What’s Happening With Bitcoin?

by Marc A. Carignan, Founder of The Bitcoin Tutor

(c) Photo copyright CNBC

The Winklevoss Bitcoin ETF did not receive approval from the SEC. China continues to harass their bitcoin exchanges. And, the price of bitcoin is down almost over $250 since February.

The questions I am hearing are: Should I sell? Should I buy? And, should I worry?

The Winklevoss Bitcoin ETF

Let’s take each concern one by one and get to the bottom of these recent events. First, Cameron and Tyler Winklevoss (pictured above) are strong believers, and investors, in the future of bitcoin. The SEC, the US Securities and Exchange commission, is an agency of the State. The State has very little desire to support the future of bitcoin and other digital currencies. The central banks of the world, privately held and controlled organizations, also see bitcoin as a threat to its control of the State’s money supply. (Controlling money is the greatest control one can have in a society.)

The lack of control and influence over the mathematically-governed bitcoin is frightening to the State and to the private bankers who have ruled our economies for generations. Despite the SEC having had at least three years to consider the Winklevoss’ request, it waited until the last moment in denying their request to establish an exchange-trade fund (ETF) that used bitcoin as its underlying asset.

The SEC cited the risk of fraud and a lack of regulation among the bitcoin markets around the world as the reasons for the denial of the new fund. Yet, this is exactly what makes bitcoin and other digital currencies so independent and valuable. Bitcoin is algorithmically governed, the free market establishes its trading price, and companies and people are free whether or not to participate in the bitcoin market economy. Yet, the SEC was dissuaded from granting the ETF, which would have made it easier for people to trade in bitcoin by buying or selling an ETF share, similar to a share of stock.

Yet, owning and controlling bitcoin directly, rather than by an ETF, is so much more powerful and valuable. Rather than simply getting exposure to bitcoin, you can own it outright. With an ETF, you are holding a paper asset that tracks the value of the underlying asset, whether that’s gold, silver or bitcoin. Yet, you  never really have direct access to the asset. In the short term, as we know, this SEC denial created negative downward pressure on the price of bitcoin, and as the hope for institutional investors to invest in this new bitcoin fund vanished.

The People’s Bank of China

As I stated earlier, central banks don’t like bitcoin. They want to discourage its use whenever possible. And, they continue to do so. The PBoC recently warned it’s citizens against investing in bitcoin as a risky and uninsured investment.

Bitcoin exchanges, in China and elsewhere, continually straddle an economic fence that is often risky. Although bitcoin cannot be easily regulated directly as it is distributed and not under the control of any government entity, the “on ramps” and “off ramps” to bitcoin are controlled. These ramps are provided by exchanges, companies that exchange central bank (fiat) currency for digital currency, primarily bitcoin. Since these exchanges deal with the central banks property (its “money”), they are under the jurisdiction of the State’s money transmitting laws. This is where the problem lies, not in bitcoin itself.

Of particular interest is the practice of “margin trading”, a popular technique used in trading stocks and bonds. This is where investors borrow money in order to buy or sell, called investing “on margin”. This can be very profitable for the savvy investor, and very risky for the inexperienced person who exposes themselves to major swings in the underlying security, in this case bitcoin. “Margin calls”, where banks or exchanges require immediate payment for overextended margin loans, is not uncommon and a risky practice for most novice investors.

Another PBoC concern that was stated, in additional to the security of customer’s investments and the risk of leveraged transactions (typically based on margin), is that of money laundering. This is the same reason why governments around the world are trying to discourage the use of traditional cash.

The risk to citizens in a cash-less society is high. If all funds are held in a central bank or in one of its controlled banks, then banks and the governments that licenses them can freeze or seize your accounts at any time, preventing you from even meeting your basic living expenses. In the US, this is a common occurrences, where the IRS (the Internal Revenue Service) can freeze accounts under suspicion without warning. You are presumed guilty, and have to find a way to proven your innocense (without access to your money).

What’s more, all transactions done through a bank are tracked, including what you drink, what you eat and what medicines you take. All of this smacks of “big brother”, however the global banks’ plans to eliminate cash hit a speed bump with bitcoin. And, they don’t like it!

So, whenever people cannot access their funds, fear is created — justified fear. Therefore, the price of bitcoin softened on this news as well (although it was not totally unexpected by those who are following this drama).

The Volatile Price of Bitcoin

Bitcoin has been flying high for the last several months, reaching all-time highs and more than doubling in value. It’s trend is still upward, and at a fast pace. Yet, bitcoin is new and continues to show volatility. Even after seeing the price of bitcoin sink to less than $900 recently, bitcoin is now trading above $1,000 and still climbing. And remember, bitcoin was trading at only $600 in September 2016, not very long ago.

As more people understand the “ponzi scheme” that is our current global economy (due to the fiat nature of most world currencies, including the US Dollar), digital currencies like bitcoin will become more interesting and more in demand, driving its price higher. People are awakening to the reality of our broken banking systems, the same system that creates unimaginable profits for a few and indebtedness for the many. Bitcoin is an important part of our future, along with other digital currencies whose individual values have yet to be fully fleshed out in the market.

What will happen when the Euro crashes? Or the Yen? Or the Dollar? Holding an asset like gold, silver and bitcoin can mean the difference between riding out the storm or becoming a casualty of it. As world economies continue to struggle, look for bitcoin to become a more important “currency”, or form of trade.

Although many people are claiming their stake in bitcoin to hold for potential future appreciation, I expect this digital currency, designed for trading person to person, to become an important currency in our global future, rather than just an investment. I also expect to see gold and silver traded in the future again, just as in the days of past. Yes, I predict a “step back” in our monetary progression to one of real value and sound money. And, I believe bitcoin will become the “peoples’ money” in the future.

As for whether this is a good time to buy or sell bitcoin, that’s up to you. As for whether you should worry about bitcoin? I say there is more to worry about with your own home currency that there is with bitcoin. As for me, I’m going to buy some more bitcoin.

4 comments on “What’s Happening With Bitcoin?

  1. Great article Marc! Thank you as always for your insightful reviews!!

  2. I got bit by the coinbug and went to coinbase to get a little slice and they want more info than the bank for a loan. They want a picture of my ID which I’m not geek enough to accomplish nor will I anyway. The story we’re fed is that’s it’s money outside central control yet the reality is “papers please” to even participate and China and the SEC can affect it’s dollar value so where’s the independence? I’m not too impressed and don’t see how it’s better than gold.

    • Mike,
      You bring up important concerns. These “papers please” requirements have NOTHING to do with bitcoin and EVERYTHING to do with the central banks, including the Federal Reserve — a private bank which is not part of the Federal government and has NO reserves. (Did I burst your bubble about the Fed?) Moving on, the issue with these exchanges (like Coinbase) is that the US Treasury, the European Central Bank, and others enforce “money transmitter” laws since they exchange the local currency, like dollars or euros, for bitcoins. If they didn’t provide this service, they wouldn’t have to ask for your “first born”! If you buy bitcoins in person, you avoid this altogether. And when you trade, send or receive bitcoins, it is just like cash. Check out localbitcoins.com as a good place to start. It’s like Craigslist for bitcoins. Enjoy!
      / Marc

Comments are closed.