Bitcoin Forum

So in a post a few weeks ago about Bitcoin when Mt Gox (the largest USD>BTC exchange) had it’s Dwolla (the intermediary for US bank accounts dollars to reach Mt Gox) account siezed by Homeland Security I abated the fears of anyone reading (and my own) with the logic that this was not the end.  However, as more actions by United States agencies begin to unfold I have adopted more conservative risk management in regards to Bitcoin.  The risk I am specifically trying to avoid is my assets both USD and BTC within the system being locked, frozen, or lost.  Any number of these have been at risk of happening in the “Wild West” economy Bitcoin represents.  I have always held the notion that anything and everything I have in BTC could be gone in an instant (just as a portion of my holdings vanished in a Solid State hard drive crash… yes, I knew you could back up your wallet I was just careless).  I still want to trade it for fun and proof of concept that it is a financial instrument but I have been given pause by current events.

This week I have seen a string of news:

May 28: Justice Department unseals indictment against Liberty Reserve: Liberty Reserve was one of the first ways to get money to Mt Gox.  I remember setting up an account but did find the whole thing a bit shady.  I was much more impressed with Dwolla being US based and used them as my primary funding source instead when they became available.  This indictment was the result of the probe into the Gulf Bank hacking from last December where the criminals involved were using Liberty Reserve to launder the money.  The terminology of the indictment specifically noting the Justice Department’s focus on “digital currency” hits home to Bitcoin.

May 28 – OKPay Suspends Money Services to Mt Gox: I can only assume that OKPay wanted to preserve their other business interests and upon news of the Dwolla seizure made the decision voluntarily.  Notice how the authorities went after the largest funding source on the largest Bitcoin Exchange first… and then the others begin to fall in line.

May 29: The US Justice Department forces Switzerland to change it’s laws on account disclosure: Desperate times call for desperate measures; i.e., our national debt burden is leading the government to go hunting under every crack for some additional tax revenue.  No more is it to be allowed that a US citizen can hide their assets from the IRS in Switzerland.  The Justice Department made it clear to Swiss banks that doing so would put you out of business like Wegelin & Co.  That pressure was enough for another nation to change it’s laws just to serve US.  Notice again; the authorities went for the oldest company.  The point is always to maximize prosecutorial effect.  See also; Martha Stewart.

What this demonstrates to me is that the US government feels entitled to know about every penny it’s citizens posses and exchange to prevent criminal activity and enforce taxation.  Bitcoin, while not yet specifically mentioned, has to be within their crosshairs by now.  There is a very vocal libertarian, crypto-anarchist, black market economist, etc. crowd of people that want to believe they can resist these authorities within Bitcoin but the Lead Developer of Bitcoin was quoted at this year’s Bitcoin conference when asked about government interference:

I think if the U.S. government decided that Bitcoin was a bad thing and told me, “Stop doing what you’re doing,” I’d stop doing what I’m doing, quite frankly. But that wouldn’t be very effective, because there are people all over the world who could pick up and reimplement it, for example in different programming languages; if you browse the Bitcoin forums you’ve seen the enormous chaos and energy there. There’s all sorts of people doing all sorts of things—many of them crazy things that will never succeed, but some of those will be the next big things in Bitcoin.
The first part initially struck me as “wow, what a wuss.”  Then again, one wouldn’t expect passionate martyrdom from a computer programmer.  He admitted that he would cave to even the slightest pressure but knew his departure would not be the functional end of Bitcoin.  Certainly the more anarchistic hackers in the community would take up the project.  His statement doesn’t give me much confidence.  It would be like hearing the COO of a company in which I held stock saying “if I get a letter with harsh words I am going to quit immediately.”

I believe that a parallel can very accurately be drawn between Bitcoin and the history of Peer 2 Peer file sharing.  Bitcoin is based upon a P2P idea and system that fundamentally changes and arguably threatens conventional methods of financial exchange just as P2P file sharing changed the game for intellectual property distribution.  I was amazed the other day to walk into a renovated movie theater to see a server room prominently enclosed in glass in the middle of the lobby.  The manager explained to me that movie production studios provide downloads of digital copies of movies, store them on the servers, and play them digitally through projector across the theater.  There is no need to pay a projectionist’s salary to run the reels nor make and ship several 50 pound metal boxes of expensive chemical film to every theater which can cost up to $5000 each.  File sharing has evolved into real cost savings for the industry that tried to destroy it; just as they tried to destroy VHS in the 80′s.  Governments and financial institutions may one day embrace Bitcoin but not before they exhaust every legal recourse to destroy it for what it represents: change.

So what am I doing?  I am liquidating most of my BTC holdings now on CampBx and transferring them to my USD bank account through Dwolla.  Though I met the owner of CampBx, which is based in Atlanta, there is no guarantee that it will remain immune to being shut down.  In which case any BTC I have on their servers may be lost.  Dwolla may also one day stop any transactions going to Bitcoin exchanges.  In which case I would have to find someone to trade cash in person for BTC.  Either way would represent worst case scenarios and I am limiting such downside risk.  I will still keep a small portion of BTC for novelty in a BACKED UP digital wallet on my own private secured server.  If the climate becomes more hospitable then I’ll jump back in but for now closing out at $130 which is half of the all time high of $266 sounds like a good exit.

I've had a lot of fun (and made a lot of money) trading BTC for the past 2 years.  However, this month and specifically this week has given me pause.  I know the Bitcoin bulls will flame me but I am starting to feel the quakes of a major shakeup coming.  It's something we've all been aware of since the dawn of BTC...

I welcome everyone's thoughts on current events.

Been there done that, I was anticipating the crash in December last year. (I was only 4 months out - not to mention one order of magnitude off)

My advice please just save 10% of your coins.

Government intervention was inevitable, the fact that it's playing out goes to show that Bitcoin is relevant.  I think some of the rewards that you and many others have reaped is because of the significant risk that was undertaken.  If you feel that risk is now significantly greater than the perceived reward, then you're right in liquidating.  But before you sell, ask yourself why you got into Bitcoin in the first place.  You already identified it as the "wild west" and were willing to lose everything you put in, so I think you've assessed the risk properly.  Does selling at this point change your life in any significant way?  To me, in a boom or bust proposition, that's exactly what you go for, the big boom or the unfortunate bust.  Anything in the middle isn't worthwhile settling for as you're cutting short the reward potentially being offered for the risk that you've already signed up for.

What gives me faith, though, is that the bitcoin market did not budge at all, and in fact went UP after the LR press release.

I think some of the rewards that you and many others have reaped is because of the significant risk that was undertaken.

So you react to the confiscation threats of a cash strapped government by transferring your assets into a highly confiscable form.

Makes sense  ???

I'm not sure about the OP, but I'm guessing he is in the same boat as me. By that I mean, he invested very little early on with an amount that he was comfortable losing. But now, that small amount is a lot more money at risk, even if bitcoin is actually less risky now.

My first bitcoin purchase was 500 coins when bitcoin was at $10. $5k wasn't too much to lose if bitcoin completely collapsed and I thought there was a fairly slim chance of that ever happening. Honestly, I was super happy when that $5k turned into $6k in a couple of months. I figured if I could make a couple of grand off of it, that was great. But now those 500 coins are now worth $65k (and I've since acquired many more) and that is a significant amount of money to have in one very risky asset. To put things in perspective, let's say you have $50k in your retirement fund and invest $5k in bitcoins. That's just 1/10 of what you've saved for retirement. But now, 6 months later your retirement fund is probably not much more than the $50k they were were before and your bitcoins are worth way more! Time to sell and rediversify.

yes!!! this is exactly the kind of sentiment we need if i'm to purchase more at $70 again. SELL!

"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful"

that pretty much works all the time, especially with Bitcoin. Remember that Wired article, "The Rise and Fall of Bitcoin" (http://www.wired.com/magazine/2011/11/mf_bitcoin/), sentencing it to death? That week was the best time to buy, $2 per coin, less than two years ago.

... During times like these there are two choices offered: repression or regeneration.

When the Continental collapsed there was the American Revolution and regeneration with gold and silver only as legal tender.

On the other side of the Atlantic, John Law got gold and silver outlawed as mediums of exchange punishable by death; repression. The natural backlash was the Reign of Terror with the guillotining of tens of thousands of French aristocracy.

During the 1920's in Germany the Mark collapsed in hyperinflation which set the stage for supreme repression with Hitler.

But in 1694 Isaac Newton was Master of the Mint and invented the gold standard; regeneration.

History is being played out and it seems that the US, China, Bafin and most other regulators are choosing the path of regeneration instead of repression (only the Canadians it seems). It will be interesting to see how this plays out.

Here is the question I can't answer right now... if the largest funding source for the most traded currency (USD) on the highest volume exchange is now closed then how is money going to get into and out of the market?  I too am surprised that neither price NOR volume changed very much with this event.  That alone makes me very concerned.  The volume is either fake, inflated by API trading, or something else.

That's where I think you are absolutely wrong.  LR and Dwolla were a tiny portion of the USD funding for MtGox.  Wires have always been how the big money funds their accounts.  Dwolla might have had quite a few individual transactions, but they were only used for smaller transactions.

That's where I think you are absolutely wrong.  LR and Dwolla were a tiny portion of the USD funding for MtGox.  Wires have always been how the big money funds their accounts.  Dwolla might have had quite a few individual transactions, but they were only used for smaller transactions.

I understand your sentiment and if I had 4 or 5 digits of profit rather than 3 I might be tempted to do the same.

I am reasonably confident BTC will not die in the next year.

If it doesn't then the spread of values we can expect range from $10 all the way up the high hundreds.

I certainly would like to be part of the bounce from low double digits and I wouldn't ever want to be out of the market completely on a long-term basis.

I'm a firm believer that the bigger risks are to be taken at the start of any venture not at the end.

It's clear you don't see anything like a similar profit from hereon in so your plan makes sense.

Edit: yes it's the US government departments who will try to kill off BTC but that will be its chance to break free of its relationship with a dying currency. Non-USD exchanges are the future.

I still remember the "crash" of 2011 and all the hair-pulling about the death of bitcoin.  I don't have my life savings in or anything like that, but I decided back then just to ride this train out for the fun of it and it's been a lot of fun.  Things were looking a whole lot more dire back in June of 2011, let me tell you.  Back then, something like the blocksize bug/forced hard fork or Mt. Gox freeze might have set Bitcoin back a decade or more.  While I have no idea whether owning bitcoins will make my life easier in the long run and I have no idea what the price will be in a month, I am very confident that the Bitcoin network will be around for many years to come, and I'm interested to be a part of it.

I might be on the same boat if it wasn't for all the VC money pouring in to Bitcoin startups.  VC's have a good eye for "the next big thing", so I'm going to follow their lead on this.

+1 have to agree on this one.

When in doubt I just imagine bitcoins aren't worth anything. Some random guy on the forum will post his offer for buying a couple of pizzas with 10k of them in short time.

Though I met the owner of CampBx, which is based in Atlanta, there is no guarantee that it will remain immune to being shut down.  In which case any BTC I have on their servers may be lost.

I'm a bit of a newbie. I've been peripherally aware of bitcoin since it launched, but due to personal issues didn't pay much attention.

Stupid of me. I would have made a mint, and it's interesting to boot.

FED is going to end its QEI sometime during this year, that will also impact the available risk capital in the market

Not a chance.  They might scale it back but they won't pull the rug from under the house of cards.  They're going to keep printing because it's all they know.

Not a chance.  They might scale it back but they won't pull the rug from under the house of cards.  They're going to keep printing because it's all they know.

I think you're right. In fact, as long as Alan Greenspan's hand picked dick sucker clone mini-me successor is the head of the Fed, it's pretty well guaranteed. But the last time they came to this loggerheads and started pissing their pants they got Paul Volker. It could happen again. The Dollar has (so far) been absolutely the most successful long con in history.

If they're going to keep it running longer, they have to raise interest rates and slow inflation at some relatively near point. Bernanke ain't got the balls to do it, but there are others who might. Obama isn't the sharpest economic tool in the shed, but he is astute at reading the writing on the wall. Never count out the Imperial ability to spin and duck.

Of course, there is one other way to prop up the dollar and still inflate. Another two branches of goverment, one euphemistically called 'defense' and the other called Intelligence, have been setting the stage for world war III for some time. If they choose that option, this time the USA will be Germany. Since it's military presence is already global, that could be real ugly, but it would postpone the destruction of the dollar. It also is EASY to raise the apathy of the American public to bloodlust without thought. Anyone who don't believe me, just look at the evidence from September 12, 2001.

I frankly think that overt attacks on the bitcoin are unlikely at this time. Regulatory horseshit like what they've done to Mt. Gox, yes. They'll make the big exchanges play ball. But that doesn't change a lot, and in some ways makes it easier to subvert and or bypass the dollar economy. I suspect that such attacks will strengthen the bitcoin, and perhaps some of it's variants as well. I'm long on this one.

The problem with Bernanke, from day one, is that he's fighting the wrong war.  He's a student of the Great Depression (liquidity crisis) and is very well versed in how to combat this problem, however, this is not the problem we are facing today.  We have a problem of solvency, not liquidity, which is why all this money printing is doing nothing to help the situation.  He mistakenly thinks he's fighting the same war but this is an entirely different animal.  It would be similar to thinking because water put out a house fire, now I should use water on this grease fire.  All fires are not the same and in the case of a grease fire, water actually makes things worse.  Maybe his successor will realize this but I'm not very hopeful.

So you react to the confiscation threats of a cash strapped government by transferring your assets into a highly confiscable form.

Makes sense  ???

....

The problem with Bernanke, from day one, is that he's fighting the wrong war.  He's a student of the Great Depression (liquidity crisis) and is very well versed in how to combat this problem, however, this is not the problem we are facing today.  We have a problem of solvency, not liquidity, which is why all this money printing is doing nothing to help the situation.  He mistakenly thinks he's fighting the same war but this is an entirely different animal.  It would be similar to thinking because water put out a house fire, now I should use water on this grease fire.  All fires are not the same and in the case of a grease fire, water actually makes things worse.  Maybe his successor will realize this but I'm not very hopeful.

Also if you want to help Bitcoin develop, you should be using some of it in transactions (for things you would buy anyway using fiat where there are Bitcoin alternatives.)  Not just trading or saving it.

This. Assuming you can find businesses that take them.

I might be on the same boat if it wasn't for all the VC money pouring in to Bitcoin startups.  VC's have a good eye for "the next big thing", so I'm going to follow their lead on this.

+1

Of course maybe you can win more money just selling now and buying at $70, $50 or $30 (if we get there) but if you believe in the long term of bitcoin is better just to stick in, unless you really know what are you doing.

Right now fiat is crashing, is matter of time we have another news like Cyprus.
Or new decentraliced p2p exchange, etc

I've had a lot of fun (and made a lot of money) trading BTC for the past 2 years.  However, this month and specifically this week has given me pause.  I know the Bitcoin bulls will flame me but I am starting to feel the quakes of a major shakeup coming.  It's something we've all been aware of since the dawn of BTC...

Quoted from my blog http://www.adventcarraig.com/2013/05/30/bitcoin-concerns/:
 I still want to trade it for fun and proof of concept that it is a financial instrument but I have been given pause by current events.

This. Assuming you can find businesses that take them.

We are entering a new phase of bitcoin's evolution - bitcoin 2.0.

The key themes to categorize this step:

* Bitcoin mixes with government: Remember, the government can do *nothing* to stop this technology. They will not be able to stop it. Even if they close down the exchanges, they cannot stop this technology.

* Bitcoin technology evolves: We have an issue with the block size algorithm. This is the first major technical challenge with bitcoin. The block size needs to be raised. This will be a test of the community and whether it can successfully navigate this change.

Through this stage of evolution, I see some great opportunities to buy in at prices alot lower than $110 (current price). Patience will be a key asset for any investor.

My opinion is, bitcoin will pull through these challenges. Specifically the government threat to bitcoin - I don't see this having much of an effect on the price. We have already seen that bitcoin is resilient to problems with the exchanges. Remember, this technology is global - there is no single government that can stop it.

If anything I see government intervention having a positive effect - as it brings more publicity to bitcoin and puts it more into the mainstream.

I understand why people are selling, because the investment case/"risks" now - in 2.0 - is different to how it was 1 year ago, for example. However I believe bitcoin has truely progressed alot since last year - I see only positive factors in the months & years ahead. Rememebr, patience is the name of the game here! Believe me, prices will come down in the coming months as more investors look to get out of bitcoin because of the reasons discussed.