The US federal government may be ladling on more r

first_imgThe US federal government may be ladling on more regulations to Bitcoin and making disparaging comments about the cyber-currency, but it’s one of the largest holders of the virtual money in the world. The federal government has trashed Bitcoin by way of an investor alert from the Financial Industry Regulatory Authority (FINRA) entitled “Bitcoin: More than a Bit Risky.” FINRA said it issued the alert to caution investors that buying and using digital currency, such as Bitcoin, carries risks. Speculative trading in bitcoins carries significant risk. There is also the risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin-related products and services. The financial watchdog warned investors that Bitcoin wasn’t legal tender and therefore, “If no one accepts bitcoins, bitcoins will become worthless.” Trading platforms can be hacked, and transactions can involve fraud or theft. Digital wallets don’t guarantee safety like FDIC-insured banks. Property actually transfers in a Bitcoin transaction, so refunds are at the discretion of the seller. Bitcoin has been used in illegal activity because of the anonymity it offers. And finally, speculation in the cyber-currency makes the price volatile. Uncle Sam: Second Largest Bitcoin Holder With all that, the government must figure Bitcoin is worthless, right? Well, no. Readers may remember an online marketplace called Silk Road that was seized by the US Marshals Service (USMS). Bitcoin was the coin of the Silk Road realm, and the US government went ahead and auctioned roughly $20 million of the cyber-currency seized from the online marketplace, despite the Silk Road entrepreneurs not yet having had their day in court. Forty-five bidders registered to buy 29,656 bitcoins. Each ponied up a $200,000 deposit. Reportedly, 63 bids were received by the USMS, with the currency transferred to the winner after the 12-hour auction. What’s curious is that a single anonymous bidder won the auction, beating out prominent investment firms, including Pantera Capital and SecondMarket. There was even speculation that the auction was a ruse and the government didn’t sell at all. Either way, the government still holds 110,000 bitcoins, worth $55 million at today’s $500 per coin price, down considerably from $641 when the auction was held at the end of June. However, given that there are only 13 million or so bitcoins outstanding, the US government is the second largest single holder of this unregulated, potentially “worthless” digital currency (in FINRA’s words), that is used, again according to FINRA, in criminal activity. Government Ignores the Warnings Federal marshals evidently aren’t listening to Mark T. Williams, former Federal Reserve bank examiner and Boston University finance instructor, who wrote last December for Business Insider, “I predict that Bitcoin will trade for under $10 a share by the first half of 2014.” The ex-bank examiner called Bitcoin a “wannabe currency” with a “flawed DNA” that is “steep in Libertarian and anti-Fed dogma but weak in understanding of how global economics, central banking policies, and financial markets function.” Yes, Bitcoin was created by Satoshi Nakamoto (whoever that may be) in response to how badly governments have handled monetary policies. The PHDs running the world’s central banks are creating booms and busts and misery for millions, while destroying the value of their currencies in mere decades. Yet, Professor Williams has the brass to write, “To assume currency can be computer generated, run in a decentralized manner and outside of the central banking system and controls is farcical and economically dangerous.” The Return of Money to the Marketplace Bitcoin is merely the return of money to where it came from—the entrepreneurial marketplace. Money wasn’t a creation of government policy; it is an idea that was stolen by government in order to tax people covertly through inflation. What started with kings shaving and clipping coins, has become cruelly efficient, with central bank economists conjuring up money with computer keystrokes. The bother of paper and ink are no longer required. People use Bitcoin because they want to; they use dollars because they have to. Government hates competition, so it prosecutes counterfeiters aggressively and takes a dim view of cyber money competitors. Williams takes a swipe at the Winklevoss twins who have predicted Bitcoin will reach $40,000 per coin and who have a Bitcoin exchange traded fund (ETF) in the SEC’s approval process. Nasdaq Vice President of Transaction Services and head of ETF business, David LaValle, says about the proposed Bitcoin ETF: I think it’s significant that we’re on the precipice of a new investable asset that’s coming to market or becoming available to investors first in the form of an ETF. In some ways, it gives the ETF credibility, and it accentuates many of the benefits of the ETF as an investment wrapper. To that extent, it’s important for the ETF industry. He went on to say, “I think bringing it in an ETF wrapper gives bitcoins more credibility.” Once upon a time, buying gold meant breaking the law. From 1933 to 1974, US citizens could only own up to $100 worth of gold. After 1974, buying gold meant searching for coins in out-of-the-way pawn shops and coin shops. Then in November 2004, the gold ETF (GLD) began trading on the New York Stock Exchange. The yellow metal was lifted from the investment shadows and rose in price from the mid-$400 range to $1,900 before falling back to where it is today. Bitcoin Is Gold 2.0 Approval of the Winklevoss ETF will do the same for Bitcoin, which Chriss Street of the American Thinker calls “Gold 2.0.” Street points out that only 5.6 million troy ounces of gold have been mined, and Satoshi’s protocol allows only 21 million bitcoins to be mined. Street explains: … by 2040 when the world population reaches 10 billion, there will only be 1 bitcoin for every 500 people on the earth. Gold and bitcoins are similar in lacking intrinsic value unless members of society have confidence they will maintain their value over time.… The value of bitcoins and gold are rooted in their rarity, ease of handling, and inability of government to destroy its store of wealth…. Welcome to the true full-faith of Gold 2.0. Recently, online travel agent Expedia began accepting Bitcoin, joining Dell, Overstock, TigerDirect, and other retailers. Flat 128, a retailer that sells British jewelry and accessories in New York’s West Village, just installed a Bitcoin ATM, where patrons can exchange cash for the electronic currency. Flat 128’s owner says 15 to 20 people a day come into her store to use the ATM. “Merchants around the country say that the Bitcoin A.T.M.s are helping draw would-be customers, too,” writes Sydney Ember for the New York Times. “Some of those are in coffee shops, where the tech crowd and early Bitcoin adopters are coming in for beverages.” This movement toward the cyber-currency flies in the face of what ex-bank examiner Williams wrote at the end of last year, “This is why in recent weeks, as large price movements have occurred, we have seen more credible retailers saying ‘No’ to Bitcoin.” The government knows Bitcoin (or something like it) isn’t going away. The government just wants to tax it, or steal it when its functionaries can conjure up a crime. If you don’t trust the dollar, and you shouldn’t, be like Uncle Sam: keep some money in gold and Gold 2.0.last_img

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