This week has given me pause: I'm getting out of BTC

[abednego]

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/:

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 welcome everyone's thoughts on current events.

[mgio]

I've thought the same but I don't think it is time to cash out yet.

I am watching things very very closely though, and might sell some coins at the hint of more bad news re the US govt going after bitcoin.


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.

It is possible bitcoin will survive this and come out stronger.

We'll end up with exchanges that do things the "right way" (according to the US govt) from the start and it will be easier for investors to buy and sell bitcoins than it is now.

The transition will be difficult in the meantime as we see some exchanges go under and new ones gain in popularity to take their place.

[payb.tc]

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.

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

[CurbsideProphet]

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.

[bb999]

I agree that the government scrutiny is certainly a big question mark.  They would not be looking into Bitcoin unless it were relevant, and with the kind of Venture Capital money being raised in the space recently, there is some serious smart money working on building infrastructure.  That encourages me more than the scrutiny concerns me.

[SgtSpike]

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.

[meanig]

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

Makes sense 

[Adrian-x]

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.

[bb999]

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.

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.

[mgio]

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.

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.

[freedomno1]

Well I might sell but only on my own volition not because of the fear.
That said the domino effect could darn well occur people leaving causing price losses etc
I think Bitcoin would weather such a storm and that's not a problem
But I would say that when regarding such issues holding and waiting would have a cost
X dollars
It would not make sense to wait for such chaos, so I can see your position best lock in profits and play it safe if you feel its too risky
Balancing risk and costs is always important
Then if you feel the weather of that storm is passing get back in with the profits from selling now assuming that the positive news and current resilience doesn't mean the price will keep rising for the short run.
Best of Luck to you mate and thanks for taking the time to form a well thought out opinion

[abednego]

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.

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.

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

That is absolutely why we reaped such rewards.  My coworker traders gave me some really odd looks the whole time I was talking about it until they started hearing it on CNBC.  I was an early adopter in something that could have gone to zero at any time and that high risk yielded high rewards.  Risk/Reward... it's what trading is all about.  And right now... the risk has become incredibly high.

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

Makes sense 

Ahhh... your point is incredibly valid.  There is precedent for BTC/USD funds being seized recently just as there is for national funds being seized (Cyprus).  Nothing is ever certain but at least there is LESS precedent for USD bank accounts being seized.  And who said I was denominating everything back to stay in USD 

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.

We are indeed of the same line of thinking.  I went into BTC with about 3% of my entire professional trading capital over time in 2011 dollar cost averaging from $5-$15.  Since then I have been trading that value in swings buy side only during the time since.  It represented a nice gain but now I'm doing as you said; rediversifying.  I am ceasing trading due to the climate and keeping some BTC for novelty on a secured private server off any Exchange.

[toffoo]

So in other words, "sell in May and go away".  Seems I've heard that before somewhere.

[MonkeyBear68]

If you feel uncomfortable holding that much in BTC then by all means cash out. Like others have suggested sell 90% and maybe keep around 10% in BTC just in case you are wrong - you never know with all the current VC interest and investment in bitcoin.

Going forward, the most import thing you can do to support bitcoin is to use it whenever you reasonably can to buy goods and services. You simply buy the amount of BTC you need and then immediately use it to buy the good or service - no risk to you as you are not holding it.

Stay thirsty my friends - For Bitcoin!  

[xristoskostouros]

Please hear me out too.
Just wait now the meassures that Germany asks from French to do.
BitCoin's price will skyrocket like the days with Cyprus.
Then, Cash-out on the high Demand.

Ok, i am accepting donations after this post. I am really very usefull imo. (hahaha  )

[Rampion]

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.

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

you know how it goes:

"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", sentencing it to death? That week was the best time to buy, $2 per coin, less than two years ago.

[Malawi]

Yupp - Keep your original investment and walk away with your head high. There are other stuff you can invest in, and you can always come back.

No matter what - you'we got a good profit.

If you are lucky, you will find that the BTC's have risen a lot in value in 5 yrs, or they may have gone bust. Either way you win.

[counter]

There is logic behind your reasoning so can understand your decision for the most part.  I do think there is a strong risk reward factor for staying in and riding the waves potentially to come.  IMO u should take most of the profit out(60%-70%).

[Adrian-x]

that pretty much works all the time, especially with Bitcoin. Remember that Wired article, "The Rise and Fall of Bitcoin", sentencing it to death? That week was the best time to buy, $2 per coin, less than two years ago.

So funny, I thought the article "The Rise and Fall of Bitcoin" was so bullish (the title cleverly didn't contribute to the hype) so I bought in, I sold out on the same sentiment as the OP in December last year, diversifying into gold coins, and an education fund for my kids. Talk about good intentions going wrong.  Glad I saved a few.  

The OP's concerns to me are well founded, Bitcoin is disruptive and uncertain that is for sure, but as a society we have to choose, economic regeneration or repression, selling out is good it provides opportunity for others.   But Bitcoin needs strong hands, so while the OP is concerned the "repression side" is gaining strength, he is taking self preserving actions. If I had any influence I would encourage some profit taking, over the coming weeks, but I discourage selling below $120.  

... 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.

[halfawake]

I actually think the government going after MtGox has more to do with them breaking the law on how exchanges should work than bitcoin itself.  Personally, I think MtGox is not long for this world - but I honestly don't think they'll take bitcoin down with them when they eventually go down as an exchange.  What I suspect will happen is this: the price will crash temporarily, and either the other exchanges will pick up the slack, or someone will create a new exchange that follows the rules and it'll eventually go back up again to its current price, or higher even than it is now.

But I can understand wanting to get out.  I don't have a lot of money in bitcoin right now, so if it fails, I'll lose nothing more than a bit of time.  It sounds like you've been in it a lot longer than I have.  I only wish I had bought bitcoin back when the price was a dollar or two, I'd have made a huge profit if I could have predicted these prices.