Saturday, December 21, 2013
We recently received this e-mail about the virtual currency Bitcoin: "Im still surprised you choose not to talk more in depth about bitcoins. I realize you dont know much about it, therefore feel you cant comment directly. Can I help in any way?"
The writer went on to say he was at the Inside Bitcoin conference right now in Las Vegas. "So many venture capitalists here its not even funny," he wrote. "I think you are missing the mark on not covering bitcoins much. I keep buying low selling high on the volatility. Im going to buy my first IWC watch thanks to bitcoins. Im going shopping for my first Porsche (356a speedster) for Christmas."
He said that he was making in a few days or weeks "what takes some of your best performing stock picks years."
"There are even options markets now for bitcoin, and $1700 by the end of the year is not impossible. If you invest now you could double your money in three weeks," he wrote. "Iceland is considering a virtual currency and theres big rumors the forex markets will begin accepting bitcoins in February. You really could be capitalizing on all of this news... Please reconsider your silence on bitcoins. Its going to change this world. Theres already ATM machines that buy/sell bitcoins, theres alternative coins and so much more."
I forwarded the e-mail to some colleagues with the note, "I'm not saying Bitcoin is [at] a top, but this is one toppy e-mail..."
Since then, Bitcoin has fallen from more than $920 to around $660 today. Bitcoin's volatility is a reminder that Bitcoin is not an investment. It has no intrinsic value, no history of utility as a currency (unlike gold), and it yields nothing. Bitcoin is a speculation... a volatile speculation.
Two major happenings in the U.S. and China caused Bitcoin's recent rout...
First, the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) – the agency's anti-money-laundering unit – sent "industry outreach" letters last Tuesday to around a dozen firms, discussing potential compliance measures related to Bitcoin businesses, FinCEN spokesman Steve Hudak told news agency Thomson Reuters.
In other words... if you're a business accepting Bitcoins... the government wants you to know it's watching you.
Meanwhile in China, BTCChina (the world's largest Bitcoin exchange) said its platform could no longer accept renminbi. "As of right now, we have received notice from our third-party payment company that they will disallow customers from making deposits into our exchange," BTCChina co-founder Bobby Lee told the Financial Times. In other words, the Chinese can't buy Bitcoin. Existing account holders can still exchange their Bitcoin for renminbi.
Also, nearly three weeks ago, China's central bank banned financial institutions from dealing in Bitcoin. It said individuals remained free to transact. We suppose the People's Bank of China changed its mind.
As for why we don't cover Bitcoin, Porter shared his thoughts in S&A's Digest Premium...
Bitcoin is a fantastic example of all the things that I (Porter) have been talking about in the "End of America" hypothesis – that the U.S. dollar will lose its place as the world's reserve currency.
People are desperate for alternatives to the U.S. dollar... That they've adopted something that is a technological phantasm is not surprising, given the state of technology in the world today. I'm not surprised that Bitcoin exists. I'm not surprised it's popular. And I'm not surprised that it has soared.
But I will tell you this... the intrinsic value of Bitcoin is zero. And there is no yield in holding Bitcoin. If you listen to the Bitcoin proponents talking about it, every argument they make is the same argument I could make about gold...
Bitcoin can't be manipulated by central governments (neither can gold). Bitcoin is divisible (so is gold). The amount of Bitcoin is limited (like gold).
Also, like gold, the government could ban Bitcoin... We're already seeing steps in that direction.
Remember Bernard von NotHaus? He created a physical currency called "Liberty Dollars" over a decade ago. Some $60 million worth of Liberty Dollars entered circulation in the U.S. The government raided him and threw him in jail. He was accused of "domestic terrorism" for using Liberty Dollars to undermine the government. Von NotHaus is still awaiting sentencing.
Unlike Bitcoin, the history of gold is as long as humanity's. Gold has been treasured for millennia.
So if you ask me whether I'd like to buy Bitcoin or whether I'd like to have another ounce of gold... the answer for me will always be another ounce of gold.
The rise in price and popularity of Bitcoin is evidence that people want out of fiat currency – a desire we wholeheartedly understand... People distrust governments and their ability to debase paper currencies.
However, governments, as we see today, can also debase digital currencies.
We're not saying a new strong alternative to the dollar won't appear someday... But today, we prefer gold to Bitcoin.
Sean Goldsmith and Porter Stansberry
Date Range:12/12/2013 to 12/19/2013
Date Range:12/12/2013 to 12/19/2013