Bloomberg View published an insightful commentary that spells out some of the inherent risks of bitcoin. In light of the meltdown of the bitcoin exchange Mt. Gox this week, investors should think twice before moving their dollars into this very unpredictable new currency. Peter Schiff warned of problems like this not long ago and encouraged clients to stick with the oldest and most reliable forms of money – gold and silver.
“The Mt. Gox failure highlights some of the major drawbacks of Bitcoin.
The first is that, as with old-fashioned gold coins, thefts are nearly impossible to trace. In this respect, Bitcoins are inferior to plain old dollar bills, which at least have serial numbers that can be monitored and tracked. Of course, if you’re trying to keep government eyes off your transactions, untraceable currency has its advantages. But most of us don’t do transactions that the government much cares about, so the fear of theft outweighs the benefits of anonymity.
The second is that there is, as yet, no currency exchange like the ones we use for regular currency — backed by large institutions that can be sued if things go wrong. Again, there are advantages to this for the underground economy. But for folks in the regular old economy, that’s a problem. It’s hard to get enthusiastic about saving in a system where hundreds of thousands of dollars can disappear overnight, leaving you with no recourse. Not every Bitcoin exchange is Mt. Gox. But for ordinary folks, it can be hard to tell the difference, which is going to make them a little jittery about buying Bitcoins.”
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