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Author Topic: [EDITORIAL] Don't Count on Bitcoin for Safe Haven in Recessionary Economy  (Read 1482 times)
BitcoinPorn
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August 09, 2011, 12:41:27 PM
 #1

EDITORIAL: Don't Count on Bitcoin for Safe Haven in Recessionary Economy
Jason Mick

Cybercurrency is intriguing premise, but has seen a flurry of recent devaluation

I've recently heard a couple of advertisements on satellite radio suggesting, of all things, that customers dive into bitcoins as a "stable" investment in the midst of the troubled U.S. economy.  In the midst of a seemingly impending recession, some might be tempted to try such a scheme.  Let's be perfectly clear -- while bitcoins are a worthy pursuit to dabble in, considering them as a place to put your nest egg is a pretty poor decision.

I. Bitcoins are in a Recession Themselves

Quote
When you combine the aspects that bitcoins are tied to the fate of the U.S. economy and that they've been on a downward plunge even sharper than the U.S. economy, the outlook is not pretty for bitcoins as a serious investment bid.  Even amid the stock market's huge losses (with today's $300+ USD decline, the New York Stock Exchange is at its lowest level since December 2010), bitcoins are still not a solid alternative to guaranteed securities like treasury bonds, or a diverse portfolio.


Treasury bonds are a far better investment that bitcoins in recessionary climates.  (Source: Mint.com)

II. Bitcoin Mining is in the Midst of a Correction

Quote
With difficulty soaring, it's now impossible for most video cards to break even.  The fastest graphics cards by Advanced Micro Devices, Inc. (AMD) still stand a chance to break even, but they require more than a year of work.

III. The Big Picture

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Fans of bitcoin may react negatively to this analysis, but it's hard to argue the hard facts.  Bitcoin is a terrific concept, and one worth supporting.  But when it comes to your money, an investment in bitcoins today, is essentially throwing away a chunk of your money, or perhaps breaking even in the case of mining (given hardware depreciation).

So as the U.S. faces a potential "double dip" recession, consider building a diverse portfolio of bonds, commodities, and stock from highly stable companies (GOOG, AAPL, IBM, etc.) as a way to guard your assets -- and avoid the bitcoins.

---

The above is not the full article, just the main points, read it in full at http://www.dailytech.com/EDITORIAL+Dont+Count+on+Bitcoin+for+Safe+Haven+in+Recessionary+Economy/article22385.htm and reply there too if you want to discuss with the writer.

Cited sources for this piece include, Mint.com, How Stuff Works, and The Bitcoin Forums lol.

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ctoon6
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August 09, 2011, 12:45:33 PM
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why do people post this stuff? bitcoin is in no way a real economic factor in any economy in a big way. an i also dont think currency has much if anything to do with a recession.

you can not say bitcoin is in a recession, it does not make any sense.

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August 09, 2011, 01:21:23 PM
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why do people post this stuff? bitcoin is in no way a real economic factor in any economy in a big way. an i also dont think currency has much if anything to do with a recession.

you can not say bitcoin is in a recession, it does not make any sense.

People have been buying gold as a safe haven--and wisely so.  To the extent that bitcoin has parallels to gold, they should be buying it too.  Except that it is new, not nearly so widely accepted, and has been hit by so many body blows in a short space that it probably looks like a joke to any fence-sitters.
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August 09, 2011, 01:21:39 PM
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why do people post this stuff? bitcoin is in no way a real economic factor in any economy in a big way. an i also dont think currency has much if anything to do with a recession.
A simple business model:

1. Spread FUD about bitcoin
2. buy bitcoins while they're cheap again
3. wait for people to realize it was only FUD
4. sell the bitcoins high

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August 09, 2011, 01:31:25 PM
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1. Spread FUD about bitcoin
2. buy bitcoins while they're cheap again
3. wait for people to realize it was only FUD
4. sell the bitcoins high

This only works when there is a platform big enough for you where FUD really matters.   I assure you these unofficial Bitcoin forums and "The Daily Tech" are not moving mountains, especially when the Bitcoin price is at molehill levels anyways.

Either way, the guy backed up his points, so if you see it as intentional FUD or not, whatever, it is Bitcoin in the news and it is current, like it or lump it Smiley

sergio
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August 09, 2011, 05:47:30 PM
 #6

Do count on Bitcoins.

In a recession money devalues itself and there is inflation by design, Bitcoin is by design anti-inflation.

In a recession there is inflation and money looses value, by this value that is lost is by design since more money is printed at will however it is seem necessary by whoever is in charge on the printing press at the time.

A server recession could affect the price of the bitcoin but to a much lower degree, since it would be because of offer and demand, not because of too many bitcoins in circulation, which in the long run the price would go back up.

Also traditional money is not virtual or digital money, bitcoin it is, therefore for online transactions without having to deal with a middle man bitcoin is the only choice.

Each type of money has their markets, and uses, in my opinion for online transactions, or savings bitcoin is the clear winner, for spending money on the street traditional money is better for now.

The only problem with bitcoin is that the price is a little unstable but that is due to the currency being very young, let a few years go by and it should be very stable, by then we will probably be talking about milibitcoins.

Needless to say I am a strong believer in bitcoins, it is the concept and the freedom that they provide that make them very valuable.






 
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August 09, 2011, 06:57:57 PM
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Stopped reading when you suggested that stocks and dollar-based assets are a safe haven.
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August 09, 2011, 09:10:27 PM
 #8

EDITORIAL: Don't Count on Bitcoin for Safe Haven in Recessionary Economy
Jason Mick

II. Bitcoin Mining is in the Midst of a Correction

Quote
With difficulty soaring, it's now impossible for most video cards to break even.  The fastest graphics cards by Advanced Micro Devices, Inc. (AMD) still stand a chance to break even, but they require more than a year of work.


Well this is just plain incorrect.  Mining is much harder now, but unless poorly selected most video cards will still pay back in 4-5 months and even entire systems in 6 months.  This is a far cry from 'more then a year' or 'impossible'.

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August 10, 2011, 02:40:41 AM
 #9

I love Daily Tech, but you can't pay much attention to the stories Jason Mick publishes.
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August 10, 2011, 01:03:23 PM
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1. Spread FUD about bitcoin
2. buy bitcoins while they're cheap again
3. wait for people to realize it was only FUD
4. sell the bitcoins high

This only works when there is a platform big enough for you where FUD really matters.   I assure you these unofficial Bitcoin forums and "The Daily Tech" are not moving mountains, especially when the Bitcoin price is at molehill levels anyways.
Ok, I'll elaborate more:

1. Spread FUD on one web site
2. Watch the exchange rate drop by 50 cents through a couple of investors you scared off by this
3. Go to the next web site, write: "Look, it dropped by 50 cents, a crash is coming because of [insert your favourite theory here]"
4. Watch the exchange rate drop by 70 cents through more investors you scared off
5. Repeat 3. and 4. as necessary
6. Buy
7. ...

On the other hand, we also have a lot of folks by now who are just scared by bitcoin's success, and try to get bitcoiners into something which allows more control from outside (as seen in this news item, and also in a lot of recent suggestions on how to "improve" bitcoin by making it dependent on some untrusted external data source).
Either way, the guy backed up his points, so if you see it as intentional FUD or not, whatever, it is Bitcoin in the news and it is current, like it or lump it Smiley
Yeah, bad press is better than no press at all...

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BubbleBoy
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August 10, 2011, 03:22:33 PM
 #11

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So as the U.S. faces a potential "double dip" recession, consider building a diverse portfolio of bonds, commodities, and stock from highly stable companies (GOOG, AAPL, IBM, etc.) as a way to guard your assets -- and avoid the bitcoins.

Treasuries are just about the worst thing you can buy. They are literally worthless paper, a promissory note that the government will at some time in the future subvert goods and services from it's voter base and pay YOU before health care, pensions and wages. As you can probably guess this can happen only if the government is either allowed to issue new promissory notes to replace the old ones, or make the already issued notes worth less goods and services. The government will never hold the voters accountable for the debt it accumulated in their name.

Some commodities are also in bubble mode, and there's really no good way to invest in natural resources. Most natural resources are controlled by governments. The effective way to invest in minerals then it's to finance a revolution in some 3rd world country, and not some ticker on NYSE.

Stock might still be your best bet, but highly stable Google and Apple are not. They are tech companies and highly volatile by nature, you should invest in such stock only if you have good understanding of the tech markets they are in. Apple especially seems to have no place to go but down; they have some innovative products that were quickly duplicated. Like RIM and the first incarnation of the Apple company, the innovation seems to have fizzled and they are now down to legal tricks like patents and trademarks. If you want tech stocks you should go for cheap startups that are looking for cash, and have a large moat. It's a gamble but a single success means 10x - 100x your money.

IMO stock or starting your own business is still the best thing to do with your money. Now is a good opportunity to get into manufacturing, agriculture, transportation, healthcare - essential services that will live on regardless of the shape of tomorrow's financial sector.
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August 10, 2011, 03:57:46 PM
 #12

My problem with this is what do you put whatever money you have left into for safety?

Gold at nearly 2000 an ounce or is this a super bubble and go to 200 (like it did in 2001) ?
Housing down 40% .. should I buy houses or is it gonna crash even more?
How about the market..  400 point daily drops are stable and safe right?

Look around you and tell me WHERE is there a valid investment?   If I'm going to invest,  then I am going to to invest in something that helps society..  in this case I feel that investing in bitcoins is helping society as a whole... 

I think however the difference between going to an exchange and just buying bitcoins vs building something that helps the entire bitcoin community was the way to invest...  I choose the latter... In a year or two I'll either be the biggest fool on the planet for trying to invest in bitcoins,  or i'll have changed the entire way the market functions for people and helped the community as a whole.












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August 10, 2011, 05:05:07 PM
 #13

The biggest problem with Bitcoin is the extent, if any, to which it is not backed.

That is the same problem that fiat currencies have and that stocks have and that bonds have,

Even precious metals have that same problem, that is how the ancient two-metals system worked to rip off money from the masses aka suckers.

You pump silver while dumping gold, then pump gold while dumping silver, and so on back and forth.

Anyone who for whatever reason either cannot afford to or is not smart enough to hold waiting for the peak of the next pump cycle in whatever they are holding stands to possibly lose worth/value if they release some of what they are holding at a moment when it buys them less of what they buy with it than they would have if they had bought at some other time.

If what they buy is a perishable then maybe there is also the factor that what they buy is not something they could have held so they save the cost of developing and powering a stasis field that would have preserved the thing they actually wanted as evidenced by what they finally did buy, whether it be brread or a trip to a circus. On the other hand the quality of bread or circus-performances might be better if innovation has continued in those fields.

How much will Bitcoin need to be worth in order for it to be more profitable for the pump and dump operators to pump some new scam while dumping Bitcoin and not bother going back to Bitcoin on the next cycle, instead moving on new scam two to pump while dumping new scam one?

The harder Bitcoin resists their dumping the more like a long term store of value Bitcoin will seem, which might make it have some appeal to go back to, picking it up at a low and pumping it while dumping new scam one instead of proceeding with new scam two.

If Bitcoin remains the highest difficulty blockchain, providing all lesser blockchains their security via the merged mining approach, the more derivatives - blockchains merged-mined along with Bitcoin - there are, or maybe more properly the value of such derivatives, should (maybe?) provide more and more evidence that someone somewhere maybe has some vested interest in buying back Bitcoins aka "backing" Bitcoins - demonstrating they have value by offering value in exchange for them.

Even then though miners could at any moment create a whole new chain specifically for the purpose of serving as the parent chain to all the derivatives and abandon Bitcoin, leaving it unable even to process transactions promptly, like they already have demonstrated the ability and willingness (and maybe also intent) to do to namecoin...

I had hoped Bitcoin would become the super-valuable blockchain, the coin used mostly only by banks and nations, people who actually find it useful to use a coin worth so much that even its tiny relative to one whole coin transaction fee migt be hundreds or thousands of dollars in fiat due to the value of one whole coin being very very high. All the lack of ease of use by grandma would be largely irrelevant then, as the hundreds of dollars of transaction fee should easily cover smilieface tellers to perform the transaction on grandma's behalf. ("You can afford to transact in actual Bitcoins, gramma? Heck we'll send someone out to your house to help you with that!")

-MarkM-

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