BITCOIN BEWARE OF FURTHER FALLS! The closer its value goes to zero, the closer it gets to its true value!

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For those who haven’t heard of it as yet, Bitcoin is described as a digital currency or electronic pear-to-pear cash system, which was supposingly developed by Satoshi Nakamoto, back in 2008.   They can be transferred through a computer or a smart phone without financial intermediaries.

Bitcoin are created through a process called « mining ».  Miners use special software to solve math problems generated by the bitcoin software and are issued a certain number of bitcoins in exchange.

The number of bitcoin is finished in the sense that only 21 millions bitcoin will be created once they all have been mined.

Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 BTC within the year 2017 and halved continuously every 4 years after until a hard-limit of 21 million bitcoins is reached within the year 2140

To date, about 11 millions bitcoins have been mined and are officially in circulation, each of them are unique and cannot be counterfeit.

Bitcoin hadn’t really stirred much attention until recently when it’s value went sky high or more than twenty five times its yearly low before more than halving in value which rightly started to spur real interrogations across the world while at the same time we could see flourishing all sort of articles talking about incredible stuff from anything to flats up for sale in New York or other products being exchanged via internet platforms for bitcoins etc.…

Yet should all this make the bitcoin a real trustable currency?

Some are considering it as a currency because you can pay for goods with it but what do you really buy when you buy one bitcoin?

To be clear, and this is very easy to answer, not much and certainly not the same as if you were to buy USD, Euro or any other currencies, not even Zimbabwean $.

Simply because the value of a classic currency is baked by the economy of the concerned country, it’s ability to attract investments or purely on the back of its assets, weather it is gold or any other type of assets.

In the case of the bitcoin, the value only resides at a conceptual level on the back of the following points:

-It permits swift, secured and totally anonymous transactions without even going through regulated financial institution.

-It doesn’t need to be kept in a bank

-It is potentially impossible for the tax office to even consider controlling your bitcoin and taxing any income in bitcoin as long as you keep them in bitcoin.

-It can’t be devaluated since it will technically be limited to 21 millions (yet this doesn’t prevent huge volatility).

-It can’t be stolen from its owner weather it is by hackers, individuals or states, at least until now.

If we look at the above points the only advantage of real interest that other classic currencies may not offer is secured and untraceable transactions without going through any regulated institutions.

This is precisely what criminals (drug Traficant, arm dealers, terrorist groups, you name them…) are looking for.

The new and more recent phenomenon, it appears, is that some not necessarily criminals investors might have started using it, pouring real and clean money into the bitcoin market and therefore offering a new platform for criminals to launder money.

How? Well this is very easy. Precisely because on the scale of the criminal market, the bitcoin market isn’t so big. It is therefore very easy to manipulate and control it.

Currently the whole value of the bitcoin market is about $US1 billion while only a few months ago it was of about $US100 millions.

This market is extremely small, illiquid and whoever holds a large amount can easily pump and dump while keeping the price high for a while or at a level they estimate suits best their interests.

The higher the price, the better it is to convert bitcoin into real $US.

As a criminal, you may lose some playing at this game but that won’t be an issue just because getting laundered money is more and more expensive.

Criminals are smart these days and there are getting smarter and smarter. Many are certainly working hard out there trying to familiarise honest people, economically non educated investors, gambler who may think they can play and win some with the bitcoin, people that may not understand what really is the bitcoin, people that might be confused by the fact that many analyst working for regulated financial firms are even talking about it, that some hedge funds might even be considering investing into it etc.

Just put up for sale a penthouse in New York, a Ferrari or even a jet against bitcoin and you’re guaranteed a lot of free advertisement.

The clear winner will be the buyer who will have converted fake money into real money.

Also a whole industry of services is developing itself on the back of bitcoin, weather it is for trading bitcoin, manufacturing physical bitcoin etc.…

Don’t be wrong, no criminals will be losing out; mostly honest investors will be paying the heavy price.

So what should be the real value of a bitcoin since it isn’t a real currency, since it is one of the most efficient ways to probably launder money and since its lack of liquidity makes it a very easy tool for manipulating its value?

Should it be about $110 where it trades these days, $260 where it was a few weeks ago or $4 where it was only a few months ago?

Couldn’t the below formula be a good way to describe the value of the bitcoin?

Value of bitcoin = zero + small value for service of swift, secured and totally anonymous transaction outside financial market

The question one should ask isn’t if the bitcoin is going to reach a near zero value ever again but when will it drop back to zero + small value?

Few factors such as those identified below can get the price nearer to zero at any point in time:

-Massive sale by some large initial holders (profit taking)

-Creation of another, or several others, similar markets bringing more competition (no doubt the next one will be better)

-Intervention of a major state pushing for the end of the bitcoin market across the glob

-General panic from the consumer refusing to sell anything against bitcoin.

-A major breach into the bitcoin system following a massive hacking attack (trading platforms are already subject to heavy hacking issues).

When will one of these factors materialise? We can’t tell but one could predict sooner than later.

Bitcoin chart since trading started.

http://bitcoincharts.com/charts/mtgoxUSD#rg2920ztgCzm1g10zm2g25zv

Shadow columnist

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3 thoughts on “BITCOIN BEWARE OF FURTHER FALLS! The closer its value goes to zero, the closer it gets to its true value!

  1. Pingback: US intervention and the perspective of slow death for bitcoin! | shadowcolumnist

  2. First of all, get off your high horse. Currency = medium of exchange. Nothing about the number of traders or Government Fiats or Economies has anything to do with whether Bit Coin is a currency. Some people use it to exchange therefore it IS by definition a currency. Perhaps it’s one you are disenchanted with, which would be understandable if you jumped into the market on that peak only to watch it bounce around. Since the Bit Coin IS a currency it’s value goes up and down, like all currencies based on supply and demand, the difficulty in mining coins has gotten harder (lower supply) combined with the smaller payout for successful mines (now 25 BTC instead of 50 — also lower supply), and the value of the coins for many people (far outweighing your ridiculous zero + small value for service of swift, secured and totally anonymous transaction outside financial market) has recently pushed the market by a great deal (greater demand). So the value (and it is clearly not zero) has risen from around $4 per coin a few months ago as you state, to perhaps somewhere in the range of $120 or so where it seems to be stabilizing. But even more disingenuous is to call it a fall when the price peaked and slid back down to a more reasonable level. If you said the same thing about other currencies or commodities, you would attract a huge bunch of corrections about misuse of the term fall. If Bit Coins had been trading at $220-$260 for months and then suddenly dropped to $110-$130, then you could accurately use fall. As such, that was a fall, just an adjustment from a very short lived spike in price, as happens in markets for all sorts of commodities all over the world nearly every day.

    • Hey Jefkin,
      I perfectly see your point, which could make sense if bitcoin was not something one could duplicate.
      I know bitcoin is limited in numbers and can be mined ect…
      Tomorrow, somebody creates bitcoin2 which would be even better than the first version and much cheaper of course. where do you think the real money would flow and this even before you know about it?
      Now just imagine the United states or any other states decide to attack bitcoin, stop any access to bitcoin exchanges accross the world, make it a crilme to hold any bitcoins and i could get on and on, what do you think it will happen to bit coin?
      I don’t think it will ever die, it will rather be like fashion with people losing interest into it and the whole thing will deflate toward zero value.
      One way or another bitcoin will be attacked and rather strongly by states or simply hackers.
      Just wait for a failure to happen or some hackers to manage something unexpected and then see it drop like a stone.
      Remember, bitcoin is totally unregulated, this is a no man s land and when something will eventually happen there won’t be any court able to listen to any cases…

      Also just to be clear, i do not trade bitcoin while i do invest in many ventures,
      I perfectly understand while some might be tempted to invest in ventures involved with the bitcoin saga but as you can see, none, of these investors are buying bitcoin; they re just taking advantage of a temporary opportunity. Money goes fast these days.
      Now, yes bitcoin remain around 120 and is stabilising or at least it does appear to be. Have you ever traded into an illiquid and manipulated market?
      Also just have a look at the spread would you want to trade into bitcoin!
      I can only wish you good luck with your trades.

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