Anyone who watches the stock market and related economic indexes knows there’s a new investment vehicle floating around that many people in the financial world are extremely bullish about — it’s called Bitcoin, and numerous enthusiasts can’t seem to stop talking about it.
For those who don’t know what Bitcoin is, let’s just say it’s called a cryptocurrency (some people call it a virtual currency) for a reason. That’s because it uses proprietary encoding technology that makes it impervious to hacking and 100 percent secure.
Unfortunately, the ways in which one buys, sells and stores Bitcoin are still vulnerable to hacking, and this makes Bitcoin less than a safe investment — for now.
Knowing that, one might then wonder, what’s all the fuss over Bitcoin about? Well, Bitcoin has been around for about eight and a half years, and if you had invested $10,000 into Bitcoin when the currency was launched in 2009, today that amount would be worth a mind-blowing $500 million — an astounding five million-percent increase in value.
In fact, before its value fell roughly 20 percent lately, this year alone saw a 400-percent rise in Bitcoin from approximately $1,150 to a high of over $4,600 just between the months of April and August. This quadrupling in price follows a dramatic roller coaster ride the price took over the last four years or so, going from just $14 in 2013 to over $1,000 in February of this year.
Of course, like any new investment vehicle, such tremendous fluctuations in price attract crowds of speculators, and as Bitcoin’s value has surged, the number of people investing in it has as well. Because Bitcoin is a finite currency — meaning that once a certain number (21 million) — of Bitcoins are “mined” using special computer software, no more of the special money can be generated.
This is partially what gives Bitcoin its value; unlike the Federal Reserve Bank of the U.S. or any other number of central banks around the world, more of this precious currency can’t simply be printed or generated (which is what any number of central banks — including the Federal Reserve — are currently doing under programs known as “quantitative easing” [QE] with their respective money supplies — this process dilutes the value of a nation’s existing currency in public circulation).
It’s this finite quality that gives Bitcoin an inherent advantage over virtually all existing paper or “fiat” currencies. Some people have even compared Bitcoin to gold in this way, but the truth is that Bitcoin lives on a computer, so if the electrical grid or the Internet were to go down, it’s very possible Bitcoin’s value would crash to nearly nothing, whereas gold is real and physical (and also finite).
Therefore, as an “emergency currency” or placeholder of value in a time of disaster, Bitcoin and Bitcoin exchanges are far inferior to other trading instruments and mechanisms (of course, it’s worth noting that some experts say that in a disaster, gold might be near-worthless as well, particularly if food and water were scarce; gold — despite being physical and quite real — is heavy and not particularly conducive to being transported safely over even short distances; hence, one starts to see the advantages of paper money or more useful commodities).
Bitcoin has other problems too — unlike Paypal or other electronic payment systems, Bitcoins are not accepted at nearly as many vendors and online outlets (although the number that do take it is growing; currently Microsoft is the largest online business that accepts it for payments).
But the main problem is that, at this time, Bitcoin is awkward at best to exchange for U.S. dollars. And then, there are also the issues of security mentioned above. Until all these issues get resolved and Bitcoin becomes a truly user-friendly medium of exchange, its acceptance as a true currency and trading platform will be limited, which leaves investors and speculators as the primary holders and owners of Bitcoin for now.
On the bright side, however, is that because Bitcoin is finite and the number of owners of it is growing (as well as demand), the value of it and other cryptocurrencies is continuing to rise generally on a long-term basis. There are some entrepreneurs and computer experts, like computer antivirus pioneer John McAfee, who believe Bitcoin’s value will soar from around $4,000 in the last several weeks to over $100,000 or even $500,000 in the next three years.
Of course, it would take a large increase in the number of Bitcoin owners and investors in the world to make that happen (currently, approximately 25 million people possess some quantity of Bitcoin — even if that quantity is a very small fraction of one coin in some cases). Is this fantastic rise likely to come to pass? If interest in Bitcoin continues to swell at the same clip as has been seen in the past, it’s possible.
Naturally, this buzz of activity in the financial world has caught the attention of governments and central banks. Not entities to miss out on such profitable investment opportunities, these organizations — along with their related globalist officials — would like very much to get in on the Bitcoin bonanza.
But these people and organizations also have giant concerns about virtual currencies like Bitcoin — namely, that as it stands currently, Bitcoin is entirely unregulated and decentralized. As a place to stash quantities of money that could easily be hidden from tax authorities, Bitcoin is growing in prominence and could soon rival offshore banking havens for its opportunities to shelter money away from the prying eyes of, well, just about everyone.
Already, China has taken proactive steps to prohibit its citizens from moving their money into Bitcoin and other cryptocurrencies. On September 4, China announced all new cryptocurrency public offerings would be outlawed. On September 14, news publications in the country reported the government was close to shutting down all Bitcoin exchanges in the People’s Republic.
Other nations are equally concerned about citizens hiding their funds in Bitcoin, possibly in offshore or offline accounts, where the chances of a government or tax authority finding them would be very, very low. What appears to be developing may be akin to a high-tech game of cat-and-mouse where an investor finds a way to stash their money in Bitcoins and then denies that they have it.
Of course, this opens up opportunities for less-than-savory businesses to operate and claim they can hold onto your Bitcoins for you and then one day close up shop and make off with their ill-gotten gains. Such incidents already have a precedent in the case of Mt. Gox, a former Bitcoin exchange based in Japan that went belly-up almost overnight in February 2014, taking $417 million in the investments and savings of its account holders with it. Thus far, Mt. Gox CEO Mark Karpelès (who had no prior trading experience before he took over running Mt. Gox) has been charged with embezzlement and fraud in Japan, and he faces at least five years in jail there, in addition to another potential sentence in his home country of France, if convicted.
It’s stories like this that make people like Jamie Dimon, the CEO of global bank JPMorganChase, want to shout from the rooftops admonitions against capital flight from his firm’s decidedly less lucrative stocks, bonds and other issues.
“[Bitcoin] isn’t going to work. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart” said Dimon on September 12 in a widely republished quote from a Wall Street investor conference. “I would fire [any JPMorgan employees trading Bitcoin] in a second, for two reasons: It is against our rules, and they are stupid, and both are dangerous.”
Later the same day, the CEO was forced to admit his own daughter had bought some Bitcoins and had sold them for a profit. “It went up, and she thinks she’s a genius now… It’s worse than tulip bulbs [Dimon was referring to a Dutch market for tulips that famously collapsed in the 1600s]. Someone’s going to get killed [in this market], and then the government’s going to come down. If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you’re better off doing it in Bitcoin than in U.S. dollars. So there may be a market for that, but it’d be a limited market.”
Of course, what Dimon apparently neglected to tell his audience is that over in Europe (specifically in Sweden), JPMorganChase traders are the fourth-largest buyers of a Bitcoin “Exchange-Traded Note” (ETN), which is similar to Exchange-Traded Funds (ETFs) for commodities on various U.S. exchanges. So, either Dimon is being disingenuous in the press, or his firm is buying Bitcoin on behalf of clients, in which case it’s actively ignoring the clarion warnings of its CEO to investors at large.
Should you try to get in on Bitcoin, and stash your money where the government can’t see it? Chances are, unless you really know what you’re doing, the answer at this point should probably be No. And that’s for many reasons, from the vulnerability of Bitcoin wallets to hackers to the extreme volatility of the daily Bitcoin market.
Sure, there are people who have made thousands (or tens of thousands) of dollars trading Bitcoin. But there are also people — and this includes previously cited “expert” John McAfee — who believe the value will rise tremendously, but despite this belief, have nevertheless lost thousands (or tens of thousands) of dollars in it so far.
Eventually, however, you can expect there will be extreme efforts made around the world to try and control or even outlaw Bitcoin. Jamie Dimon’s statements certainly won’t be the last time you hear such rancor about the currency from the leader of a Top-10 financial institution. When the bankers and the governments can’t get their taxes, their fees or their metaphoric pounds of flesh from any specific trading vehicle, you’d better believe they’ll fight the widespread adoption of that medium tooth and nail.
For now, the future of Bitcoin is shaping up to be a mighty battle between governments and hackers, with more than a few shady entrepreneurs and opportunistic businesspeople in between.