As Bitcoin Consolidates Under $9 Mark And Network World Obediently Takes Aim At P2P Currencies, Precious Metals Flat

Bitcoin continue to trade under their $9 high from last week amid a global market selloff. Major indices fell of early this morning, although this did not shake bitcoin too dramatically. Moreover, this did not shake precious metals out of their current, depressed range. Currently, 3.11 bitcoin gets you an ounce of silver; 181.65 bitcoin gets you an ounce of gold; 161.22 bitcoin gets you an ounce of platinum; and 65.73 bitcoin gets you an ounce of palladium.

Just as the bitcoin market, the precious metals market have been volatile over the last year.  In August, gold was priced at $1,920 an ounce, whilst today it trades below $1,580, near its 52-week low of $1,535. Silver nudged up against $50 an ounce in April of last year, and has traded between $26.08 and $44.28 an ounce in the past 52 weeks. Silver today trades around $27. Platinum’s 52-week price range is $,1347 to $1,919 an ounce. Its price today is a notch below $1,400. Bitcoin, in the last 52 weeks, has traded between $2 and $32 an ounce, representing perhaps the most volatile of the aforementioned monies.

The real movement in terms of gld, plat., pd., ag and bitcoin has been in the latter, as the precious metals have been rather flatlined for two weeks.  An interesting consideration is what will happen when the metals start to move once more?  August gold options expire on Thursday, but with the movement in the metals as they have been for two weeks, the paper price manipulation should not move the prices too much. We should through Tuesday see further consolidation on the bitcoin-USD Mt. Gox index.

Importantly, look at silver’s recent gap up:

 

Network World just published a misguided piece on Bitcoin, giving their readership seven reasons to be skeptical of Bitcoin. Let’s take a look at those seven reasons.

Here are seven reasons why.

1. Nobody has to accept it.

“You want it to have inherent value, you want it to have someone backing it up and exchange it to other forms if you choose,” Vinze says.

This misconception about money and bitcoin stems from indoctrination by state-run public education centers. The article, at the very least, admits that the reason why people must accept fiat currencies is because the state has a monopoly on money. And so, in essence, what Network World is arguing is that it is more legitimate to threaten to kill somebody if they don’t use your currency, then it is to voluntarily enter into a medium of exchange.  That this force to kill is considered inherent value by the magazine is quite a misled point of view.

2. No critical mass..

Ten years ago, Skype barely had any users. This p2p communication platform has since ballooned into a multi-billion dollar technology.

3. No switching costs.

Say you are a U.S. business that accepts U.S. currency, and you decide to stop accepting it, and, say, accept only live chickens. You will lose all potential customers who don’t have access to live chickens. You will have problems paying suppliers and employees. And you won’t be able to pay taxes – in the U.S., even barter-only transactions are taxable. These are all high switching costs.

If you are a player of a popular online game, and decide to stop using their in-world currency, your game experience will suffer significantly, and you may have to stop playing the game altogether. This is a switching cost.

If you decide to sell off your existing BitCoins and stop using them, there are no switching costs. All your existing suppliers and employees will happily take other forms of payment. Your only loss would be the marketing value of accepting BitCoin, which is likely more than offset by the additional costs of processing BitCoin payments.

There would be switching costs associated with such a change. For example, one would be sacrificing the low fees of bitcoin transaction platforms for banks. Moreover, once one starts running their payroll in USD, not only will the banks get their cuts, but so too will payroll departments like ADP.  Presumably, a switch away from Bitcoin in this situation would lead to use of USD, which comes with a myriad of operating costs in-and-of-itself which Bitcoin does not.

4. There’s nobody to police it.

If someone breaks into your bank and steals your money, the bank would cover the loss, or it will be covered by FDIC deposit insurance. If someone points a gun at you and takes your wallet, you can call the police and have them arrested. You might get your money back, and they’ll go to jail. Maybe not the first time they rob someone, but eventually.

If a thief steals virtual currency from a company in order to defraud the company, there might be legal repercussions as well. In addition, companies carefully police their virtual currencies, banning hackers from their platforms and constantly improving security measures. And if their users suffer from a virtual theft, a company might make good on the loss in order to maintain good customer relations.

If your BitCoin money is stolen, there is nobody to turn to for redress. If someone steals your laptop – or hacks into it — they get all the BitCoins stored there. If you keep your BitCoins with an online exchange, and it is hacked, there is no government-mandated insurance to cover your loss, and nothing protecting your account against the exchange closing down.

Network World writes this as trillions of dollars are looted by bankers from the planet. Sure, perhaps short-term losses are indemnified, but the overall damage done to the global economic system puts each individual in dire straits.

Moreover, there is nothing stopping the advent of bitcoin insurance. For a small monthly fee, individuals maybe able to one day insure their bitcoin. Of course there are risks, but those come with all aspects of life.

5. There’s no real need for it.

What actual purpose does BitCoin serve that isn’t already being met by other payment channels? Companies already have wire transfers, checks, prepaid cards, credit card payments, PayPal, Google Checkout, Western Union, and, of course, cash.

BitCoin offers completely anonymous payments, which can be useful for tax avoidance, money laundering, gambling, and other illegal activities.

A company that does a large amount of business in BitCoin, beyond what could be accounted for with the marketing coolness factor, would thus draw attention from regulators – same as a company that does a lot of its business in cash, which has the same benefit of anonymity.

The purpose of bitcoin is to help individual’s extricate themselves from the global monetary system. It gives individuals a chance to get around the high interest payments of credit cards, and the high transaction fees of PayPal and Google.  The anonymous nature of bitcoin is not useful only for tax avoidance, money laundering, gambling and other illegal activities. It is also useful for theft avoidance from the Powers-That-Be and grossly high transaction fees asked for by too-big-to-fail crime rings – excuse me, international banks.

6. It’s volatile.

According to Vinze, BitCoin has fluctuated greatly during its short history, up to a high of around $30, and down to its current value of around $5.

This is a significantly higher volatility than almost any national currency. For example, the Euro has vacillated between $1.20 and $1.60 over the past five years.

The fact that BitCoin has survived despite these fluctuations is a sign of its resilience, Vinze says.

But it’s also bad news for companies that want to do business in it, since these fluctuations make it difficult to set prices.

Bitcoin is a rather new technology, and as the market for bitcoin grows less small, this volatility should be stemmed. But, let’s be brutally honest here, Network World:

Catch my drift?

7. BitCoin is unfair.

Traditional, government-backed currencies are created when banks loan out money for new homes, business expansion, or to pay for college educations – actions which increase the money supply but also grow the economy. Virtual currencies backed by companies or organizations are issued to reward players for in-game performance or to reward customers for purchases, or are sold directly to users.

To suggest that the current monetary system is fair is to go against the common sense of many generations and ages. The saying “money is the root of all evil” is a refrain that practically everybody has used in their lifetime.

The beauty of bitcoin is that it is an alternative to the current monetary system. It comes with many of the same problems as does the Federal Reserve Note. The difference being that there can be no doubt that the Federal Reserve Note is a totally rigged game and a medium of control, and not a medium of exchange.  It has been used to devastate the world through war and inflation.

That’s why precious metals analysis at Silver Vigilante encompasses such a heavy look at bitcoin, as bitcoin gives us an alternative option to USD.