Should you be buying Bitcoins?

Google promptly displays 32milion search results when the word Bitcoin is submitted. As a direct opposite my Microsoft Word spellchecker does not even recognise the word yet. Until a few weeks ago I had not even hear of the term myself, so I guess I am in the Microsoft camp. None the less, I would like to know what all the fuss is about and to get to the bottom of what exactly a Bitcoin is and why it’s sudden rise to fame.

As I understand it, it is an online currency that can be used to pay for certain services/products as a few businesses accept them as valid form of payment. Places to accept Bitcoins are sure to increase in time as this payment method finds traction with new fans.

Bitcoins are not influenced by governments or central banks and they are limited in their number. Importantly, no one can find out how many of these illustrious coins you own and it so protects you from confiscation in the future. You get Bitcoins by buying them or you can earn them through selling your services or products.

So why the sudden rise to fame? This is the worrying bit: In essence people are worried that the massive money printing being undertaken by most major economies will cause their currency wealth to depreciate. At this moment, few currencies are safe and as Japan demonstrated on the 4th of April 2013 by declaring an all-out currency war, it will be very difficult to pre-empt moves by these major economies.

The spike in the Graph shows the increase in the Bitcoin Google search activity during the week following the Japanese announcement.

Up to now, you could attempt to protect yourself from the devaluation of your wealth by buying real assets while your currency still has some value: Assets like, Property, Shares, Commodities and the massive benefactor of this global worry – Gold. The thinking goes that Gold has always retained its value and that in the future should the predicted bad-news story play out, those owning Gold would at least have some of their wealth protected. The problem is that the Gold price has recently come under pressure and investors are looking for alternatives. There are all kinds of conspiracy theories being put forward as explanation for the stumble in the Gold price, many of them pointing to Central Bank intervention.

That brings us back to the Bitcoin. The price of a Bitcoin can’t be manipulated by the powers that be, hence their rise to fame.

What is concerning, is the fact that people are losing faith in the financial system as we’ve come to know it,we are very adaptable and will find solutions to problems as they occur. It will also be interesting to see the effects this type of asset might have on the price of Gold. Maybe Gold is no longer the ultimate store of wealth, but just an option.

For now, I don’t own any Bitcoins yet…

Rene Lans

One comment

  • The War on Bitcoin
    When I first read the government inquisitor’s comments on Liberty Reserve, my initial impression was that they were referring to Bitcoin. That’s because the terms used in describing the federal indictment for Liberty Reserve’s purported crimes read as if lifted from a Bitcoin sales brochure.

    Simply, the crux of the complaint is that the transactions through Liberty Reserve were designed to be outside of the central banking system and anonymous, and so were conducive to the laundering of money.

    It seems hard to argue that government prosecutors, in their attack on Liberty Reserve, were taking great pains to frame the argument for going after Bitcoin next.

    The champions of Bitcoin immediately rallied behind the BC flag, touting the fact that unlike the operators of Liberty Reserve, Bitcoin is a massively distributed system with no obvious individuals readily available for perp-walking.

    Now, I know I will sway no one with my comments – Bitcoin has that sort of dedicated followers – but, in my opinion, having laid hands on the people behind Liberty Reserve, the governments will now publicly crush their bones as part of deterring the average person from wanting anything to do with Bitcoin, or, for that matter, any other non-sanctioned e-currency.

    Moreover, I suspect it is the first shot in a wider campaign to scare away heretofore vocal and visible champions of Bitcoin, the “thought leaders” that have been so helpful in Bitcoin gaining market share.

    Is publically advocating the use of Bitcoin the equivalent of publically advocating a money laundering service? Could such an advocacy result in your arrest and confinement? Don’t know… maybe you’d like to push the outer edge of the envelope and find out? (Do criminal defense lawyers accept bitcoins? You could find that out, too.)

    Regardless, I think it is as certain as certain can be that the government is preparing to wage war on Bitcoin – and that will scare off merchants who accept Bitcoin, or who were contemplating it. While individuals may be able to fly below the radar, merchants who need to advertise their willingness to deal in bitcoins offer up a fixed target.

    Okay, I suppose you could get away with it on Silk Road, but for demand for Bitcoin to grow – very definitely a driver of its value – it needs distribution. With regular folks and merchants alike deciding the risk is not worth the possible reward of dealing in BC, demand and prices will be capped.

    While it’s hard to tell how Bitcoin will ultimately fare… I think the right questions we as possible consumers of the e-currency have to ask is, (a) whether its value is intrinsically linked to its ability to operate in the open, and (b) whether it can withstand a full-on government assault.

    And never for a minute lose sight of the fact that the government defines the rules. If your permanent government file might be amended to flag you as a possible anti-government revolutionary solely for visiting a Bitcoin-related website, would you take the risk?

    Though I certainly appreciate the effort to launch an alternative, anonymous currency – I see Bitcoin as V.1. in that regard and very much susceptible to being mugged by the monetary mafia running this joint.

    Maybe I would buy some solely for entertainment purposes, but for anything resembling real money, I’ll take things more tangible.

    David Galland
    Managing Director
    Casey Research

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