Investing in Bitcoin

Brian Hicks

Written By Brian Hicks

Posted November 19, 2013

The euro and the dollar are in shambles.

The Fed’s monthly stimulus policy of injecting worthless money into the world financial market is a mere bandage solution – regardless of what the International Monetary Fund or other financial institutions may say.

Quite simply, the world of get-rich-quick bubbles and the endless printing of money is an unsustainable future, and it will only be a matter of time before the markets come crashing down if things don’t change.

bitcoin pileU.S. Treasuries were once the safest investment bet you could make, but even that was in jeopardy during the government shutdown and the debate over whether or not the government would honor its obligations.

It is the reason why you have invested (or may be thinking of investing) in gold and silver as a safeguard against the instability of the markets.

But bitcoins may be an even better solution. Investing in bitcoins is not only a good way of protecting your portfolio, but it can protect you from taxation and oversight from the Fed by maintaining your anonymity.

Instead of being regulated and administered by human beings and governments, bitcoins are regulated by software.

“Bitcoin” in upper case refers to the software that generates and oversees the currency, while the lower case “bitcoin” is the name of the currency itself.

And if you’re someone who believes in precious commodities backing currency, Bitcoin would fall in your camp, since it is very much modeled after gold.

Bitcoins have to be mined through expensive software performing complex algorithms. This digital currency is 100 percent virtual.

Bitcoin generation is capped at 21 million, and this limit is expected to be reached by 2140. This is a protection mechanism against inflation and devaluation, as you would normally find in paper-based money.

And because it is created and verified by a computer using complex coding, counterfeiting is very hard to accomplish.

Bitcoin is becoming a more legitimate form of currency that can be exchanged for fiat money. More merchants, along with some retail stores, are accepting bitcoins because it is cheaper than processing debit or credit cards.

It is even being considered as a method for donating to political action committees.

The Federal Election Commission is debating the idea, and Congress will address the Bitcoin issue as a whole, with a U.S. Senate Committee on Homeland Security and Governmental Affairs hearing ongoing this week.

The Libertarian Party has already accepted bitcoins for donations.

Bitcoin has only been around for four years, and it has garnered a reputation as the currency of choice for black market transactions, money laundering, and other forms of illicit activity. But it reached its highest value this week when it passed $700 yesterday.

It is quite a leap, considering the value of this online currency started at $13.55 in its first year, progressing to $265 this past April.

What Drove its Growth?

Supply will always be limited, and a variety of investor products are hitting the market, making Bitcoin a viable choice.

But a primary driver of its popularity is China, and Bitcoin’s fate may ultimately be decided by the Middle Kingdom.

Currently, the Chinese are not heavily regulating Bitcoin because authorities are still trying to assess its ultimate impact.

China is a center of economic growth and innovation, which is why you’re seeing alternative investment avenues like Bitcoin. There are also a growing number of miners in China – those that use the software to generate coins and record transactions to Bitcoin’s public ledger.

Plus, the nation’s economy is not growing as fast as predicted, and traditional investment paths like the housing market and stocks are being viewed with skepticism by more investors.

As a result, China is experiencing plenty of bitcoin demand in regards to investing – not so much as a means to exchange goods and services.

Investors are able to keep their transactions discreet from the Chinese government, and it is also a great help in getting around China’s policy that restricts citizens from taking over $50,000 out of the country.

If Bitcoin can be used as an avenue to get around the Chinese economy – one of the most regulated markets in the world – it will certainly be a good path to follow to get around snooping and heavy taxation from Western governments.

With word getting out that the CIA and the NSA are tracking the overseas and domestic financial records of Americans, Bitcoin is a solid path to protecting your financial privacy. And instead of finding ways to hide your wealth offshore, Bitcoin can be easily exchanged for other currencies.

But this may not last long.

Governments around the world are hovering about like vultures – figuring out ways to manage Bitcoin if it poses too much of a problem.

The Chinese will step in if Bitcoin affects the government’s revenue base, and the same can be said of governments in the West. Law enforcement agencies are citing illicit activities as a reason to control this digital currency.

An example that critics often cite is the closing of the Silk Road – an online black market center that used Bitcoin as a means of payment for drug transactions. But any form of currency can be used for illicit transactions – proven by a recent study that found 90 percent of dollar bills have small traces of cocaine.

It will only be a matter of time before authorities find ways of tracking your wealth and begin imposing fiat-based rules in this virtual system. The SEC is already gearing up for bitcoin regulation – claiming that the virtual money falls under securities.

That’s why now is the best time to get in on Bitcoin – while it is still untouched by government hands.

Bitcoin Investment

Bitcoin is another means of protecting your investments and wealth, but there are things to watch out for.

Because of the volatile nature of Bitcoin, you may be at risk of getting a lower amount if you exchange bitcoins for fiat currency. Currently, the exchange rate for 1 bitcoin is equivalent to $649.

Like all digital mediums, it is more susceptible to being hacked, and your losses may not be covered in the event of online theft. The Bitcoin system itself could also be susceptible to Fed and government regulation sooner than you think, since the code is fairly vulnerable to hacking – especially to NSA snooping and manipulation. And when it comes to taxes, you would technically still need to declare Bitcoin investing under capital gains once you cashed out.

But these risks are minimal compared to the conventional fiat system.

Wealth confiscation is being chosen as an option for governments and banks managing failed economies. We have already seen this in Greece and Cyprus.

And because banks are in the investment game, your money is less safe than ever before.

The easiest way to get in on bitcoins is to go on Bitcoin exchange sites to exchange your money with others. Aside from Mt. Gox, BTC China is considered the largest trading arena for bitcoins. And because of the topsy-turvy nature of Bitcoin, it is easy to get in while prices are low and sell high later.

As much as governments and law-enforcement agencies may be suspicious of bitcoins, this is a new medium of currency for the digital age that is not going away any time soon.


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