COMMODITIES
Bitcoin:
An Alternative Investment or One to Avoid?
W
ith the increasing concern in the global economic outlook people have been looking at new areas of investment, and nothing appears to be more interesting or newer than the new currency exchange that has risen up out of nowhere called Bitcoin. To be fair to you all scratching you head in bewilderment at this, you are not alone. Bitcoin is a digital currency that enables people who are on-line gamers to complete transactions. For example, on the game Island Forge you can create an island with shops for people to explore, charge, and accept transactions in Bitcoins, which can then be transfered into your own currency. The weird thing is that Bitcoin appears to have become a haven for investors, with financial journalists reporting a currency spike during the Cypriot financial crisis by users in Spain worried that their banks may have the same tough 40% bank deposit levies imposed on them. This level of interest has sought banking institutions to monitor the movement of Bitcoin, with Reuters reporting that banks, including Morgan Stanley and Goldman Sachs, visiting Bitcoin exchanges as often as thirty times a day, and some bankers investing their own money in Bitcoin too. Such is the level of interest that Forbes has even created a Bitcoin rich list; the only downside of this list is that you are unable to ascertain the person/entity to which the money belongs. With the level of attention Bitcoin is receiving it came as no surprise that Exante, a hedge fund that exclusively invests in Bitcoin, was launched in October 2012. The rise of Bitcoin can only be described as astronomic. In just one year Bitcoin rose ten fold, starting with a price just above zero to, at the time of writing this article, a weighted average of $112.88 on one exchange. This is a marked increased from it’s 1st January 2013 price of $13 to it’s high of $266 on April 10th,when it dropped to $105 before returning to $160 within six hours. It is currently estimated that US$1billion is invested in Bitcoin.
“We believe that Bitcoin represents something fundamental and powerful, an open and distributed Internet peer to peer protocol for transferring purchasing power”
Fred Wilson Mt.
The negatives Not only is Bitcoin causing a stir in the financial industry but it is causing the US Government issues due to numerous claims that the currency is being used to purchase illegal transaction, including drugs via a peer-peer process. The paperless/bank-less method means that there is no paper trail for the authorities to follow, so it is easy to see how these claims have originated. The theory behind the software, which is based on what the techies call an “open source cryptographic protocol”, is not regulated by any central authority which creates further concern regarding the safety of data, its use, where/how the money is stored, and risk. In fact, despite exhaustive research the only authority actively associated with Bitcoin is the Maltese Financial Services Authority, who authorise and regulate the Exante platform. Furthermore, whilst the New Yorker and Fast Company have investigated the identity of Satoshi Nakamoto who is the creator of Bitcoin (the name is believed to be a pseudonym), but both were unable to trace concrete evidence to link him to one person. With this in mind how secure is this new investment platform?
Gox (USD/Liberty Reserve)
May 28,2011 - Daily Op:8.5, Hi:8.7, Lo:8.11, Cl:8.36
10 9 8 7 6 5 4 3 2 1
Sep 10
Oct
Nov
Dec
Jan 11
Feb
Mar
Apr
June 2013
May
0
29