Thursday, August 14, 2014

Bitcoin Complaint to Consumer Financial Protection Bureau


The Consumer Financial Protection Bureau issued a misinformed statement about the dangers of bitcoin other cryptocurrencies. The advisory was intended to instill fear and uncertainty about the new form of currency. Some of the inane statements include (italics ours):

  • Exchange rates are volatile and costs unclear (stock market and broker fees? Exchanges typically charge a flat rate 0.2% fee or less, which is as clear as it gets.)
  • Hackers and scammers pose serious security threats: Virtual currencies are targets for highly sophisticated hackers and scammers. Individuals, digital wallet providers, and exchanges are all at risk. (Bitcoin has already been tested and found secure. That is why individual companies like GOX that had not properly implemented bitcoin are touted instead of bitcoin as a technology being presented as flawed or insecure. Bitcoin can't be hacked by the US government, thus the attacks via advisories. Small hackers don't pose any risk. )
  • Companies may not offer help or refunds for lost or stolen funds (How is this specific to cryptocurrency? Isn't this why some people shop at Nordstrom )
The press release did help destabilize the bitcoin market and millions of people lost money. It was enough to inspire a mocking complaint with the CFPB about the CFPB.  The complaint is tongue-in-cheek, but also attempts to make some basic points.

Describe what happened so we can understand the issue:


The Consumer Financial Protection Bureau released a press release that adversely affected millions of individuals and businesses by erroneously implying that cryptocurrencies are more risky than traditional currencies and credit cards. Thousands of volunteers have worked in the open source development community to bring this innovative and promising new technology to the public. At the macro level, cryptocurrencies will reduce or eliminate credit card fraud, reduce bank fees, lower small business costs and untie money from government corruption and bad monetary policy. At an individual level, exposing personal identity information and credit details to strangers over the internet, to be viewed, copied, stolen and abused is an unnecessary risk associated with all credit card transactions and is directly addressed by cryptocurrencies like bitcoin. 
Stifling this technology through government power will hinder the economy and needlessly contribute to the harm done to millions through identity theft and credit card fraud annually.
It is apparent that the government is putting power above the public interest and is preying upon the uninformed. This sort of misinformation campaign is used to instill FUD (fear, uncertainty and doubt) in competitors, innovative ideas, improved products and superior technologies. Using the power of government in this way is deeply disturbing.
Further, there is no form on their website to submit a complaint relating to bitcoin or other cryptocurrencies. The form only allows complaints about money transfers.

 What do you think would be a fair resolution to your issue?:

The CFPB can resolve this issue by releasing a press release explaining cryptocurrencies are more safe than credit cards and promise to end billions in credit card fraud annually. With
cryptocurrency, as with cash, consumers do not expose their the personal identity information, credit card number or PIN. This information is not transferred, processed, and stored and thus can't be stolen and abused by third parties. Credit card fraud, where not only personal identity of the owner is stolen, but also the credit card information is stolen with it, is rampant when purchasing goods and services. This incurs a financial barrier of compliance costs and liabilities on small business related to processing and storing credit card information. 
Large retailers are increasingly victims of data security breaches. Target had more than 1 million customer records stolen, including credit card information. Smaller retailers are less able to
prevent data security breaches.  A 2013 ITRC survey shows that 15.6% of all data breaches expose credit card information. http://www.idtheftcenter.org/ITRC-Surveys-Studies/2013-data-breaches.html  
Futher, the credit card system was designed in the 1960's and was never intended for use on the internet. The Internet is a public network where the transmitted data is easily visible to unknown third parties. Recent revelations that SSL (the security layer used on websites) was compromised by spy agencies adds another level of concern with regard to the use of credit cards over the internet.
Lastly, if someone somehow gains access to a cryptocurrency wallet, it is strongly password encrypted, unlike a credit cards or cash.

Feel free to use this text, or improve it and submit further mocking complaints with the CFPB: click here

p.s.
The fact that the US Government is the largest holder of bitcoin in the world, did not make it into this complaint.  Oops. Click here to see their wallet.

Friday, June 27, 2014

Government Strikes at Bitcoin Investors

Bitcoin - Encryption We Trust

Background

Bitcoin is a technology that allows for trade over the internet without the possibility of credit card fraud and without bank fees. Where credit cards were created for the pre-internet world and require account information to be traded, bitcoin is like cash. You pay someone Bitcoin, not your bitcoin account information. This is why bitcoin is a cryptocurrency.

This provides a lot of public good. People can buy from anywhere in the world without bank imposed fees or the worry that an unknown foreign company will steal their credit card information. Bitcoin users are also immune to things like bank account freezes or non-sufficient fund charges. Each bitcoin user has their own independent encrypted wallet. When combined with a long, strong pass-phrase (passwords are too short for effective security), bitcoin in a users wallet are more secure than money held in a bank account.

The government frowns upon bitcoin. Many governments oppose it, but not because bitcoin is evil. Governments use various rationalizations that boil down to the governments greed for power to control money. Bitcoin is money backed by mathematics, not governments.

Bitcoin is created in limited quantities, so it cannot be printed and artificially inflated. There is a fixed total amount of Bitcoin. Bitcoin must be "mined" which means computer algorithms reward people for cracking codes. The codes become harder the more computing power is thrown at bitcoin, so no one can make all the Bitcoin. There is also an element of randomness to ensure that little guys have a chance.

When laws are used against the public good, or to empower the powerful, we nerds call this "lawful evil". Slavery, fascism, communism are all examples of the law being used to enrich some at the expense of others. All governments are prone to the temptations of "lawful evil" because government is the concentration of power. Government can be looked at as the monopoly of the use of force. Which is why George Washington explained, "Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master."

The War on Bitcoin

The government really has no bigger role in the technology of bitcoin than it would in some foreign currency. As a matter of fact, we sometimes forget that the power to "regulate" was intended to promote trade by making it "more regular."  Bitcoin is self-regulating, it can't be stolen, hacked, monopolized or counterfeited. It is just a new currency of trade designed for the internet. Not only is there no need for government regulation of bitcoin, intervention doesn't serve the public good.

Regardless, the most powerful government in the world, The U.S. Government, has crafted a Machiavellian strategy to stop bitcoin.

Some of the earliest adopters of bitcoin were people trading drugs and other illegal items on a website called Silk Road, so the U.S. Government shut down the website. They seized 29,656 Bitcoin from the accounts users stored on the Silk Road servers (not held in their personal encrypted wallets). In the beginning, Bitcoin were only worth a few dollars, so this really wasn't much money. The operator of the site accumulated 144,000 Bitcoin through fees. These coins were also seized but were held in a secure wallet that the government could not access. The U.S. Marshals took the 29,656 bitcoin from the website's servers and the FBI took the 144,000 Bitcoin wallet from the proprietor, Ross Ulbricht aka “Dread Pirate Roberts".

We are not condoning illegal activity, but Bitcoin wasn't the problem with silk road. The U.S. Dollar is the actual currency of the drug trade and illegal activity. But, the U.S. government learned that Bitcoin was a threat to their income stream because they couldn't just seize cash and bank accounts. Instead they held an encrypted wallet they couldn't crack.

Civil Asset Forfeiture Law allows government agencies that seizes assets to then charge the assets with a crime and sell or use those assets themselves. Most Civil Asset Forfeitures are not associated with a criminal case. As a matter of fact, if you carry $10,000 in cash, it must be declared or it can just be seized. Unlike normal due process, you must then prove that the money is yours and how you earned it. There is no presumption of innocence.
"Cato Institute, a libertarian think-tank, found that 80% of people whose property was seized by the federal government were never charged with a crime. Forfeiture proceedings are brought not against people, but against property that law enforcement need only allege is connected to criminal activity."
When the government seized Bitcoin from Silk Road, some of the coins were being traded for legitimate goods, but it would be impossible for someone to fight on behalf of their Bitcoin as the Bitcoin would themselves be charged with money laundering due to the Silk Road system through Civil Asset Forfeiture.

However, because Bitcoin is now seen as a threat to the revenue stream of the government a strategy appears to have been developed to suppress the revolutionary technology.  The U.S. Government doesn't see Bitcoin as a threat to the dollar because the price of bitcoin would have to be above $4,600 to allow $1 trillion in transactions value to take place globally. At $500-600, bitcoin is just a nuisance for law enforcement asset seizures. So, the anti-bitcoin strategy appears to be aimed at minimizing this strategy by suppressing the price of bitcoin.

With this price suppression in mind, the first step is to declare the new currency a "capital or non-capital asset" or property through IRS Notice 2014-21.  Without this declaration, bitcoin would be reported as cash, and companies using bitcoin could trade dollars and Bitcoin and report them on the same part of the balance sheets to investors. By the IRS declaring it a capital asset, bitcoin focused companies will show weaker cash and current ratios than non-bitcoin companies.

Bitcoin companies would have to be big for cash ratios to matter, but Bitcoin seized by law enforcement also allows for a broader attack on the new cryptocurrency. Every company holding Bitcoin will show less assets if the price falls. This could affect their ability to get loans or new investors. So, today June 27th, 2014 is the first run at dumping thousands of bitcoin on the market at the end of a reporting period. The U.S. Marshals timed their 29,656 bitcoin auction to coincide with the end of the 2nd quarter for reporting purposes.

The auction will sell Bitcoin in blocks of 3,000 and requires a $200,000 deposit. This will keep small investors out of the auction and ensure that companies with reporting requirements, public or private, buy the coins. These companies will then have to sell a portion of the coins within the next three days, June 30th, or show a hit to their cash balances.

The Bitcoin sold at discount at auction will then in-turn drive down the market price due to the immediate sales. This reduces the capital assets of every other company with Bitcoin that reports on June 30th as the end of the second fiscal quarter. (Most corporations use year end as their fiscal year end.)

This hit to bitcoin related companies will discourage additional investment, make financing more difficult and allow for the lapdog media to push a narrative headline that bitcoin is failing.

If this strategy works, the remaining 144,000 FBI seized Bitcoin will follow the same strategy. They would be auctioned in blocks just before the end of the next several fiscal quarters.

(The government eventually was given access to the seized Bitcoin after convincing the Silk Road proprietor that they were going to crash the price and that he needed to cash out.)

A New Hope

There is one hitch in this strategy. Bitcoin is not the only cryptocurrency. The second leading currency is called Litecoin. It is newer than bitcoin, transactions are faster, there are more coins, the coins are still only around $10 and the coins are more easily mined by small players due to a newer algorithm called "scrypt." Many exchanges allow for Bitcoin to be directly traded for Litecoin, so companies with Bitcoin can move to Litecoin instead of suffering losses to their balance sheets during the Auctions/dumps.

#MoveToLiteCoin

Due to this flaw in the anti-bitcoin strategy, government agents have had to contend with the #MoveToLiteCoin movement. They primarily must resort to insults and personal attacks otherwise known as FUD (Fear, Uncertainty and Doubt) on proponents of #MoveToLiteCoin to discourage others from joining the movement. In the end, they don't have enough seized LiteCoin to suppress the market.

Shortly after our first report on #MoveToLiteCoin, someone traded 1600 Bitcoin for Litecoin. Last night nearly 100,000 of these were dumped on the market with almost no effect. If this was the government's attempt at stopping Litecoin in order to further their anti-bitcoin strategy, the U.S. Government can't stop Bitcoin.

We expect to see Bitcoin prices to fall through June 30th and Litecoin prices to rise. After the U.S. Marshals Bitcoin dump is over the media will run press release driven stories on "Bitcoin's crash." Review both Bitcoin and Litecoin prices to prove that Bitcoin is just too flexible to stop due to its alternative cryptocurrency partners. Even if Bitcoin prices fall, watch as Bitcoin quickly rebounds as investors return from their #MoveToLiteCoin.


Friday, June 13, 2014

#MoveToLiteCoin #DefundTheFeds Bitcoin Response to Silk Road Auction

#MoveToLiteCoin


The Bitcoin community is responding to the auction of seized Silk Road coins by moving money into LiteCoin and other alternative coins. The government agencies selling seized coins are seen to be "dumping" them on the market in an effort to suppress the internet currency and it is has sparked outrage.  Instead of allowing the government agencies to profit, the community is taking action by moving money via exchanges around the world. The money is being put into so-called "alt coins", led by the second largest cryptocurrency, LiteCoin.

Thus far the Bitcoin fell from $648.89 to $560, with a rebound to $589 as of posting of this article. If this campaign takes hold you might expect further reductions in price, accompanied by increases in LiteCoin and other cryptocurrencies.

Social media hubs like twitter and reddit, alongside bitcoin community forums and exchange chat areas are being used to organize the movement. Hashtags include:

Move To LiteCoin
Move To LiteCoin
#MoveToLiteCoin
#DefundTheFeds
#SideStepTheDump
#MoveToLTC
#MoveToNMC
#MoveToDOGE

Background

U.S. Civil Asset forfeiture law allows departments that seize cash and other assets to use it for various expenses. This is incentive for the law enforcement agencies to sell assets or spend seized cash, but without the rigor of traditional due process.  For instance, if you are a U.S. citizen carrying $10,000 in cash, it must be declared or it is subject to seizure. If seized, you must prove that it is yours and how you earned it. The legal system may not be impartial in the process because it can use the cash.
"80% of people whose property was seized by the federal government were never charged with a crime. Forfeiture proceedings are brought not against people, but against property that law enforcement need only allege is connected to criminal activity. "
Silk Road bitcoins were seized by the U.S. Marshals Service from servers and 29,656 ($17,793,600) are to be auctioned. These coins are to be sold on June 27th over a 12-hour period to anyone willing to put up $200,000 as a deposit. Additionally, 144,341 ($86,604,600) bitcoins were seized from "Dread Pirate Roberts" or Ross William Ulbricht, the operator of Silk Road. Until recently, these coins were not available for law enforcement to sell on the market because they were unable to crack the encrypted password protection. Bitcoin proponents have pointed to this as proof that bitcoin is more secure than assets held in banks. Mr. Ulbricht apparently gave up this password as the coins have recently been moved into a new wallet.

All bitcoin transactions are tracked automatically via the blockchain, so we can view the two accounts which held the Silk Road seized coins. DPR Seized Coins were moved to DPR Seized Coins 2 on July 12, 2014 in an apparent "shot over the bow" of the bitcoin community by the U.S. Government.  Unfortunately the bureaucrats failed to realized that this warning shot might have consequences.

Money for fleets of shiny new government vehicles, huge salary bonuses and bloated expense accounts may now evaporate when the government attempts to cash in.  Undoubtedly, some government social media workers will then begin pushing a narrative that bitcoin is "unstable" as they did after someone sold down the price of bitcoin to $102, likely due to a trading glitch.  However, the price rebounded in minutes after that incident, which is not widely reported. The #MoveToLiteCoin campaign intends for the price of bitcoin to resume it's epic rise when the alt coin money returns.

Some of the coins being used as repositories of crypto-wealth include: Litecoin, NameCoinDogeCoin

LiteCoin

Thursday, May 8, 2014

FEC Approves Bitcoin Political Power

Bitcoin now accepted by political campaigns and PACs

The US Federal Exchange Commission (FEC) has decided that political campaigns and political action committees (PAC) may now accept and invest in bitcoin. The cyrpto currency may be accepted as a in-kind donation per this draft advisory document.

The specific ruling is worded as:
The Commission concludes that bitcoins are “money or anything of value” within the meaning of the Act and that MYL may accept contributions as it proposes pursuant to the identification, deposit, and valuation procedures

The Hill had previously reported a delay in the decision on 4/23/2014,
The commission delayed a formal vote on a petition to be able to accept up to $100 worth of the money, but commissioners seemed optimistic that they could draft a compromise to allow a limited amount of contributions in the virtual currency.
The commission had split when a conservative group, Conservative Action Fund PAC, proposed a similar proposal in November. In April, Make Your Laws PAC sought to accept bitcoins as contributions, as well as purchase, sell and trade them.

Make Your Laws PAC describes itself as non-partisan and registered in September 2012. MYL introduces its role as a technology company in politics:
Make Your Laws makes this intuitive process of trust even easier through some clever use of technology. Of course, users can always proxy to people they know and trust personally — their friends, family, and other influential figures in their lives. But often, users will want to know what experts and organizations are more dedicated to their issues.

First, based on how an individual responds to examples of controversial proposals, we can recommend to the user a number of public proxies who share their views and can be trusted to better track the issues on a given topic.

Second, as part of the discussion process, users will find that they end up agreeing or disagreeing with people that they might not have otherwise had contact with — people who, through the organic process of social interaction, become influential through their words. Make Your Laws makes it easy to add these people to one's list of advisors.

Finally, when there are differences of opinions between proxies, Make Your Laws can ask the user questions that will help to determine what advisors might better serve their needs, and better represent their views overall.
The draft advisory states that bitcoins may be accepted, purchased on exchanges and held as investments, but seems to state that employees cannot be paid in bitcoins and the currency must be converted to fiat before making purchases due to reporting requirements:
MYL proposes to accept bitcoins only through an online form on which each bitcoin contributor, regardless of the proposed contribution amount, will have to provide his or her name, physical address, occupation, and
employer.
...
MYL proposes to accept only $100 worth of bitcoin per contributor per election (as identified using the practices just described)
...
The Commission concludes that the requestor may accept bitcoin contributions as proposed in its Advisory Opinion Request and supplemental filings subject to valuation and reporting procedures similar to those that the Commission has previously recognized in analogous circumstances. The Commission further concludes that the requestor may purchase bitcoins with funds from its campaign depository for investment purposes but may not make disbursements using those purchased bitcoins
Bitcoin gains political power
Other sources: CoinDesk

Monday, April 28, 2014

Does the BofA "Math Error" Affect Bank Accounts?


Bank of America had to suspend its stock buyback program and cancel planned dividend payments due to a "math error." The error reduces the amount of high quality capital owned by the bank by about $4 billion. It does not directly affect bank accounts. However, the stock has pulled down the price of financial stocks across the board as investors and consumers worry about a banking system that can't keep count of money.

Reuters, "The Federal Reserve ordered Bank of America to suspend and resubmit its 2014 capital plans within 30 days. Its shares fell 4.7 percent at midday."

CNN Money"The second largest U.S. bank by assets said the error was caused by an "incorrect adjustment" related to bad debts the bank assumed when it acquired Merrill Lynch in 2009. It means the bank doesn't have as much high-quality capital on hand as everyone thought.

It's the latest in a series of regulatory and legal setbacks for the bank's shareholders after it acquired mortgage lender Countrywide and Merrill Lynch during the financial crisis."

If you are worried about your bank accounts, there is a new open source solution to banking called Bitcoin. It includes a public ledger called the blockchain. Thousands of dedicated users run independent processing of the transactions, and no centralized errors like this can occur. Each transaction is independently and repeatedly "confirmed." 

The money called bitcoin is designed for modern life on the internet and is encrypted with SHA256 encryption. This encryption is so powerful, some say it would take all the power of all the suns in the galaxy and billions of years to crack.

Some benefits of bitcoin vs tribal fiat money include:

  • Bankers and Governments hate it, as it takes away their control of money.
  • You do not give up account information to pay for things, eliminating credit card fraud.
  • There is essentially no transaction fee, or you can choose to pay a small fee to speed up your transaction. This eliminates bank fees like wire transfer fees.
  • There are no "bank" fees to hold bitcion.
  • You can hold your own bitcoins in an encrypted wallet, eliminating the need for banks.
  • Bitcoins are transferred like an email. You send and forget over a secure network protocol.
  • Eliminates currency exchange costs or risk. Essentially, you could go on a world vacation and never have to worry about the local currency.
  • There is no limit to the amount you can hold. Unlike cash which must be declared in amounts over $10,000 in the USA. 
  • It was designed for the internet age and doesn't require "credit card protection" because it is already secured by powerful encryption.
  • You can send the money anywhere in the world, to anyone, anytime you like for free.
  • Unlike fiat "bills" a bitcoin can be subdivided endlessly below the decimal point. 
  • etc...
Some drawbacks of bitcoin:
  • Bankers and Governments hate it, as it takes away their control of money.
  • It is not available at every store for every transaction yet. (see Gyft.com to use it at major retailers.)
  • Access to bitcoin is currently restricted. Getting ahold of bitcoins is relatively difficult. (See Coinbase.com and localbitcoins.com) 
  • The currency has value based on exchanges which are heavily infiltrated by governments and institutions determined to stop it or manipulate it. Bitcoin is the battleground of financial freedom.  
  • There is a limited quantity. When people die, or lose their passphrase(*), the bitcoins in their encrypted wallet could be lost, diminishing the supply.
  • The media is biased against it.  You will probably be demonized at some point for not using "dollars" or whichever tribal fiat currency you currently use.
  • Technical weaknesses. Because everything created by man is flawed, bitcoin has been battle tested by real life users and hackers. It has come out on top, but someday it may need to be updated, like all software.


* Passphrases: you should no longer use passwords. Use entire sentences or phrases with punctuation and numbers. Passwords, especially under 9 characters, are not secure. The formula for passphrase difficulty is (number of possible characters)^(number of characters used in password).  For example, a four digit pin number has only 10^4 difficulty or 10,000 combinations.

Wednesday, February 26, 2014

Bitcoin Up 37.7% in Two Days

Encryption We Trust

You may have seen some news reporting a "crisis in bitcoin", but that is very far from the truth.

At its lowest point, bitcoin was worth $430 (02/24/2014 @ 11:30 PM PST). One dollar was worth 1/430th of a bitcoin (.00232557 BTC).  At the time of writing this post, 12:25 AM PST 02/26/2014, the dollar had fallen to 1/592nd of a bitcoin (.001689189 BTC). Bitcoin gained $162 or 37.7 percent.

BitcoinWisdom.com graph:



Why Did The Price of Bitcoin Fall?

The price of bitcoin was driven down due to problems at one of many exchanges. Exchanges are like stock markets where you can exchange bitcoins for other coins or fiat money like dollars. ObamaCare consultants might have been used on this Japanese based exchange called GOX (Magic the Gathering Online Exchange). The exchange either overpaid people due to bad programming, was bought off by a government entity or stole peoples bitcoins. Whatever the case, the people responsible are now in hiding. There is no "problem" with bitcoin as a technology or as a investment.

Another exchange BTC-e released this statement in regard to the GOX problem.
We confirm the Bitcoin system operation and its exciting prospects, and MtGox bankruptcy has not been caused by any underlying technical problems of Bitcoin. Bitcoin international peer-to-peer network and cryptocurrency are independent of actions of a single market participant. Bitcoin protocol continues to function exactly as it should. The cryptocurrency maintains its stability and the network will continue to develop and exist as long as required by its users.
People who used the problem exchange were put at risk and sold their coins cheap to "get into a court recognized currency" in order to file suit. This strategy came out of nowhere and was promoted as "legal advice." For all I know, it was a scheme to incite panic selling.  Bitcoin is obviously an asset and theft of valuables is not delineated specifically by various courts to my knowledge. Maybe you know better.

How Did Bitcoin Recover So Quickly?

During the panic sell, other investors, who were not at risk, purchased bitcoins ... and ... hopefully.... you acquired some at the discount. If you put $100 into bitcoin at that time, that investment would now be worth $137.67 minus about .2% in fees. Of course this does not represent a full return to value, but it a base of recovery.

By the time you read this, the price of bitcoin will probably over $600. So, if you are wondering if you missed the big opportunity, let me comfort you with some timely advice....

When to Buy Bitcoin

We released an entire post regarding this subject, but to summarize. buy on market dips:

  • over 800, normal market price
  • under 800, consider buying
  • under 700, strongly consider buying
  • under 600, if you don't buy, there had better be a good reason
  • under 500, if it is at all possible, buy!

The current situation represents a major opportunity for new users to get into bitcoin

Why Might Bitcoin Continue to Gain Value?

Good question. There are many reasons people believe in bitcoin.

Political Risk Associated with Fiat Currency

The US government represents the world's reserve currency. Due to an agreement known as Bretton-Woods, this has been the case since 1944. At the time, the US dollar was tied to gold, so other currencies tied to the dollar via Bretton-Woods were also considered fractional reserve notes based on gold. In 1971, the United States untied from gold and became a fiat currency. It effectively dragged the worlds currencies with it.

Since that time, the dollar's reserve currency status has been based on faith in the American government and people. Recent events have concentrated power in the US's executive branch of government, which essentially changes that system. 

The tea party, occupy wall street and other movements have arisen due to a lack of faith in America's new political system. Concentrated power increases the likelihood of bad decisions being made and carried out. For instance, ObamaCare was sold as if it would save American $1 trillion over 10 years, but recent CBO estimates reveal a cost of $2 trillion over that same period.

Bad decisions, like ObamaCare will continue to be made because neither Congress nor the Supreme Court have the power to stop them. Concentrated power's effective replacement of Separation of Powers in the American government is a fundamental economic threat to the world economy. This is a fiscal and political policy crisis.

The alternatives are precious metals, which can be confiscated, and bitcoin which is easily transported and encrypted.

The Federal Reserve (Fed) Lack of QE Exit Strategy

Monetary policy has been a stalwart of America's economic stability. Recently the Fed as reduced interest rates to zero in an attempt to spur the economy. Specifically, they hope a "wealth effect" will spur people into feeling "richer" because stock and home prices are artificially inflated through the massive printing of money known as Quantitative Easing (QE). The Fed is printing around $75 billion per month.

The problem with this approach is that there is no known exit strategy. Every time the Fed moves to increase interest rates, the stock market collapses and home sales plummet. Confidence in this system is extremely low. 

Step back and look at the combined monetary policy crisis, the fiscal policy crisis and the political crisis in America. Europe, China, Russia and South America are conceptual alternatives, but they do not inspire the confidence of the U.S. when it is governed faithfully according to the U.S. Constitution.

Technological Superiority 

Bitcoin is technically better. It is fundamentally more secure. It incorporates the Blockchain, which is like an accounting system. There is no credit card account information to be stolen when bitcoin is used.  It is expandable and can be updated. It is easy and inexpensive to buy good and services across national boundaries without converting currencies... (no currency risk). The "wire transfer" fees or transaction fees are extremely small or free. Bitcoin transfers in minutes instead of days like bank money transfers. 

There are simply too many advantages to list. It is the next evolution of money. 

Consider Major retailers. Walmart would save billions in currency exchange fees, wire transfer fees, accounting costs and possible fraud loss by switching to bitcoin.  Target would not have been liable for all the stolen credit card information in 2013. 

Decentralization of Money

Many of us believe money is too important to be left in the hands of government. Government is generally incompetent due to competing goals. Trusting in government seldom proves to be wise and for the first time we have an real alternative. 

Math vs Military

The US Dollar, and fiat currency generally, is backed by military and police power. Bitcoin is backed by math, computer geeks and some very bad men (like Chuck Norris). America's military is strong, but math is stronger.  Recent events surrounding GOX might be an opportunity to judge which justice is more effective.

Other reasons

Everyone has their own ultimate reason to move to a secure, internet-compatible currency. This is a little like listing why people use email instead of snail mail.. Instead of trying to list everything, lets leave this area open and add to it based on comments. Let us know your reason below.

Alternative Coins (Alt Coins)

The big question is whether bitcoin is the ultimate winner in the arena of crypto currencies. LiteCoin, DogeCoin, UltraCoin, Vertcoin, NameCoin, or another may someday prove to be even better than bitcoin. 

These coins can be quickly converted between bitcoin. So, this may lead to a situation like the precious metals market. Bitcoin may be a store of wealth, while another coin might be the day-to-day alternative. They will coexist just as they do currently on multiple exchanges.

Friday, February 14, 2014

Bitcoin Trading Ten Commandments

Encryption We Trust

Lets keep this short. Here are the Ten Commandments to make money trading in Bitcoin. Detailed explanations follow where needed.
  1. Do not follow trollbox advice
  2. Buy low, sell high OR sell high, buy back low
  3. Know your break even number
  4. Never let a Whale (big trader) buy cheaper than you, stack up on their position if necessary.
  5. Look up and down the orders list and find the big orders
  6. Cut loses or cost average when you make a bad trade, but let profits run
  7. Be patient and do not be mastered by market sentiment
  8. Buy when the market is selling, sell when the market is buying
  9. Read the chart first
  10. Do not trade to fiat
Where do you trade Bitcoin? You trade on one of the Bitcoin exchanges, but start small and work your way up to larger trades. Here are the "how to" details...

1. Do not follow trollbox advice

A trollbox is a little chat window commonly implemented by Bitcoin exchanges. It is full of people trying to manipulate new users into bad trades. Some people use it to discuss actual issues about the market, but you should never blindly follow advice given in the trollbox, and never click a short url link.

Instead, take the time to read the news or google the trollbox information that catches your eye.

2. Buy low, sell high OR Sell high, buy back low

There is no difference between buying low then selling high and selling high and then buying back low. You should do what puts you in a position for a follow up trade. For example, you can BL-SH and consider that the beginning of a SH-BL.

3. Know your break even number

You should use excel or something to track break even numbers.  Transaction costs are greater than they appear, .2% is actually 0.4004% for a full trade.  I wont bore you with the math...

**update* I should bore you with the math**
Break even is [Buy Price] * [trade fee on buy] * [trade fee on sale]

Long (buy low then sell higher): [Price] * [1 + fee] * [1 + fee]   i.e.  1 * 1.002 *1.002 = 1.004004
Short (sell high then buy back lower): [Price] * [1 - fee] * [1 - fee] i.e. 1 * 0.998 * 0.998 = 0.996004

Also, consider that some big traders get "VIP" transaction fees, normally about .15% or .05% lower than everyone else. this translates to more than .1% lower selling prices on each trade.

4. Never let a Whale (big trader) buy cheaper than you, stack up on their position if necessary

This is a tough one. If you allow a whale to buy 1,000,000 coins at .00001 less than your trade they will be able to sell at a profit lower than you. This might lock you out of completing your trade and leave you at a loss or completely out of the market.

Big players will sometimes place huge buy and sell orders simultaneously with less than .2% price difference. Small traders that place orders in between become trapped after one leg of their trade. You are forced to buy or sell from the whale or simply wait indefinitely to complete trades.

The counter tactic is to place a buy order on top of the whale. If 1000 coins are traded at a price, the goal is to reduce the amount of coins purchased by the whale and stop the whale from making both legs of their trade. Wait until they pull the trap and then sell your coins.

This is an important tactic because governments, banks and other players who are protecting establishment power use their massive resources to undermine crypto currencies. As a trader, you need to be prepared to fight these powers. You are the underdog, so be prepared to fight all who rob and plunder.

5. Look up and down the order list and find the big orders

It is very informative. You can learn what the big players are preparing to do in the market.

6. Cut loses or cost average when you make a bad trade, but let profits run

This is one that is pretty hard to follow. It seems easier to buy and then set a reasonable sell price or vice versa. However, this is where big profit can be found if you are patient, precise, confident and follow the other commandments.

7. Be patient and do not be mastered by market sentiment

Do not fall prey to the whims of the moment. Panic buying and panic selling are a traders worst enemies. Often, it is even harder to wait for the top or bottom of the market. It is better to wait longer, a lot longer than your emotions lead you, unless you have a specific reason.

Some traders add that you should not trade during low volume because the market is easier to manipulate.Sometimes a small, well timed order can fool the automated trading programs (bots) into buying and selling at the wrong time.  This is done by manipulating technical indicators across threshold values.

8. Buy when the market is selling, sell when the market is buying

Position yourself so that panic traders are selling to you cheap and buying from you at a premium.

9. Read the chart first

Compare other exchanges (BTC-E,Huobi, Bitstamp,BTC-e,Crypto-trade, etc), KDJ indicators (or other indicators) and multiple timeframes while developing trading strategy. Review this chart to understand what this stuff means.

10. Do not trade to fiat

Use alternative coins during downturns as safe harbor and to trade for more Bitcoins. Many alternative coins lag, lead or are not very reliant on the price of Bitcoin. Learning these alternative markets turns crashes into buying opportunities.

*update* expanded per comments request.

While charts show that alt coins like Litecoin (LTC) follow the price trends generally of Bitcoin (BTC), there is often a lag in the price change or at times they lead the price change. The scale of the change can also be very different. This affects ratios which are the basis of a many alt coin markets. (i.e. LTC/BTC)

Some of this is due to the fact that there are always new alt coins coming to market. Sentiment players try to jump on down turns in bitcoin to find people willing to trade bitcoin for the latest shiny coin. At other times, an alt coin may crash and money might rush into a safer alt coin or back into bitcoin.  There are markets for many alt coins based purely upon Bitcoin and Litecoin.  You may find a XYZ/BTC or XYZ/LTC on exchanges (where XYZ is a generic alt coin symbol).

Another reason that trading to alt coins is preferable to trading to fiat is to avoid missing large market upswings. Alt coins may lag or have a different scope, but when prices jump up, you aren't left behind.



*Notes and special thanks to the traders who reviewed this article:

KingCoin
encerr

This was written to give crypto traders a leg up on the big players and market sentiment players.

ShareThis

Ads

LinkWithin

Related Posts Plugin for WordPress, Blogger...