Tag Archives: bitcoins

Bitcoin Transcends Novelty Status

The United States has tripled its balance sheet since 2008 and Great Britain has quadrupled theirs in the same time frame. Theoretically, the growth in the currency base should be accompanied by a corresponding decrease in the purchasing power of our Dollars and Pounds. Many of us who’ve worked diligently for years trying to manage our personal budgets and build up our personal stores of wealth find the governments’ actions downright criminal. This is the scenario that’s drawn billions into the gold market. We’ve been taught that gold is the first choice alternative investment for fighting inflation and maintaining the value of our savings. This week, we revisit an alternative to gold as a hedge against inflation and currency debasement – the Bitcoin.

I published a piece on the Bitcoin in June of 2011 titled, “The World’s Strongest Currency.” Many viewed this as a passing novelty at best or, the next .com bubble. At worst, people saw it as the international street criminals’ Swiss bank accounts. Bitcoin is an Internet currency that is traded globally for goods and services and can be cashed out in the physical currency of your choice. If you are still thinking about what bitcoin is, and you aren’t too sure then you could check out something like this bitcoin video blog to help you understand it better. It is, “mined” on individual computers that are placed, by anyone, on the network. The mining is basically using your computer to solve an equation. The equations get harder and harder through time. This ensures that the supply of Bitcoins grows at a stable rate. The publicly validated equations place more Bitcoins into circulation by the people who’ve mined them. The number of Bitcoins currently stands near 12 million. The next equation and number of coins in circulation are all publicly available in real time.

When we published the first piece in June of 2011, Bitcoins were trading near $14 per Bitcoin with 6.6 million Bitcoins in circulation for a market cap around $92 million. The Bitcoin mining equation is public information. It’s always known how many are in circulation as well as the growth rate. Furthermore, the total number of Bitcoins will be limited to 21 million by the equation itself. These are the currency controls lacking in today’s global economy. The proof lies in the adoption and acceptance rate of Bitcoins, which is growing exponentially. The current Bitcoin market is 12 million Bitcoins at $400 each for a market capitalization of $4,800,000,000. This places it between Exxon Mobil and Apple in market value. The exponential rise in value is part of the reason why so many people are keen to use bitcoin profit trading software.

This leads to the .com bubble argument. There’s no question this market is extremely volatile. Let’s put the volatility in context before Bitcoin is dismissed and demonstrate why it isn’t a fad. The S&P 500 declined by more than 50% in four months during the housing crash and has more than doubled, reaching all time highs since. The European Central Bank just cut their interest rates in half and gold is nearly 40% off of its highs. The world we live in is a volatile place. I’d argue that we haven’t seen this much change in the political/economic/social aspects of this world since World War 2. I’d argue further that it is precisely this volatility that has made Bitcoin a globally accepted alternative form of payment at both the retail and business-to-business levels. We’re even at a point know where Bitcoin is being used in the world of online gambling, although bitcoin casinos have been regarded as untrustworthy, while crypto casino alternatives such as https://funfair.io/bitcoin-casino/ are seen as a much more transparent and secure option.

Bitcoin has clearly passed the novelty stage. EBay as well as Amazon accept them. They’re even beginning to show up as an ATM. The first ever Bitcoin ATM was recently installed in Vancouver and it processed more than $100,000 in transactions in its first week. This is no ordinary ATM. There are financial controls on Bitcoin just like normal currencies. In Canada for instance, they are only allowed to exchange $3,000 per day without filing anti-money laundering documents. I recently visited Mt. Gox.com, the leading Bitcoin exchange and found their registration requirements to be every bit as stringent as the ones we face in the commodity futures markets. This degree of regulation continues to add validity to the Bitcoin system rather than hindering its growth.

We live in a world of fiat currencies subject to monetary adjustments or downright manipulations that many of us have no say in. Frequently, the decisions that are made for us negatively impact the very foundation that we’ve worked so hard to build. Bitcoin is a known quantity in a world full of unknowns. It travels globally without the processing fees of PayPal, Western Union or the banking industries. In fact, the current banking systems’ loss of processing fees is both a boon to Bitcoin business as well as the reason for the most vocal arguments against it. After all, JP Morgan has to recoup the $8 billion they’ve received in regulatory fines over the last two years somehow, right?

World’s Strongest Currency

The true measure of strength in any currency is the faith
its users place in it. This is the definition of a fiat currency – a currency
that is backed by faith, rather than hard assets. These include the Euro, the Dollar,
Yuan, Canadian Dollar, British Pound, etc. A loss of faith in any of these
countries’ ability to pay their debts results in devaluation of that country’s
currency. The same is true if they decide to print more money to meet current
needs or even if the world simply thinks their country is being run poorly.

What if I told you there’s an international currency
unencumbered by entitlement programs and liabilities. This currency is not
subject to governmental manipulation and the money supply is always a live
public statistic. This currency neither buys nor sells any debt. Would it surprise
you, given this set of circumstances that this is the single strongest currency
in the world over the last year?

The currency I’m referring to is called, Bitcoin. Bitcoin is
an internet currency that is traded globally for goods and services and can be cashed
out in the currency of your choice. It is, “mined” on individual computers that
are placed, by anyone, on the network. The mining is basically using your
computer to solve an equation. The equations get harder and harder through
time. This ensures that the supply of Bitcoins grows at a stable rate. The
publicly validated equations place more Bitcoins into circulation by the people
who’ve mined them. The number of Bitcoins, currently stands at 6.6 million. The
next equation and number of coins in circulation are all publicly available in
real time.

The value of Bitcoins is tracked on trading sites that look
just like foreign exchange trading sites. There are quotes in Dollars, Pounds,
Euros, Francs, Rubles and most any other denomination. There are bids and
offers to sell and buy bitcoin as well as the amount that is up for trading. Bitcoins
can be actively traded across currencies just like any other currency.
Currently, one Bitcoin is worth approximately $14. This equals a U.S. market
value of more than $90 million dollars.

Without getting too technical, faith is being placed in the
mathematical equations that regulate the supply. The supply can be verified,
from the equation through circulation by anyone on the network. While the
equations require lots of computing power to solve, they can be checked very
easily, just like any math problem.

The demand is built up due to the freedoms and low cost of
use. Bitcoins have no transaction fees. There are no middlemen. There are no
PayPal, Western Union, wire or, credit card processing fees. The coins can be
spent online anywhere that accepts them, including, Ebay, Amazon and other
merchants as well as online poker sites and other places your credit card
company won’t let you spend your money. Bitcoin is gaining traction and now
processes more than 10,000 transactions per day. Many have begun research into
Bitcoin IRA Review options, and others are finding unique ways to use the currency.
A survey of Cragslist even
turns up business opportunities including one with a Stanford PhD looking for a
technical lead developer in Bitcoin mining.

I am not promoting Bitcoin and I haven’t used it.
Personally, I think it may be the most forward thinking and libertarian store
of value yet developed. The idea that the fundamental supply is always known
and that it isn’t subject to government budgets and political elections
combined with the fact that it is stored with each individual participant
rather than any banking system makes Bitcoin a revolutionary endeavor of the
electronic age.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.