Very bad for the USD. There's a lot of anecdotal information implying the US will covertly backstop (or already is) the EFSF via the IMF. If proven true...

Let's just say I'm now deliciously long AUD, CAD, CHF (doubled up from earlier position @ USD$0.90) and SGD. Along with Bitcoin, those are my play positions (and the only investments that have any kind of leverage). Forex is for fun!

No worries on the PMs and miners, I'm all in. Also bought AEM just under $44 on the 24th - can't say no to a solid dividend at a discount. Same with FCX at a PE < 7 and another hefty dividend - madness!

The analysis on Bitcoin applies just as well to gold/silver for the foreseeable future. Let's all build our futures out of the ashes of fallen empires.

I apologize if my post seemed confrontational. If you are a US citizen there is some information which might be relevant. Legal counsel or tax professional advice might not even be sufficient since this is still new and fairly obscure legislation; adding Bitcoin into the mix results in multiple unknowns.

The legal standing certainly hasn't been officially determined yet, although in the US any financial instrument or income-generating asset valued over USD$10,000 and held outside of the US must be declared; not necessarily taxable, but the Gestapo IRS must be informed of its existence by using a TDF 90-22.1 (PDF) form. I see no reason for Bitcoin to escape similar treatment, since it is basically a supranational currency outside of any regional jurisdiction. Oh, did you get the memo about the new TPS reports?

Be warned: if you do report your Bitcoin holdings, you may be risking more than you bargained for. The initial reaction of most governments in the face of potentially threatening uncertainties is to shoot first and ask questions later.

No service that any gov't provides is anything that couldn't be provided as a utility. If emergency services of police, fire and medics (to name a few) were paid for on a utility and/or per-use basis, there would be little to no justification for the bureaucracies that dwarf the actual work force. The same goes for conflict mediation and legal services. There is empirical evidence that shows private contract services which develop just such a utility system cut costs while providing a better level of service.

Control of commerce through the money supply has historically marked the transition from a government that respects its constituents to one that demonizes them. In the latter stages of a government's lifespan, arbitrary retribution can be exceptionally harsh.

The services I linked to in my previous post provide extensive information on how to protect yourself and your assets from needless government waste and aggression. Make use of them if you can.

As an addendum: without statistically significant capital in/outflow from external currencies, the high volatility denominated in Bitcoins means that whichever side is correct will end up with an increased percentage share in total of this economy. In other words: more highly skilled (and/or luckier) traders will accrue more Bitcoins overall than less adept traders, leading to a (likely temporary) relative concentration of Bitcoin wealth.

For an overly-simplistic example:

100 BTC holders with 1 BTC each @ USD$1/BTC
50 BTC holders sell @ USD$1/BTC
50 BTC holders now have 2 BTC each @ USD$0.50/BTC
50 BTC holders are not selling at existing prices
BTC price rises to USD$0.75/BTC (BTC holders have effectively gained 50% on their total holdings due to cost-averaging)
50 non-holders experience seller's remorse; 10 of them buy back in (1 BTC each) and the exchange rate goes to USD$0.80/BTC
15 non-holders buy back in (1 BTC each) and the exchange rate goes to USD$0.90/BTC
50 steady BTC holders out the 75 total now have average of 75% out of total BTC economy; former sellers only 25%

Over-simplistic and freely assuming price changes, but illustrative of how a transfer of wealth can occur in a closed economy. Since Bitcoin is such a small economy, but based on now-proven technology, increased participation is nearly guaranteed to produce substantive gains in existing holdings.

And the chart:



A lot of that volume can be read as Bitcoins changing hands from sellers to buyers. Without a corresponding exchange rate drop, some will experience seller's remorse and reacquire their Bitcoin holdings at higher prices.

The real determining factor now is external capital flow due to new interest from organic growth, not supply/demand within the Bitcoin economy itself... unless a BTC millionaire decides to dump it all (still a case of diminishing returns - buyers have incentive to scoop up cheap BTCs). Until external currency volume rises, any further declines are most likely to be shallow and short-lived.


Oanda is a private exchange in the same class as Bitcoinica that apparently offers quite a good amount of transparency.

It isn't required, but it'd be nice - and confer additional credibility to Bitcoinica.

So the mere potential of a government threat involving tax liability is going to spawn a cottage industry that does virtually nothing productive other than assist in the navigation of an equally incomprehensible and financially-parasitic entity? Of all the absurdity.

Bitcoin offers a means to make governments, banks and their respective hordes of secondary and tertiary industries such as tax accountants and the IRS and countless paper-pushers completely irrelevant. This is the power that everyone seems so willing to give up to someone else - the power to eliminate taxation, not just minimize it; reinventing government functions as utilities instead of a unified, authoritarian force. In effect granting the greatest degree of free will to the individual than has ever been available before. Maybe it's the implied personal responsibility that's scary for people so used to passing it off onto others.

It saddens me that there is still so little revulsion toward the magicians behind the curtain and so much quarter given at the slightest of threats. We may not have to literally shed much blood to foment a modern revolution, if any at all, but battles of various types must still be fought.

When a business does wrong by us, we choose to take our business elsewhere. When a government wrongs us, do we stop providing support to that government or leave the country? Internationalize to protect yourself from the dying paradigm that is the all-powerful nation-state, lest it drag you down as well.

Take whatever positives you can from the following resources and put them into action:

• Bye Bye Big Brother
• Casey Research
• International Living
• Sovereign Investor
• Sovereign Man

It's enough of a hassle to extract funds from the Bitcoin system into another currency that there will be residual wealth held in the micro-economy. If this is where that equilibrium forms, then all that's needed to maintain is a slow spread of awareness and experimental usage by Bitcoin neophytes; even if it's just a few thousand people (out of ~7 billion) buying a couple of BTC to see what it's all about.

Any significant interest generated and we could see another run up in exchange rates. It really wouldn't take much. Although the floor hasn't exactly become bedrock and there's a lot of technical damage yet to be repaired... still very precarious times for Bitcoin's early adoption phase.

It'll be interesting to see the extent that panic in the global economy at large affects Bitcoin.

As heinous as your experience with Mt. Gox has been, that had nothing to do with Bitcoin directly and it is still a viable means. Transfers within the Bitcoin system itself are much more reliable, and just-in-time transfers and withdrawals can be made using preferred exchanges. If a reputable prior relationship is established, there should be no reason for Mt. Gox or any other exchange to withhold funds - especially post-hack. Just-in-time transfers and withdrawals means that a minimum of funds will be at risk at any point.

Your situation:
User -> Exchange -> X

Direct donation via Bitcoin:
Donor -> Bitcoin -> Wikileaks

Withdrawal of funds immediately following transfer:
Wikileaks -> Bitcoin -> Exchange (Mt. Gox, TradeHill, etc) -> local currency

If Wikileaks' use of Bitcoin winds up lending the crypto-currency credibility, there may be some businesses that agree to accept payment in BTC. That would be essentially a private contract between two parties and the validity stands so long as BTCs still have value. This would make the direct donation situation above realistically possible.

Smart management is all that's required.

I'm lost. Is this thread about which direction Bitcoin's exchange rate is going, or an attempt at figuring out what BitMagic's holdings are?

Yes, interest by any other name is still a return.

You might find Onion Tears a worthwhile read.

I consider Bitcoin to be the equivalent of a tax haven. Therefore, hell-f*@$ing no.

How would an audit work if your transactions were no longer necessary to the integrity of the blockchain and had been culled?

Which transactions could be verified as yours without exposing your wallet to gov't inspection for verification of ownership?

Why in the world would you want to prostrate yourself as a sacrificial lamb to be made an example of?

Too risky to even consider, especially for anyone with substantial amounts of BTC. There are methods of protecting your tax status internationally against domestic gov't reporting requirements. Bitcoin assets and profits could easily be transferred to such a vehicle; many nations provide for a limited tax-free disbursement of funds from foreign sources. In the US, it's about $90k/year, which is like a ~$150k/year taxable salary.

Understanding capital flows will help bolster your confidence. Right now, there is very little external wealth flowing into or out of Bitcoin. After a period of time, which looks to be relatively short-lived, there is a high likelihood that Bitcoin will resume its gradual ascent in relation to other currencies that are becoming less desirable.

Patience.

The decrease in external currency flow volume is a strong indication that the current exchange rate has stabilized for now.

Granted, the continuing inflation of the Bitcoin unit base will provide substantial downward pressure for a while yet. This requires inflow from other forms of wealth to be offset, but considering the overall size of the Bitcoin economy, not much is necessary. Any excess from another wave of interest would easily drive up the exchange rate.

If BTC holders with large balances decide to sell as the price rises, that would serve to maintain stability during inflow.

Note the volume in currency (USD):



A Logarithmic representation makes it easier to see the magnitude and stages of decline, while the standard chart below (with Bitcoin volume) shows the gradual tapering of absolute price volatility.



Paying attention to the BTC volume versus the USD volume is interesting. It is apparent that there is very little flow entering or leaving the Bitcoin micro-economy. Therefore, the volume in BTC won't change the exchange rate much despite coming into a fairly steady range of almost double that from before the June spike high.

What that suggests is there is a significant amount of wealth (relative to Bitcoin, not major currencies) that has split off from other currencies and taken up residence in the Bitcoin economy. In other words, the pool (EUR, USD, etc) has been drained slightly while the cup (BTC, NMC, etc) has been filled up; June was an overflow that simply saw the excess spillover from the cup and return to the pool. As offered earlier, additional waves of interest are likely to deposit additional reserves of wealth so long as the underlying technical structure of Bitcoin (encryption, triple-entry accounting block chain, sovereign usage over persistent network domination, etc) remains intact.

There is a danger that funds stored in Bitcoin could become trapped rather quickly should a major internal component be compromised, but it certainly doesn't seem that anything in the immediate future has the capability of doing so. Could the exchange rate go lower from here? Absolutely. The Bitcoin economy is small enough that it could very easily suffer a mortal blow that would marginalize its relevance for an extended period. However, I don't see anything on a 6-month horizon that would cause such a situation.


What "stable" currencies? Both the Euro and USD have experienced tremendous volatility of ~25% over the past few months (major peak to trough ranges) after having seen ~10% overall rise/decline (respectively) in the first half of 2011. All other currencies are buffeted by action in the majors, some experiencing much greater swings.

A decline in Bitcoin to a superior alternative would not be instantaneous, but a process. It is also unlikely that a completely overwhelming competitor would arise in such a short period, especially when there are trade-offs to any design decisions. There is room to improve on Bitcoin, but it still remains an elegantly simple system. Besides, expecting Bitcoin to be replaced instead of improved upon is a blind assumption.

Perhaps your definition of "useless" could be expanded upon. Bitcoin is useless for purchasing goods and services at the vast majority of establishments, yes. It would also be difficult to use gold and silver, stock certificates, gov't bonds (held by "speculators"?) or most foreign currencies for that purpose. However, it performs exactly as it is supposed to when acting as a currency for storage and transfer of wealth. It takes up to 72 hours for most international wire transfers, sometimes longer. Bitcoin generally does this in a matter of hours at most. Gold and silver offer a great degree of individual control over the monetary unit without a centralized authority, as does Bitcoin.

The death of Bitcoin has been greatly exaggerated.


It's ok, he didn't sell all of it...


Bulls... check.
Bears... check.
Pigs... check.
Sheep...

Are you calling him a sheep?


Excellent: those are some truly critical points. Much of the professional investment community is looking to dividend paying stocks to bolster their portfolios during stagflation. Plenty have already sought out tax havens. Both of those are subject to political machinations, so how long until a greater percentage of the progressives in the investment world decide that Bitcoin offers potential returns in addition to relative tax freedom without the typical barriers (offshore presence with an international trust or business incorporation, foreign bank accounts, legal fees etc)?


I like long-term. Another visual representation of USD flowing into BTC.

Look for key concerns that are critical to infrastructure; highly inelastic consumables such as food and energy. Think oil producers, food transportation, grain production, commercial refrigeration, municipal sanitation, etc... those will remain in demand until the zombiepocalypse (and possibly even then). If their stock prices dip, they'll be among the earliest to recover. They'll also pay dividends the entire time, unless a real disaster happens.

Caterpillar boomed today, largely because of demand from the mining industry. Imagine that. It isn't surprising to see a picks & shovels company benefiting from turmoil.

Besides, if you're expecting inflation that means the stock prices will eventually rise nominally no matter what. Win-win!

For once, I agree with you Nagle.

... and this is assuming things remain static from here on out. I don't see that as possible; USD$10k/oz is the floor.


Very true. Even if treasuries find a bid, the question becomes one of who's buying?


Established, dividend-paying companies aren't going to disappear or reduce the dividend. A steady income will remain throughout any global situation. With a choice of a steady paycheck or a gamble on a jackpot that could turn out to be a complete loss with the current state of things, stability seems a much better bet whether the stock is $1 or $100.

Yes, it does and you did. That doesn't mean investing should be done recklessly, though.

The Euro situation is at a breaking point. What happens if bank failures start as they did in 2008? At first, deflation would overwhelm and markets fall. So many are expecting QE now that the Fed has been talking it up; a round of deflation would completely blindside them. After that... everything is set up for further monetary inflation.

Does that guarantee those mechanisms will be acted upon? No; it does provide a path of least resistance so the likelihood of it occurring is very high. Putting all of the systems in place and then not using them to save the system (even if temporarily) seems counter-productive.

Speaking of video games... a message for the bearish Bitcoin queens.

With fundamentals, yes. Right now, I smell a trickle of technical blood. Time for some shotgun rain!

Damn right. There are scouts in the music and sports industries who look for the Next Big Thing^TM. They exist in finance as well, just less often as directly tied to the corporate infrastructure. Imagine their drooling gaze as they watch the Bitcoin economy fluctuate in ranges that easily generate 10-baggers while the rest of the world is grateful for gains of a few points.

As for it coming out of Russia, I'm not surprised; just look at the numerous Russian mega-millionaires and billionaires who made their fortunes in the precious metals markets over the past decade or so. That's a market which is nearly identical to Bitcoin...

Here's another source of demand for Bitcoin: divorcees seeking to protect their assets from predatory spouses. How many small investors have the means to sequester their funds away from the prying eyes of litigious attorneys? That takes a lot of planning and no small expense. Bitcoin makes this easy.

I think $20-30 from a short squeeze is highly unlikely. Perhaps the $10 range, but even that's just a wild guess. A significant rise like that due to short covering might garner fresh interest from Bitcoin neophytes and trigger more buying support.

Back to selling pressure: it's more likely that either mined BTC or existing BTC that had been purchased post-mining have been sold. How much of the total decline in price has been from short-selling versus normal inflationary debasement attributable to block generation, relative USD (or other currency) strength or other factors? Where other than Bitcoinica is short selling possible?

Without that information, it is virtually impossible to do much more than make an educated guess.

Now that I've got that out of the way: let's kill some shorts, I want to make a profit!

The same thing that would happen if half of the world's gold were held without participation in markets:

• Major financial system disruption for a short time
• Scramble to reassess and engage protective measures
• Revaluation of remaining functional stock of available units
• Resumption of business as usual

The concept of a crypto-currency and the implementation of it that is Bitcoin holds enough strength to exist in perpetuity regardless of major setbacks; even Mt. Gox absconding.