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Bitcoin Millionaires And Newton's Mistake Forbes Congratulations Bitcoin millionaires. You made your first and perhaps your second million of dollars -- quickly, very quickly. Perhaps in the last six months in the Bitcoin investment trust. Now make sure that you don't lose all that money faster than ... and more »

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Bitcoin Millionaires And Newton's Mistake - Forbes

The cryptocurrency bitcoin tumbled 19 percent on Thursday, halting for now its torrid advance this year. Previously, the digital currency has more than tripled this year, recently nearing $3,000.

On Thursday, though, it slid to almost $2,000, according to Bloomberg. That fall, to $2.039, puts bitcoin on a path to matching its worst week since January 2015.

Bitcoin is notoriously volatile. The bitcoin market tanked three times between 2011 and 2014, falling more than 50 percent each. The last time prices slipped came earlier this year after the U.S. Securities and Exchange Commission denied a request by twin-brother entrepreneurs Tyler and Cameron Winklevoss to offer a bitcoin exchange-traded fund. Then prices headed up anew.

Increasing numbers of people are using the digital currency, because among other things it gives them anonymity. Criminals are using it for schemes such as for ransom payments when hackers locked up computer systems at hospitals. Tax evaders and drug peddlers employ it, too.

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It's been said that cash is king, but lately it's been getting a little competition from a currency you can't see. It's called Bitcoin. Despite i...

But at the same time, many legitimate businesses have started to accept it, such as the electronic payment system PayPal, travel service Expedia and software giant Microsoft (MSFT). It is enjoying popularity in economically unstable places like Venezuela and Nigeria. Also helping bitcoin's latest rise was the end of a four-month moratorium on digital money on Chinese exchanges.

Elsewhere, however, problems erupted, which have done digital currency no favors. Talk of a U.S. government crackdown hasn't helped bitcoin and its other digital brethren, like ripple and manero. In a recent report, Morgan Stanley argued that bitcoin needs government regulation if it is going to keep climbing. A bill is pending in the U.S. Senate that would do just that.

Also hurting bitcoin was an outage Monday on the digital currency exchange Coinbase because of high trading volume. The bitcoin slide comes amid a downdraft for tech stocks, which may have bottomed out Thursday.

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Surging bitcoin gets tarnished, dropping 19% in a day - CBS News

Investing In Bitcoin: A Wise Choice? NPR June 16, 20175:05 AM ET. Heard on Morning Edition. Kevin Leahy. The price of bitcoin has been soaring, leading some amateur investors to jump into the virtual currency market. But even enthusiasts are worried the price surge might be a bubble about to ...

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Investing In Bitcoin: A Wise Choice? - NPR

This will be rather a short and obvious article. What prompted me to write it was Bitcoin Investment Trust (OTCQX:GBTC) trading at a large premium to the Bitcoin market quote, as I explained in my article titled "Bitcoin And AMD: Dej Vu All Over Again". Since then, Bitcoin lost 23.7%, and GBTC lost 42.4%.

Now, with Bitcoin having previously rallied so much, it's likely that many "investors" in this "digital currency" were convinced that not only did it serve its purpose as a currency, but it also was actually a pretty good one. However, to be a currency/money, what's usually asked of a candidate is for it to fulfill three functions: to be a medium of exchange, unit of account, and store of value.

Bitcoin, unfortunately, cannot fill that last function (store of value). To be a store of value, a currency needs to keep its value reasonably stable over time. And also, unfortunately, if Bitcoin can't keep its value over time, it can't also work as a medium of exchange - but more on that later.

First, I must focus on keeping the value over time. This isn't about Bitcoin going up in value as much as it is about the volatility it suffers. For instance, Bitcoin was at ~$3,000 3 days ago, and as I write this, it sits at $2,170, for a ~28% drop from the top.

This kind of volatility has extreme consequences for anyone doing commerce (selling goods and services) and accepting Bitcoin as payment (a currency). Many businesses will trade on tight margins, most businesses will have gross margins over 28%, but on average they'll struggle to have 10% in net margins (after not just direct product/service costs, but all the overhead of running a business).

What this means is that most businesses cannot sell a product/service at 100, and then see the proceeds from the sale turn into 72 in a matter of days. This would risk turning profitable sales into unprofitable ones. Of course, those businesses could accept Bitcoin and then trade out of the accepted Bitcoin immediately (for USD or another currency).

That seems like a solution, doesn't it? It so happens that this solution - which would be perfectly necessary - also represents the failure of Bitcoin as a currency. And funny enough, this can be illustrated with another event of a currency failing: Weimar Germany, known for its hyperinflation.

During the worst of the hyperinflationary days, workers were paid twice a day. Their spouses would go to their jobs, collect their wages and immediately spend them - since raging inflation meant as time went by, the same money would be worth less and less.

What does that mean? It means that the solution to sell goods or services in Bitcoin and then having to get rid of Bitcoin as fast as possible is a direct parallel to what happens during currency failure. Also, this would mean that if there was enough commerce taking place in Bitcoin, it would probably put systemic downward pressure on its price since each sale of a good or service priced in Bitcoin would represent an immediate outflow from Bitcoin (with no compensating inflow since there would be no need to buy Bitcoin to buy the good or service in the first place).

Counter-Arguments

Obviously, one could come up with a host of reasons why this present difficulty won't last forever. For instance:

Conclusion

To put it short, the solution to offer Bitcoin as a means of payment (trading it off immediately) is the very solution which represents the failure of Bitcoin as a currency. And now, if Bitcoin can't be a currency, what is it? In my view, it's two things:

As a side note: As of right now, with GBTC at $311 and BTC at $2,170, the GBTC premium has fallen to 54.3% from the 103% it traded at when I last wrote on it. It's still significantly more expensive to hold GBTC than to hold the underlying Bitcoins.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Why Bitcoin Can't Serve As A Currency - Seeking Alpha

A controversial new Congressional bill regarding digital currency has just been introduced by Sen. Chuck Grassley (R-IA). The bill would require the Secretary of Homeland Security to work with the Commissioner of U.S. Customs and Border Protection in order to put forward a "border protection strategy to interdict and detect prepaid access devices, digital currencies, or other similar instruments, at border crossings and other ports of entry for the United States." This bill, if passed, would have significant implications for digital currency holders around the world.

The proposed bill, designated U.S. Bill S.1241, was introduced on May 25 of this year and co-sponsored by Sen. Diane Feinstein (D-CA), Sen. John Cornyn (R-TX), and Sen. Sheldon Whitehouse (D-RI). The bipartisan group of Senators who have put the bill forward hope that it will deter individuals entering the United States from bringing in undetected and undeclared assets in the form of digital currencies such as Bitcoin and Ethereum.

A portion of the bill stipulates that the Department of Homeland Security and the U.S. Customs and Border Protection agency would devise "an assessment of infrastructure needed to carry out the strategy" of blocking these undeclared funds from entering the country. The Secretary of Homeland Security and the Commissioner of U.S. Customs and Border Protection would be required to present their findings to Congress within 18 months of the passage of the bill.

Travelers entering the United States at the border are already obligated to declare any currency holdings of $10,000 or more, regardless of whether or not custom officials might have the means to detect those holdings. While digital currencies occupy a somewhat unusual place in many portions of finance law, a report by Smaulgld suggests that the situation is relatively clear in this case. Because digital currencies technically accompany a holder anywhere that he or she goes, including across a border, that traveler would need to declare his or her entire cryptocurrency portfolio every time he or she enters the United States. This is different from the requirements of travelers who hold bank accounts and/or precious metals valued at more than $10,000 which are stored outside of the country.

How would the federal government develop an infrastructure to detect foreign holdings including digital currencies? It is possible that the Foreign Account Tax Compliance Act could be expanded to regulate foreign cryptocurrency exchanges. Alternatively, a global monitoring system could be put in place to watch over blockchain ledgers. Beyond that, there are a number of measures that agencies could take at the border to deter travelers from withholding information, including extreme vetting systems and harsh penalties for nondisclosure. Regardless, it is safe to assume that the cryptocurrency community, famously opposed to central regulation, will have something to say about this bill.

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Proposed Bill Requires Travelers to Declare Bitcoin at US Border - Investopedia