Tuesday, August 12, 2014

Bitcoin Update: The Wild West of Finance?

Today Bitcoin makes the news as the US Consumer Protection Bureau issues a report warning consumers of the risks associated with the cryptocurrency. There is really nothing new in this report, but it does illustrate why we think the present banking and financial system will never adopt it. 

Bitcoin users will like it no matter what the banking system says. But most of the population is not likely to adopt it now that it has been deemed to be a capital gains type asset by the IRS (not a currency). 

Here are a few quotes from the article:

"Virtual currencies such as bitcoin are the "Wild West" of financial products because of risks including huge swings in exchange rates, the U.S. Consumer Financial Protection Bureau said on Monday."
"Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market," CFPB Director Richard Cordray said in a statement."
"Unlike conventional money, bitcoin is generated by computers and is independent of control or backing by any government. That is something its proponents like, but it has led to calls for more oversight and guidance on issues including U.S. tax treatment."
"The U.S. Treasury Department's Financial Crimes Enforcement Network last year classified administrators or exchangers of bitcoin as money transmitters, which puts them under the remit of state regulators."
"The Commodity Futures Trading Commission, a federal regulator, is studying whether it has jurisdiction, given that some firms are considering offering bitcoin derivatives."
added comments: we have not covered Bitcoin much here lately because we don't think it is going to see widespread adoption. While there will probably be a devoted core group of users (who distrust the current system), we think a new product is coming that will offer consumers a system approved virtual currency that will have the endorsement and backing of the current banking system (the Klickex GSD eventually). 
We think most regular consumers will prefer it over Bitcoin because it will have asset and system backing and will function more like an actual currency than an asset that is taxed for capital gains. It also runs on far less energy consumption than is required to produce Bitcoins through Bitcoin mining and can quickly and easily handle exponentially more transaction volume. All of these are things that banks like.

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