Posts Tagged Bitcoin

Laugh of the day

Mike Shedlock, or “Mish”, posted recently about a way to securely store your Bitcoins, assuming you have any. Mish thinks Bitcoins have a future, despite the Mt. Gox fiasco. It’s a short but sweet post, and he suggests a particular site.

The following was tucked away in the comments section:

I hope to one day accumulate enough bitcoins to be able to purchase my very own unicorn

via Mish’s Global Economic Trend Analysis: Recommendation on Bitcoin.

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Bitcoin Slammed As Baidu Suspends Payments Due To “Fluctuations” | Zero Hedge

Oh dear oh dear. Bitcoin is as of this writing, at let me see… $728.

Bitcoin is being sold aggressively on heavy volume as this headline hits: BAIDU SUSPENDS BITCOIN PAYMENT ACCEPTANCE ON VALUE FLUCTUATION

and

It appears Mt.Gox has crashed trying to handle a very large sell order.

via Bitcoin Slammed As Baidu Suspends Payments Due To “Fluctuations” | Zero Hedge.

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Bitcon?

Businessman, investor and IT expert Karl Denninger weighs in on Bitcoin. He seems to believe in inherent value, which Gary North does not, but otherwise he makes many of the same points.

Speaking of Gary North, he has another couple of articles about Bitcoin up today. It’s all the rage! (Here’s the first of his articles on Bitcoin which I blogged about recently.)

Back to Denninger. These are just the key points. Click the link to read the entire thing (it’s short and sweet).

Let’s go over what defines a currency. To be one you need:

  • It must be a store of value. That is, if I put some amount of value into it today that value should be reasonably stable over time. Nothing that is fluctuating in purchasing power by 5, 10 or even 20% in a day can be said to have such a quality, irrespective of whether it is going up or down.
  • It must be a medium of exchange. In order to perform this function people must accept it in trade for other goods and services – real goods and services. You need to be able to buy a gallon of gasoline, a basket of food, a car, a computer and similar with it. The problem is that until it is a store of value it will not be a medium of exchange because the people who produce things would be insane to widely accept it when they cannot reasonably expect the value you give them to be constant for enough time for them to obtain more raw materials and similar with what you tendered to them.
  • It should be self-verifying, at least for reasonably-small transactions. I should be able to know if the “coin” you intend to spend is valid and not a counterfeit by trivial examination. …
  • It would be nice if it was reasonably anonymous, at least without valid legal process. Digital currencies that operate by publication have an inherent issue here in that the transaction is not only indelibly recorded by cryptographic signature but it is available for everyone, everywhere, to see on a permanent basis.
  • The mania currently being found in digital commodities is amusing to watch but none of these are in fact “currencies” since they fulfill neither of the primary requirements of same nor either of what I consider to be the two most-important secondary characteristics.
  • Instead these fads are more akin to tulip bulbs.

via Market-Ticker – The Argument Against Digital “Currencies”

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Are Bitcoins money? Or another Ponzi scheme?

I blogged a week ago about Bitcoins, quoting investor Peter Schiff on the matter. His opinion: Bitcoins are not money and they constitute (yet another) grand Ponzi scheme. (Bitcoin was then $880.)

As I write, the price of 1 Bitcoin on the Mt  Gox exchange is $1,158. In fact, it jumped several dollars while I was typing this sentence! (It is now $1,155 or ¥118,372.881.)

Schiff’s argument is that Bitcoins lack the one key value that gold has, and that is that gold is valuable to people in itself, not just as money. Bitcoins are of no value to anyone other than as digital money, and indeed its value as digital money is still very limited, as this article shows:

There really aren’t big-name retailers on board with the digital currency at this time… big-name tech companies like Google, Amazon and eBay aren’t going to play along either, as they all have their own payment mechanisms to push (Google Wallet, PayPal and Amazon’s one-click checkout experience, respectively).”

But the list of vendors is growing at a pace that only rivals the explosion in the price of Bitcoin itself…

“There’s nothing you can do with a Bitcoin except give it to somebody else”

So Schiff’s argument is that Bitcoin does not have intrinsic value, unlike gold, which means that people will either use it to pay for things, or hoard it hoping its value will go up. Which means that people are hoarding it, because there are still not many businesses that accept Bitcoins as payment (although that number is growing).

Historian, economist and newsletter-writer Gary North has an article on Bitcoin today: Bitcoins: The Second Biggest Ponzi Scheme in History  (the biggest scheme is Social Security).

“Nobody is going to be getting rid of an asset that has moved from $2 to $1,000 in one year in order to buy pizzas.”

North’s point is that BITCOINS ARE NOT MONEY, because “The central benefit of money is its predictable purchasing power.”

Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money. This commodity is not being bought for its services as money. It is unpredictable to a fault.

Admittedly, those who got in early on this Ponzi scheme are doing very well. They will probably continue to do well for a time. As more people hear about this investment, which is justified in terms of its future potential as money, more people will buy it. Late-comers are not buying it because they understand its potential as future money, any more than the late investors in Charles Ponzi’s scheme thought they were buying into the arbitrage potential of foreign postage stamps. They are buying Bitcoins because we are in the midst of a Ponzi scheme mania. They will continue to buy because they think this time it’s different.

This digital so-called money will not be used to facilitate exchange. Nobody is going to be getting rid of an asset that has moved from $2 to $1,000 in one year in order to buy pizzas. People want to hang onto it, refusing to sell, in the hopes that it will go to $2,000. This is the classic mark of Ponzi scheme psychology. People do not buy the investment for the benefits that the investment provides as an investment, in other words, because it is a capital asset. They buy it only because it has gone up in price. They expect this to continue.

Read the rest at Bitcoins: The Second Biggest Ponzi Scheme in History.

I must admit I was tempted at one point, once I could see the price movement of Bitcoin. However, I am not really interested in Bitcoin as an investment. I want to use it as a form of payment, an alternative to credit card and Paypal. However, the price of Bitcoin is now too high for me. I do not hold Bitcoins as of this writing.

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