Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

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.


© 2005-2019 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