Money laundering has world leaders acting jittery. With US authorities going after Mt. Gox and Dwolla in a rather sloppy way, and Europe meeting in order to create information exchanges between nations, the clampdown on personal finance continues. Read More
[heading]Peter Thiel Enters Into Bitcoin Space[/heading]
BitPay has announced a capital raise of $2 million led by Peter Thiel’s Founder’s Fund. Max Keiser’s Heisenberg Capital was also a part of the capital raise. Thiel, through Valar Ventures, also invested $6 million into Transferwire, a p2p online exchange around the same time.
What this betokens is the future of Bitcoin. This will be a future in which Mt. Gox and all the other usual suspects are no longer the main players of Bitcoin. This torch will be passed onto major transnational corporations whom already have Money Transmission Licenses and, in most cases, are operating in the US or were at least founded there. Read More
By Justin O’Connell, Author of Bitcoinomics
The oracles in banking have let it be known. They’ve looked into their magic 8 balls and pulled the future right out of the black and blue depths: “I would be very surprised if Bitcoin is still around in 10 years,” said Bremmer, the founder and CEO of Eurasia Group, the world’s largest risk consulting firm. He knows that commercial banks are looking to enter in.
To be fair, GoldSilverBitcoin ran its own magic 8 ball experiments on the future of Bitcoin. Here is what we came up with in a best of 3.
“What is the future of Bitcoin?” we asked. Read More
From author of Bitcoinomics, Justin O’Connell
Bitcoin skeptics don’t understand one important thing: that virtual currencies are already here and they’ll have, most likely, no effect whatsoever on that. First of all, everyone knows that the Federal Reserve acts as a plague of egomania blinding all of society to its self-important cruel and insane way of living. That’s mostly because former Associated Student Body kids are running monetary policy. That means two things: 1) the tattle-tellers are in charge and 2) they’re still sucking on the teet of some wrinkly and pungent Principal, now referred to as a “President”, who is still wearing a suit and tie day-in, day-out nonetheless. And, that’s with all due respect to the President of course. But, really, some shady building down the block known as the “district office” or, in adult life, the Pentagon, is really responsible for the whole thing. These former Associated Student Body reps are faithful to the number one drug-pusher on the streets: Starbucks. Sipping on some Joe for many years in a row, stooped in habit, has led to a numbed state of yes-saying, a hallucination where straight ahead is the only mode. Read More
[heading]RFID & The Fiat Paper Trail: The Death of Cash & Virtual Currencies Bright Future[/heading]
US researchers have introduced a new way of embedding traceable chips within so-called “smart” paper so that banks and governments can guard against counterfeiting and even track the usage of paper money.
The innovation is perhaps the last after many centuries of fiat currency, considering the rise of virtual currencies in recent months and years. Read More
In a riveting talk, CEO/President Evan Rose walked the audience through two transactions: Cash-in and cash-out. In what would represent the first hardware that undeniably brings Bitcoin to mainstreet, the CEO discussed ways in which the spreading of Bitcoin could be achieved through the BitcoinATM. Watch history in the making below:
“If you guys want to be a shill for the financial industry and support a shadow currency that people use to purchase drugs and money with—have a party, man. My job is a regulator; I’m going to look after it.” said CFTC commission Bart Chilton to a group of CNBC television hosts, evidencing his dim worldview. Read More
With Bitcoin having thrown the fits-and-spasms of history on its head, commercial banks are now taking a route other than straightforward co-option in favor of creating their own virtual money.
With individuals all over the world seeing the utility in the low cost of international Bitcoin transfers, some commercial banks want to compete with Bitcoin, according to Kirk Hope, the chief executive officer of the New Zealand Banker’s Association in an e-mailed transcript of an interview with TVNZ television. Read More
The Money Transmitters – that is, those with the licenses to transfer value – have garnered quite a bit of attention with their public interest in offering Bitcoin services.
Their sudden interest, of course, comes from the power of a law on their side. Bills across the entirety of North America, for instance, dictate that many new Bitcoin-startups are unable to enter into the market cleanly.
Instead, in that space, some of the world’s biggest corporations not only have interest, but have the licenses needed to be a money transmitter. Read More
[heading]Marijuana, Tide Detergent, Chewing Gum & Bitcoin: A Basket Of Currencies For The Near-Future?[/heading]
The dollar fell to a two-month low versus a basket of currencies on Tuesday on the dollar index. Although merely a technicality – a blip in the overall trajectory – the recent weakness continues cast doubt upon the dollar from all around. In places like Colorado, Washington and the Internet, new forms of currency are taking hold: Marijuana and Bitcoin. Both are sterile assets, meaning they serve a purpose other than just as exchange medium. Read More
Ron Paul pulled something that is quite familiar to sports fans in the 2012 Presidential Election: he threw in the towel. This is a common phenomenon in sports, as players and coaches sometimes bet against their own team, thus leading to lackluster play on whatever field it may be. One of the most infamous examples of this are the 1919 Chicago Black Sox when 7 or 8 players all promised bookies they’d throw the game for a pre-determined payout. Read More
OkCupid, one of the world’s most popular dating sites, will now introduce Bitcoin to millions of people who have yet to hear of it. Bitcoiners can now pay for a list of functions at the OKCupid website, such as PM’ing individuals with priority messages.
On Tuesday, despite Bitcoin’s recent correction, OKCupid announced its acceptance of the digital currency for users wanting to pay for the site’s bonus features. The popular, free dating site boasts approximately 4 million active users, and will now become on the world’s largest websites accepting Bitcoin. Read More
With Bitcoin hovering around $100, and silver at $23.60, it lowest price in three years, now might be a good time for bitcoiners to possibly look into becoming silverbugs. There are lots of reasons to buy silver with Bitcoin, especially now.
One of the primary reasons is sheer demand for silver. Currently, silver holdings are at an all-time high, and this recent dip will surely contribute some to that. With so much money sitting with few individuals in Bitcoin, there is no reason for them to not diversify some and add to the demand pressures on silver, which since May 2011 have been on the losing side of the price.
First, let’s look at silver demand in recent, recent history.
Appearing on November 9, 1998, “India Silver Hoarding Worries Users Group,” penned by Silver Users Association spokesman Walter Frankland, stated:
“Is there a role for the Silver Users Association–in conjunction with groups in other countries–to take action that would focus on India and see if their market can be opened to freer trade? There’s no reason to wait around until volatility hits the market again, in my opinion.”
In the United States and the “west”, doused in mainstream media mustard gas, less than 1% of the retail public buys silver. In other countries, taxes of 50% and more on silver sales has dampened demand. But it cannot forever. The derivatives bull market has created a bull market in physical silver that does not exist and a pop-panic out of paper like the world has never seen will ensue. The war on silver will spin epically out of control, and there is no telling where the price may land.
That, alongside short-and-medium term speculation, is why investors’ holdings are near a record high set last April for silver, despite that hedge funds are the least bullish on silver in nearly four years. In the medium-term, speculators have reduced bets on higher silver prices by 72 percent since the end of February, according to U.S. Commodity Futures Trading Commission data. Silver products held in exchange-traded funds, however, have increased three straight months and now totals $16.2 billion, according to Bloomberg.
Since the first three months of 2012, silver has, for the lion’s share, been held under the $30 mark. Until March, silver appeared to be heading back towards $50 an ounce, its previous high, after climbing above $36. This was short-lived. Now, analysts, based on a survey by Bloomberg, expect the price of silver to average $33.02 an ounce in the fourth quarter. Despite any bias that a panel chosen by Bloomberg might encompass, silver remains on a long-term trajectory poised to continue its peak-every-two-years model.
The long-term, to be sure, is only in terms of human lifespans, for already the silver price has sat well-off its recent high in April of 2011 for a year-and-four months. That would mean that, although silver might have a doldrum 2012, it would then begin to rise significantly in early 2013. The price of silver will average $33.02 an ounce in the fourth quarter, 18 percent higher than its current price, according to the median of 13 analyst estimates compiled by Bloomberg. Silver could then easily be poised for a 100-150% rise in price in early spring 2013, landing it at least around $66 per ounce.
But, some hedge funds are predicting an economic slowdown which they surmise will curb demand for silver. On the opposite side of the rope in the tug-of-war for silver, many monied investors and main street investors are anticipating a price rise based on the implementation of global quantitative easing, spearheaded by the Federal Reserve. The price of silver tripled when the Federal Reserve purchased $2.3 trillion of debt through Quantitative Easing 1 and Quantitative Easing 2 from December 2008-June 2011. One can tease also from the chart below that in the late summer of 2007, as there was a stealth Q.E., silver responded predictably.
Much of the Bloomberg article is focused on the “schizophrenic” model for silver, which is a seriously flawed axiom from which to look at the silver price. Silver’s history is one much longer than that of Industrial Society. Industry has created novel demand for silver. And so, therefore, is predisposed to act as upward price pressure in the long run. Even if there were a complete collapse of industry in the world, in the fog of a broken price mechanism, silver would retain desirability. It would be psychologically comforting to many to default onto the money of their forebearers. Silver will be one item of many that has cultural relevancy were there to be an industrial collapse. It would be one of few with history as money.
“Since the beginning of the year it has reacted more like a base metal than a precious one,” said Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA, which manages metals and energy assets. “The main negatives are still in industry. We’re waiting for more quantitative easing, and that would be really positive.”
The idea that quantitative easing is the only basis for a rise in the price of silver is preposterous. What about war? An open war with Iran would send gold up, and then also increase industrial and fear demand for silver. Gold could head up towards $1900 if there is a further breakup of plans for an European Stability Mechanism (ESB). That would mean a price rise for silver. Quantitative Easing alone is not the only reason to expect silver to increase in price.
The silver price tumbled 29 percent from February-June 2012, but, as Bloomberg points out, the metals volatility is “masking what are already historically high prices.” Despite that silver is trading 44 percent below its recent high of $49.85 of April 2011, the two-decade average for the devil’s metal is $9.97.
“Industrial demand may remain weak at least for another six months,” said Jochen Hitzfeld from UniCredit SpA in Munich. “This makes the gap that investors have to absorb even higher,” said Hitzfield, who forsees an average 2012 Q4 price of $28.
Investors purchased 797 tons via silver-backed ETPs this year and are now holders of 18,093 tons, if one does not want to question the solvency of COMEX.That is more than eight months of global mine output. Investors sold a net 812 tons out of ETPs last year. Total silver assets are currently 2.9 percent below the record 18,639 tons reached in April 2011, and Barclays and Morgan Stanley predict that investors will buy 500 more tons in 2013. Hedge funds are adding to their depressed silver position, too. They doubled their net-long position to 9,323 futures and options in the two weeks leading into Aug. 7, according to the CFTC, although this is still 58 percent below the five-year average, a figure which clearly signals that more shorts have accrued as the global awakening in the wake of the 2008 banker-wealth confiscation, as well as the associated fear trade, has put the spotlight on silver and precious metals.
Although silver is usually tagged as schizophrenic metal due to its dual monetary and industrial applications, it really might be the options traders who are schizo. For example, the most held contract offers the right to buy silver at $50 per ounce by November 2013, whilst the next two biggest enable holders to sell silver at $20 by November 2013 and November 2012. For a comparison, the five largest gold options are all for purchases at higher than today. Those silver positions suggest that there is a tug-of-war taking place over the silver price.
The 100-day historical volatility for futures in silver is at 30.8 percent, which is a volatility more pronounced than gold, platinum, palladium and the main industrial metals traded on the London Metal Exchange. All these dynamics with the vast majority of the retail public not taking part in this popular investment – less than 1%.
Currently, silver sits at its lowest level in years.
Demand for silver will continue to increase. In India, where silver hoarding has been of concern to the silver abusers (big industry, mostly) for over a century (at least), gold and silver demand is expected to exceed 6000 tons annually by 2016-2017 from the current levels of 3000 tons. By 2025, according to the Mineral Exploration and Development Report for 12th Five Year Plan Period by the Ministry of Mines, that number could exceed 10,000 tons.
Like mistaking the true process of biological evolution, many mistake the ebb-an-flow of supply-and-demand as oozing steadily from the pipes of commerce. The truth behind human action is more complicated than that, and the Bitcoin price over the past week has demonstrated that.
On April 10, Bitcoin climbed to a high $266 and closed at $124.9 the next morning before Mt. Gox, the leading Bitcoin exchange and de facto bitcoin price-fixer, went down for nearly a day. This was the bubble heard around the world, as during this time Bitcoin was the talk of the financial world.
When trading began Thursday, Bitcoin fell again to a low of around $65, before rebounding to sit around $100 through Sunday night trading.
Bitcoin began the year around $13.51. It’s percentage increase fluctuating around 750%. It has outperformed all other assets Year-To-Date, with Natural Gas up 27% since Jan. 1. The green line on top, BTC, would have to be extended 5.5 times to show bitcoin’s 2013 performance.
As I wrote at my blog Silver Vigilante in January:
In the last six months, according to Google trends, countries the world over searched the term “Bitcoin” for the second most amount of times since the digital currency was extremely volatile at the beginning of the 2011 summer. In December, “Bitcoin” was searched the third most amount of times in its history, behind June 2011 (the peak) and just this passed September.
Egypt historical peak search volume, September 2012.
Saudi Arabia, second highest search volume, December 2012
Kazahkstan, 2nd highest search volume
Pakistan, third highest behind February 2012 and June 2011
India, November 2012 second highest behind June 2011
Vietnam, August 2012 second highest behind June 2011,
Turkey second highest December 2012 behind June 2011
In Spain, December 2012 is third largest search volume behind August 2012 by one point, and the peak June 2011.
That Bitcoin is holding at $100 is ominous in that, should it fall below $100 and experience continued bad press and Mt. Gox exchange technical difficulties, the next stop could conceivably be $20, with some support at $30. On the other hand, in consideration of unrelenting demand by increasingly moneyed individuals and groups, it could continue the trajectory it was on during the bubble phase of March 15-April 10, finding support between $150-$300.
After months of gold and silver becoming cheaper in Bitcoin, the trend has reversed this past week, despite the break of key support for precious metals. Nonetheless, gold and silver have become more expensive compared to Bitcoin:
But Mt. Gox has been center-stage throughout a week of DDoS attacks on their server, failed customer service, locked funds and the volatile Bitcoin price largely due to how easy it is to disrupt the Bitcoin network by simply attacking the center for its unfortunately centralized exchange.
Mt. Gox held a Reddit “Ask Me Anything” on Friday for those worried by recent trading problems that culminated with a 12-hour trading halt. Currently, 20,000 new Mt Gox are being opened a day compared with the 60,00 opened in all of March, according to the website.
Mt. Gox explained some issues:
Our system was designed to handle 2~3x our normal load, but now we’re experiencing 10x the amount, which was difficult to prepare for (it takes weeks) with the sudden new accounts. We have two problems: the DDos and volume related to new accounts.
The trade engine is capable of accepting much more of a load. Within 2~3 weeks we will completely rewrite the trade engine, in the meantime we shut down the system today and installed a new server with the current trade engine. Of course, if we didn’t have DDos everything would be fine, so now we’re dealing with two issues at once.
Who is attacking Mt.Gox with a DDoS? “We cannot disclose details, but we have some ideas…Basically because by naming them it makes our job harder because they will move to protect themselves.”
Trading Updates too much to ask for? “We absolutely understand this. The fact is that we are programmers and engineers, not PR guys, and we are still building out our capabilities beyond technology and into servicing our customers better. So, yes, we’re moving on this now and have secured help.”
Question from pmarches: Does mtgox run as a fractional exchange? Meaning, do you have 100% of the bitcoins your users have deposited in your system? “NO. Everything is accounted for (BTC and money). Fractional reserve is absolutely against our principles. In fact 90~95% of BTC are held in cold storage.”
No matter how Mt. Gox plays this off, the jugular of the issue is that users have been unable to withdraw their funds throughout most of the turbulence. Many former capacities of Mt. Gox have been nullified. With Mt. Gox transacting 80-90% of Bitcoin transactions, Bitcoin has suffered.
But, Mt. Gox is not to be mistaken with the actual Bitcoin protocol, which itself has proven unhackable by even the world’s foremost hackers and engineers.
It is impossible to know if Bitcoin will rise and fall until an attack or sudden spike in demand falls upon the market. As Erik Vorhees, an early adopter of Bitcoin, wrote: “Guessing short term price movements is a fool’s game.”
In an Austrian’s eyes, some recent explanations for bitcoin’s price rise, which is really still the main story for Bitcoin in 2013, read as follow:
The emergence of respected online merchants such as Mega, NameCheap, Reddit and others accepting Bitcoin has proven that businesses see its value, thus leading to the price increase.
Europe’s confiscation of Cypriot bank accounts have led to an influx in Bitcoin purchasers, not so much in Cyprus, but in North America and Europe. This has led to greater levels of speculation upon the price of Bitcoin, with cliques of buyers-and-sellers pumping the price only to sell all at once, and buy in the aftermath of the ensuing panicked selloff.
FATCA regulations have driven individuals to bitcoin for privacy.
Venture Capitalists and other private investors, now moving into Bitcoin, also want Bitcoin at the best prices. While their bitcoin purchases help explain the price rise, they could also explain the volatility and even DDoS attacks on key websites. To DDoS a website, it costs under $500.
Gold and silver buyers, moreover, have moved into the Bitcoin market. Largely thanks to the work of Trace Mayer, many former gold-and-silver bugs have seen the parallels in Bitcoin to precious metals.
The recent FinCEN ruling could have been made at the request of venture capitalists who did not want to put money into Bitcoin only to see it shortly thereafter outlawed. Now, people can be assured the government sees it as just another financial instrument.
Mainstream press interest in Bitcoin has been parabolic. This has led to incredible “hype” around Bitcoin.
Many, many people who simply do not understand Bitcoin are now buying bitcoins due to its media-hype.
Thankfully, Mt. Gox does not act as the Federal Reserve. It can be supplanted based on simple competition or cooperation within the Bitcoin market. This time will come, and more alternatives, such as BitcoinATM, will pop-up online. Greater Internet and computer security literacy could secure privacy for future generations, and Bitcoin encourages this spread. A free market has been born, and it will experience high price volatility and a arm’s race of ideas and technologies built around it.
The understood return potential for Bitcoin is well-known, as at year’s onset a Bitcoin was worth $13.51. On April 10, it traded as high as $266. And on Thursday, it fell to less than $100 mostly due to issues at Mt. Gox. For good measure, that is similar to if the exchange rate for the British pound soared from $1.62 (where it was on Jan 1.) to $31.90 and the falling back to $12.
Paul Krugman took his swing at Bitcoin on Friday. He cites an article, first of all, in which the author states two reasons Bitcoin cannot be money:
First, because it has the endorsement of no government, it will never be usable for official transactions. If you are an American, you will eventually have to pay your taxes, which means getting hold of some dollars, and as long as everyone needs to use dollars, that will be the way the currency in which an overwhelming majority of U.S. transactions occur.
A central premise for this statement is the eternal and ubiquitous nature of government. In fact, there is no law of social relationships or economics wherein it is stated that a government must exist. And also,
Second, the cap on the supply of bitcoins may reassure people that there will be no inflation, but in fact it ensures that it can never go into widespread use. A currency needs to be elastic — that is, its supply has to rise and fall in order to keep prices stable even as people’s demand for money varies. Part of the reason the Federal Reserve was created a century ago is that the dollar was at that time an inelastic currency, its supply was basically fixed based on how much gold banks had in their vaults. That meant that when harvest season came around in what was then a heavily agricultural nation, there was always a shortage of cash and a spike in interest rates, and in some years a banking panic.
Due diligence can be a pain, but often spares the outspoken of mis-stepping in their reasoning. In this one by Neil Irwin, he clearly understands that only a certain amount of Bitcoin will ever exist. But, what this individual does not get, is that Bitcoin can be divided to the eighth decimal place, creating so much elasticity that, in today’s dollar terms, the market could grow to theoretically 21 quadrillion.
Krugman fails to use his imagination, and thus viewing Bitcoin as literally being gold. He cannot make the extrapolation that there is a theory on which Bitcoin is based to which the gold mining process can lend insight. But the insight must go much deeper than merely Internet workers digging holes into the dirt of the web to pull out certain specs from the digital abyss, with the same variables input as with real-world mining. Krugman writes:
One thing I haven’t seen emphasized, however, is the extent to which the whole concept of having to “mine” Bitcoins by expending real resources amounts to a drastic retrogression — a retrogression that Adam Smith would have scorned.
But, the real resources expended in mining Bitcoin do not equal the real resources expended in mining gold. Plus, the vector of real resources eventually expended to create money based on fiat ends up draining the economy much more. Krugman:
Smith actually wrote eloquently about the fundamental foolishness of relying on gold and silver currency, which — as he pointed out — serve only a symbolic function, yet absorbed real resources in their production, and why it would be smart to replace them with paper currency:
The gold and silver money which circulates in any country, and by means of which, the produce of its land and labour is annually circulated and distributed to the proper consumers, is, in the same manner as the ready money of the dealer, all dead stock. It is a very valuable part of the capital of the country, which produces nothing to the country. The judicious operations of banking, by substituting paper in the room of a great part of this gold and silver, enable the country to convert a great part of this dead stock into active and productive stock; into stock which produces something to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures, and corn fields, and thereby to increase, very considerably, the annual produce of its land and labour.
And now here we are in a world of high information technology — and people think it’s smart, nay cutting-edge, to create a sort of virtual currency whose creation requires wasting real resources in a way Adam Smith considered foolish and outmoded in 1776.
Resources expended mining Bitcoin are nowhere near the amount of real resources expended in eighteenth century gold and silver mining technology
Krugman lacks an understanding about the nature of the Internet. He fails to note that never before has information technology and its infrastructure been used for such purposes, and it is by far an exact mathematical equivalent to the mining process. It is not the gold mining industry. This is as clear as day. He takes the simile too far.