Do you really know bitcoin? Here are 11 myths
The simulated online currency was big news in 2013, and bad information sometimes mixed with the good. Here are some things you may have heard about bitcoin that aren't true.
This post comes from Jeff Cox at partner site CNBC.
Debate raged over bitcoin's legitimacy: Was it just a playful creation of hobbyists, or a new exchange medium brought about as a logical reaction to profligate currency manipulation from the world's central banks?
Nick Colas, chief market strategist at ConvergEx, was one of the early Wall Street analysts to take a serious look at bitcoin back in February. To wrap up 2013, he examined what he sees as 11 myths surrounding the subject.
Myth: Bitcoin is huge
For all the talk and hype, bitcoin is tiny with a total value of just $10.8 billion. That compares to the total stock of U.S. dollar at $800 billion, Colas said in a report. There's also about $4 trillion in global currency traded every day.
Myth: Bitcoin enables drugs and terrorism
Colas argues that bitcoin is "way too volatile" for the average drug dealer or terrorist. That's not to say that "some enterprising dealers" don't use it, but if it was widespread Colas contends its value would be "$10,000 or higher" compared to Friday morning's trading value of about $800.
Myth: Bitcoin is a currency
This is perhaps the most contentious observation, as bitcoin is often referred to as a "cryptocurrency." Colas offers that bitcoin is "a system much more than a 'currency'" in which holders agree to take part in a transaction of value.
Banking analyst Dick Bove may have been more to the point, where in a recent analysis he called bitcoin a "low-cost replacement for credit cards and other payment mechanisms." There are virtually no costs involved with bitcoin transactions, as opposed to wire transfers, for instance.
Myth: Bitcoin has never been more volatile than now
Untrue, according to a chart Colas prepared analyzing bitcoin's one-month returns and standard deviation. It actually was more volatile in May 2011, before most people even had heard of bitcoin.
Myth: Chinese citizens can't buy bitcoins
BTC China has been one of the most dominant exchanges for bitcoin, with nearly 10 million transactions over the past month, according to bitcoincharts. That's despite a government ban on financial institutions handling such transactions.
Myth: Bitcoin is not a store of value
This is an expression often given to gold and silver, and Colas said it does not apply to bitcoin. "Bitcoin may one day prove it deserves to sit alongside those assets," he said. "It isn't there yet."
Myth: Bitcoin is untraceable
Bitcoin transactions happen online. Enough said. (Though Colas does offer: "If you think anything you do online is secret, I can't help you.")
Myth: Losing anonymity will render bitcoin useless
Conversely, traceability doesn't dim bitcoin's allure, which is really in its low or no-cost transactions.
Myth: It's a Ponzi scheme
No, it isn't. Ponzi schemes have no other intent than to defraud. There's no evidence to suggest that bitcoin is in the same boat, despite the strong price volatility and attraction for speculators. The Federal Reserve has noted the "potentially significant positive social value" of bitcoin, Colas noted.
Myth: Bitcoin is "ready for prime time"
No, it isn't. As Bove, Colas and numerous others have pointed out, bitcoin won't get legit until price volatility gets tamped down and a truly safe, mainstream storage place emerges. Colas suggests banks, Paypal or Apple come up with a storage device.
Myth: Something better will kill bitcoin
This one doesn't get so much play, but it's worth considering. Bove has contended that being first gives bitcoin a tremendous competitive advantage, and Colas echoes that point. "There are other online money transfer products out there, of course, and more to come," he said. "The challenges will be the same for all of them: security, utility and legal compliance."
The quest to meet those challenges likely means bitcoin remains a serious story for 2014.
"I absolutely understand why there are so many bitcoin haters out there. But don't hate the player; hate the game," Colas said. "Technology is a tremendously disruptive force in society, and it knows no boundaries. It disturbs every status quo. That's what is does. Just don't make the mistake of thinking that you can reverse it by calling it a bubble."
More from CNBC:
VIDEO ON MSN MONEY
LOL Whenever an analyst tells you to buy, do the opposite as he has clients that need to get out. What a pump and dump piece. Ponzi scheme, you betcha...last one holding loses. Gotta get my investors out this dog before it collapses type article. FYI, Analysts that are competent will mention downside risks Hmm, competing interests disclosures? Bitcoin has huge downside risks. Imagine buying raw material for your product at $1K bitcoin couple a months ago only to find that your net profits just got eroded big time with no bottom in site. Oh just one more little thing.
India's biggest Bitcoin trading platform said on its website Friday it had suspended operations after the central bank warned against the risks of using virtual money.
BuySellBitCo.in closed its platform, citing an advisory by the Reserve Bank of India issued on Christmas Eve highlighting the risks of trading in digital currencies.
A virtual currency backed by nada!
It appears to me to be a digital "Beanie Baby".
No intrinsic value
No backing by any enmity (country or corporate)
No base value (much like Beanie Babies)
If it is hacked, and billions in Bitcoins are created, who is going to fix it?
To many issues for it to be accepted by most people.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON PERSONAL FINANCE
Saving just a single month of expenses may take longer than you think. See how your savings rate affects how quickly you can build a solid emergency fund.