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US Government Embraces Bitcoin in Hearing on Virtual Currency
Daniel_Stuckey writes "Congress held its first-ever hearing on virtual currencies this afternoon, and it may have been the best PR boost bitcoin's had yet. The tone at the hearing held before the Senate Homeland Security and Government Affairs Committee was overwhelmingly positive as the panel weighed the risks of the technology that grew out of the criminal underbelly of the web, with the potential economic value of the now-booming futurist money. The prevailing sentiment over the two-hour deep dive into the pros and cons of the digital coins boils down to this: We need to uphold America's position as center of technical innovation by welcoming the new currency—but that that can't be done without government safeguards and regulations."
SonicSpike wrote in with a link to another report in Bloomberg. The Federal Reserve has no plans to regulate Bitcoin (lacking regulatory authority), but the SEC chair wrote "Regardless of whether an underlying virtual currency is itself a security, interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to our regulation."
...but that that can't be done without government safeguards and regulations
What they really mean: Congress is very excited at having found something new to tax.
From watching a bit of the C-SPAN coverage, I found it interesting to note that several of the witnesses from law enforcement effectively stated that:
1.) Current regulations had not hampered their ability to pursue criminals
2.) They saw more danger from centralized currency systems based in fringe countries than from "decentralized currencies such as Bitcoin"
So that's why BTC jumped up to $900 today, after opening around $500. I bet some speculators made a ton of cash that way.
A few really simple reasons the government would be in favor of Bitcoin:
1) Gain control early.
2) Every transaction leaves a trace. The idea that Bitcoin is anonymous is a bit of bullshit. Yes, right now the exchanges keep one hand from knowing the other. This is easily changed.
3) In aggregate, it's impossible to trace for a non-government entity. This means slush fund spending woohoo time.
4) Politicians have figured out that the extreme anti-social end of the internet from which Bitcoin has gained its popularity are a bunch of socially inept jack offs. They know these people have poor impulse control and too much intellect, but are easily swayed by marginal amounts of lip service.
I guess I missed the happy, joyous part then. I watched the first hour and 20-some-odd minutes of this hearing, and if I had taken a drink every time they said "child pornography", I would be in the hospital now.
Ha. Now the libertarians are going to abandon it wholesale.
No fun when the big bad gubmint likes your freedomcoins.
Because everything else our glorious government tries to control turns to gold.
Downside though is the extreme volatility of them.
No one is going to convert their millions in a slush fund into bitcoins if it'll mean that the value will spike and dip on daily basis. Financial security means confidence in a currencies value.
The problem with Bitcoin now is that it's being used mostly for speculation, not for trade. You can't price anything in Bitcoins when the price changes 30% in one day. If you accept Bitcoins for anything that doesn't have a huge markup, you can get clobbered by the price fluctuation before you get the payment converted.
Worse, the "exchanges" are very, very flaky. Over half of the Bitcoin exchanges have gone bust. Mt. Gox hasn't paid out US dollars since August, large euro payments seem to be randomly delayed, and some days customers can't get Bitcoins out. Coinbase, which is a dealer, not an exchange (you're buying and selling to and from them) will sometimes drop out of the market because they can't buy or sell Bitcoins (and actually get the funds delivered) on some other exchange. Not one Bitcoin exchange is publicly audited or insured, yet they hold customer funds.
Tradehill was going to be the "legitimate Bitcoin exchange". They went bust. Another exchange in China just disappeared last week, with the customer money. A solid exchange, registered as a broker/dealer in some reasonably legit country, would be a big step forward.
Bribes, prostitutes, extravagance ... all require anonymous, untraceable forms of money.
If politicians didn't require it, governments would have banned cash long ago.
And that will eventually replace everything else.
The exchanges I know of thus far provide no shorts yet, but Kraken has the code laid for it (they're brand new and are waiting for volume to increase before they add that along with some other advanced trade options). And yes, this would add market stability, which is part of the reason they're adding it.
Unfortunately, they're only available in a few states as of yet. The regulations in the US that apply to them unfortunately are on a state by state basis, and have significantly slowed the rollout of the exchange (unlike some of the prior exchanges that's gone up, they're A) operating in the US and B) being now scrutinized enough to really need to be fully compliant).
There is a predictable deflationary curve if you want to think of it as a currency - it is consistently going up in value. That makes it a terrible medium of exchange, because it encourages people to shove it under the mattress and wait for its value to go up instead of using it to get real productive work done. A good medium of exchange encourages you to go out and do something useful with it, thus encouraging more economic activity, and increasing the productivity of the people using it. As long as bitcoins' value is going up, it is a speculative investment, not a medium of exchange.
The trick to getting a currency to work, and the reason pretty much every developed country has switched to a fiat currency, is to keep the currency's value relatively steady despite the growth of your country's economy. If your currency's value goes up over the long term, it encourages hoarding and discourages productive economic activity. With a fiat currency it is easy to maintain this balance - print more money as your economy grows. With a currency based on a fixed resource (whether it be gold or bitcoins), this only happens if by sheer luck the rate of mining new gold/bitcoins matches the rate the economy is growing. If the mining rate does not keep up with economic growth, you get deflation and people will try to hoard the currency as a method of getting rich, instead of spending it or investing it to do actual productive work.
You are forgetting another deflationary pressure on bitcoin; increased adoption. As more people want to use bitcoins the demand for them goes up. Demand goes up, so does the price of bitcoins and thus the commodities prices expressed in bitcoins go down. Deflation.
Given how little bitcoins are actually used today this is a very significant hurdle to more widespread use.