Monday, December 22, 2014

Bloomberg: Bitcoin Bears Say Told You So

Bloomberg runs this update article on Bitcoin and its struggle to gain wider acceptance. This article attracted our attention not because it is negative towards Bitcoin, but because it talks about something we have talked about here on the blog related to this subject. We had felt that Bitcoin would run into problems attracting mainstream users because it creates problems for regulators in the current banking system trying to track transactions. Below are some quotes from this article and then a few comments.


"If you think oil had a rough 2014, consider bitcoin. The digital currency has plunged 54 percent since the beginning of the year. By contrast, Brent crude has fallen 44 percent; the ruble is off some 46 percent against the dollar."
"Bitcoin’s collapse comes as governments around the world consider regulating or prohibiting the virtual currency to prevent criminals from using it to trade contraband. Meanwhile, bitcoin is facing competition from a slew of rivals striving to be more palatable to regulators."
"Bitcoin proponents like the relative anonymity afforded by the virtual currency. Because users can register for bitcoin wallets without disclosing their identity, they can buy and sell stuff without the government looking over their shoulder."
"Regulation could end that. A proposal under consideration in New York State, for example, would require companies that store or exchange virtual currencies to obtain licenses and verify customers’ identities and addresses. Ukraine has banned bitcoin altogether, China has prohibited banks from clearing bitcoin transactions and Russia is considering fining users."
My added comments: 
This Bloomberg article goes on to discuss the fact that over over 500 alternative cryptocurrencies are vying for acceptance now and many are working to try and comply with existing banking regulations. 
It is understandable why people are interested in alternative forms of currency because of the volatility and instability of various currencies in use around the world. Even the US dollar still has potential problems despite a strong rally lately. With central banks all over the world trying to devalue their currencies (at a controlled pace) to try and boost their economies (see Jim Rickards Currency Wars), people naturally seek out alternatives. Older folks are likely to think of precious metals for this while many younger people are attracted to things like Bitcoin. 
As Bitcoin gained popularity, it seemed like it was only a matter of time before regulators got involved. Because Bitcoin is outside the system and harder to track, you could pretty easily guess that regulators would have problems with it. It seemed likely that taxing authorities would also have concerns of course. Sure enough, we have seen tax rulings and efforts to increase regulation that only make it harder for Bitcoin to gain mainstream use.
This is why we have covered the GSD (Global Stability Dollar) currency technology that Klickex has been working on for some time now. This is a technology designed to meet all existing banking regulations. It has the potential to offer some of the benefits of a globally used currency that is not a debt based currency and still have the approval of the existing banking system. Central banks can adopt it without concerns which is why we follow it here. It has potential in our view that alternatives outside the system like Bitcoin do not have. 
We'll continue to try and follow both in 2015 to see how things unfold in this area.

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