 10th Jun 18
Gold Price Summer Doldrums - 9th Jun 18
How to Prepare for Economic Uncertainty with Gold and Silver - 9th Jun 18
5 "Tells" that the Stock Markets Are About to Reverse - 9th Jun 18
Billionaire Schools Teacher in NAFTA Trade Talks - 9th Jun 18
Land Rover Discovery Sport ECO Mode Real World Driving MPG Fuel Economy - 9th Jun 18
Crude Oil Bullish Weekly Reversal vs. Bearish Monthly Reversal - 8th Jun 18
Fed’s Interest Rate Hike is Short term Bearish for Stocks - 8th Jun 18
The Deviant Conundrum Called Silver - 8th Jun 18
Pleasure Island Theme Park Cleethorpes, Last Day Trip Before it Closed Down - 8th Jun 18
America’s One-sided Domestic Financial War - 8th Jun 18
Debt Consolidation Advice: When and Why to Consolidate - 8th Jun 18
Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - 8th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Bitcoin Is Just a Bit Player

Currencies / Bitcoin Aug 27, 2016 - 06:05 AM GMT

By: MoneyMetals

Currencies

Over the last few years, so-called "crypto-currencies" – digital equivalents of a monetary exchange unit, have been all the rage. The most well-known in the category, Bitcoin, has had quite a run.

Starting out as a "virtual penny stock" it rose in 2014 to the elevated height of $1,150, before crashing back to earth. This "electronic currency" is created and stored in a computerized "wallet." Purchases and sales are made via a "blockchain" which keeps a memory of every transaction conducted. Private keys (supposedly) provide assurance that a Bitcoin holder's account is safe.


Text Box: Warning: Bitcoin is NOT a tangible asset; we’re only using this image because it’s pretty!

In less than three years, two seminal events have served to give bitcoin users financial heartburn. They give Inquiring Minds (readers of this column?) a serious reason to put on their thinking caps, before jumping to the conclusion that crypto-currencies can be viable challengers to what history teaches us is real money – gold and silver.

In February, 2014, the Tokyo-based bitcoin exchange, Mt. Gox, which at the time handled 70% of all bitcoin transactions, suspended trading and filed for bankruptcy after 850,000 bitcoins went missing. Then in early August 2016, 119,000 bitcoin worth $70 million were stolen from a Hong Kong exchange – one of the world's largest.

These two events alone should fully justify safety concerns. More important than the theft itself was what the exchange decided to do about it. They decreed that account users who bore no responsibility for the loss, would still be subject to a 35% "bail-in" (exchange-approved theft) to make up for it.

Hackers Are Unleashing Sophisticated Malware to Rob Bitcoin Owners Blind

In what turned out to be prophetic comments, less than two years before the events discussed above, Nadeem Walayat, Editor of The Market Oracle, stated he believed that “thieves have been busy producing a whole host of bitcoin wallet malware that seeks to steal any wallets that they find on infected computers.” As new bitcoins are "mined" and the blockchain becomes more complex to operate, Walayat warned:

“...what bitcoin holders are going to be increasingly exposed to, is ever more sophisticated malware that are aimed at the theft of their bitcoin holdings at every stage of the process, starting right from their internet connected desktop PC’s to the interception of transactions between servers to the wild west bitcoin exchanges that can disappear with all of their customers bitcoin holdings overnight, to the highly sophisticated bot net infected mining pools that seek to target all bitcoins in existence by seeking to rewrite who owns what.”

Yet crypto-currencies do have a few things going for them, and maybe someday they will find acceptance and utility among the general population. They offer a certain amount of financial privacy. Funds can be transferred to any point on the globe.

A few businesses already accept Bitcoin in payment (including Money Metals Exchange). Their volatility means that holders have upside potential – BT recently traded as high as $788 (currently trading at $575.)

But are these benefits enough if you wake up some morning to find out that the site who you've entrusted with your BT has been hacked (robbed) and you're informed that you're going to be "bailed-in" to help restore the funds of other site holders?

Cash in the Bank Could Actually Be Safer Than Bitcoin

If this kind of risk appeals to you, why not just continue to keep all your liquid assets in bank CDs, non-interest bearing savings accounts, or money market funds? Soon enough you'll have to pay them to hold your money via negative interest rates (NIRP). You'll have new fees added to your non-interest-bearing accounts, and "redemption gates" – limitations on how much of your own money you can withdraw.

It brings to mind the exchange between two peasants, in the classic film The Magnificent Seven. They were discussing whether or not they should resist the continued thievery of the Mexican bandit Calvera and his gang, or just put up with their periodic depredations. "But they never steal all our corn!" responded one campesino who voted not to resist.

Eventually if/when your bank gets into trouble – even through no fault of your own, you may be "volunteered" to give up 20-30% of your account in a "bail in" to help cover their mismanagement. A few years ago, a Spanish bank took it a step further – forcing account holders to convert their cash to the bank's stock... which promptly lost 90% of its value!

This fall, regulatory agencies will no longer require money market funds to promise that your shares will drop no lower than $1. In the past, his sacrosanct rule served as a guarantee that you could never lose your principal.

Now, that can change at any time, allowing the net asset value of the fund to close below $1 and stay there – in the trade called "breaking the buck." Thus, on any business day of the week, you may lose some of your money market funds on deposit.

In 2010, the SEC voted 4-1 to authorize the 'legal' suspension of money market redemptions. They wrote "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Translation: You are in their thoughts and prayers, but they can still decide to prohibit withdrawals from your own account.

As the checkered history of upstart "money substitutes" like Bitcoin has shown, those who have control over the disposition of funds of any second party will sooner or later find a way to debase (steal) some if not all of it from the person who thinks he/she "owns" it.

Over two years ago, David Morgan wrote the following in an article titled "My Two Bits about Bitcoin," which you can read on his blog here:

Looking at what has taken place, especially over the last year or so, I must conclude with this simple – and to my thinking – self-evident statement. Whereas Bitcoins can vanish, Gold cannot. Just remember for all who read this, the timeless advice of – caveat emptor! And may the Free Market Reign.

It's likely Bitcoin will go through more "jury trials" – efforts at sustaining public acceptance – before it is either fully approved of, or tossed into history's waste bin. But while we wait to find out, I'd say that, in some very important ways compared to gold, Bitcoin has so far proven itself to be nothing more than a two-bit interloper.

David Smith

MoneyMetals.com

David Smith is Senior Analyst for TheMorganReport.com and is a regular contributor to MoneyMetals.com. For the last 15 years, he has investigated precious metals mines and exploration sites in Argentina, Chile, Bolivia, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.

© 2016 David Smith - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules