Bitcoin Bloodbath!!!

#Bitcoin $111 bid, $140 offer becomes $108, now $106 bid, $150 offer. Down over 60%, closing in on $100 first crossed ~6 days ago. #BTC
— Pete Earle (@pete_earle) April 10, 2013

Tucker versus Wenzel on Bitcoins, March 30:

The Irresponsible Jeff Tucker by Robert Wenzel

Jeff Tucker is out with a column on bitcoins. Not surprising, it is filled with over the top commentary and errors in the fundamental presentation of economics, just like his IP work. I really don't want to go into his full discussion of bitcoins, [...]


I do, however, want to point out one comment by Tucker that is quite irresponsible. He writes: 

 Many people fear that Bitcoin is overpriced right now. This view is held even by people in the Bitcoin community who worry that a move from $15 to $93 in three months is not good for long-term viability. A crash could bring down the currency unit in devastating ways, leading to another round of debunking and clucking from the advocates of government money. 

But here’s the truth: No one knows for sure. Maybe the price will keep climbing. Next month at this time, people might be kicking themselves for not getting in right now. My instincts right now tend in this direction. I’m seeing BTC at $250, then $500, and then $1,000 by year-end.

I also find bitcoins an interesting investment vehicle, but I would never make such an open ended comment as Tucker does here. I have recommended bitcoins in the EPJ Daily Alert, but I also recommended a limit, in the ALERT, on how much bitcoins should be bought. The limit being just 1% of an individuals portfolio. With Tucker's open ended commentary, he is setting up a situation where novice investors get too enthusiastic and plow all their money into bitcoins, which if things don't go right, could result in massive losses.

Bitcoins are attractive because they provide some degree of anonymity in conducting transactions. They are also extremely difficult, perhaps impossible, for the government to grab, which is something that you can't say about bank deposits (See Cyprus). But they are not now money.

They, in some ways, act like travelers checks, in some ways act like gold and have some characteristics of a penny stock pump and dump scheme. Bitcoins are not, however, any of the three entirely. As bitcoins get more popular, they are likely to gain more attention from the government, and the government is likely to continue to attack BTC at its most vulnerable point, the conversion point between dollars and bitcoins and vice versa. Thus, the potential for wild swings in bitcoins is very possible.

If BTC does take off and the coins climb in price by a multiple of their current price, by say, 10 or 20 times current levels, even a very modest investment of 1% of a portfolio, is going to show spectacular results, while limiting downside exposure.

Tucker's commentary is extremely dangerous, because, like an amateur, he fails to take in to consideration the possibility of something going wrong and adjusting for it. He is going to drive novices into going all in on an investment that is very complex and has downside if things go wrong.

Wenzel on April 3:

What Do You Get When Jeff Tucker and Max Keiser Double Team a Promotion?

Eventual huge losses for many.

Economic genius Jeff Tucker now tells us:

You know what is becoming clear? BTC is better than gold.

Bitcoins are an interesting curiosity but they are not money. With Keiser and Tucker both pumping out nonsense about bitcoins, huge amounts of money will pour into bitcoins pushing the price much higher. It may become the mother of all pump and dump schemes. After the massive rise, will come the massive fall, which will hurt many.

UPDATE:

John Raines at FreeMarketForces emails:

Just a quick note in case you haven't been watching, the price of Bit Coins has cliff dived. It's down $130 over 110 minutes, or over a dollar per minute! (maybe the sequester got to it...) 

Not nearly as high as I thought it'd go, but it couldn't run from the eventual.

UPDATE 2:

Jeff Tucker in an email to his Laissez Faire Book list, yesterday:

 It seems unthinkable to people today. That's because none of us in living memory has had experience with a currency that rises in value. The emergence of Bitcoin -- a digital currency that has grown in purchasing power over time -- has changed that experience dramatically. As a free-market currency, it does what currency should do, which is increase in value over time.

UPDATE 3:

More Keynesian type babble from Tucker:

How does Bitcoin change this? It rewards holding money. It impresses upon the human mind that the cost of spending money is not just the money spent, but also the foregone gains that you would have otherwise realized by saving. 

You can try this experiment at home. Let's say you have a problem teenager who lives like everyone else, throwing around cash and seeing no point whatsoever in saving money. Send that kid a Bitcoin and see what happens, even without hectoring instructions.

To be sure, he could spend it right away on BitcoinStore.com or somewhere else. But there would be hesitation before that happened. After all, on Jan. 1 of this year, Bitcoin was worth $15. As we write, Bitcoin is trading for $218 on the most popular exchange, Mt. Gox.

UPDATE 4:

Tucker again, just yesterday:

 The thing has been increasing in value daily. Far from wanting to spend it, there would be every reason to hold it.

UPDATE 5:

From promo for the "Bitcoin Bible"

 That’s enough to prompt The Laissez Faire Club executive editor, Jeffrey Tucker, to proclaim that we’re just now hearing the opening shots of “the re-invention of the world monetary and financial system” 

“We could see all states of the world crumble into nothingness within the next 12 months,” says Jeffrey.

UPDATE 6:

From promo for the "Bitcoin Bible"

And today, we’d like to help you get into the game…

UPDATE 7:

From promo for the "Bitcoin Bible":

Inside this “first-ever” report you’ll learn:

How high we think the price of Bitcoins could go, and how you could position yourself to make a fortune as the Bitcoin rises against the U.S. Dollar

UPDATE 8:

Final note from Wenzel: Bitcoins will continue to fluctuate wildly, both up and down. And are suited for speculative trading not conservative money. In addition, the very real possibility exists that the government will close down bitcoin exchanges at some point, making bitcoins worthless, whether this happens tomorrow or two years from now is unknown to any but government insiders, just be aware that the shut down day is likely to come.