backtop


Print 52 comment(s) - last by Integral9.. on Aug 11 at 9:20 AM


The New York Stock Exchange has shed almost 1,500 points in the last month.  (Source: How Stuff Works)

Bitcoins, though, have suffered even deeper losses, and aren't a good investment to turn to.  (Source: Bitcoin Forum)

Treasury bonds are a far better investment that bitcoins in recessionary climates.  (Source: Mint.com)
Cybercurrency is intriguing premise, but has seen a flurry of recent devaluation

I've recently heard a couple of advertisements on satellite radio suggesting, of all things, that customers dive into bitcoins as a "stable" investment in the midst of the troubled U.S. economy.  In the midst of a seemingly impending recession, some might be tempted to try such a scheme.  Let's be perfectly clear -- while bitcoins are a worthy pursuit to dabble in, considering them as a place to put your nest egg is a pretty poor decision.

I. Bitcoins are in a Recession Themselves

After a meteoric rise to prices of up to $30 USD/bitcoin at their peak, the crypto-currency has plunged down to around $8 USD.  This alone should be enough to convince any logical investor to stay away.  But it's also important to consider the currency's strong current connection to the USD.

Over the last 30 days 82,099.28€ (Euros), $133,353.44 CAD (Canadian dollars), £119,336.29 (British pounds), and 607,234.53 PLN (Polish zloty) in Bitcoin have been traded on international exchanges.  At current rates, that's approximately $659K USD in volume.  By contrast, the top four USD-based exchanges managed $14.521M USD in trades, or roughly 22 times as much volume.

With approximately 95 percent of trades being in USD, the fortune of the USD intimately affects the fortune of the bitcoin.

When you combine the aspects that bitcoins are tied to the fate of the U.S. economy and that they've been on a downward plunge even sharper than the U.S. economy, the outlook is not pretty for bitcoins as a serious investment bid.  Even amid the stock market's huge losses (with today's $300+ USD decline, the New York Stock Exchange is at its lowest level since December 2010), bitcoins are still not a solid alternative to guaranteed securities like treasury bonds, or a diverse portfolio.

II. Bitcoin Mining is in the Midst of a Correction

Another issue with bitcoin looms on the mining end.  Bitcoin is trying to condense the natural creation of a non-commodity currency to just a couple decades, so it relies on initial seeding of wealth (similar to how people laid claim to natural resource stakes, which in turn gave rise to non-commodity wealth).

But the seeding is hitting a roadblock, as it's no longer advantageous to mine.  With difficulty soaring, it's now impossible for most video cards to break even.  The fastest graphics cards by Advanced Micro Devices, Inc. (AMD) still stand a chance to break even, but they require more than a year of work.

Meanwhile, the difficulty continues to rise at an unforgiving pace.

For those who already have money sunk into bitcoin hardware, they may keep mining for a time, but it may be unsurprising if they start to sell off their stockpiled hardware.

In the long term the market will thus correct itself as, in theory, computation gains will outpace the rate of mining.  However, now is simply not a great time to enter the market as a miner.

III. The Big Picture

Returning to the original point, given the current climate bitcoins are not a much safer investment than stocks, as some purport them to be.  They're actually much worse, at present.

This picture may change, when and if:
  1. Bitcoin trade in foreign currencies picks up, allowing a truly independent currency.
  2. Bitcoin mining difficulties stabilize.
  3. Bitcoin exchange prices stabilize.
Until these corrections fall into place, the currency is simply not a viable investment.

Fans of bitcoin may react negatively to this analysis, but it's hard to argue the hard facts.  Bitcoin is a terrific concept, and one worth supporting.  But when it comes to your money, an investment in bitcoins today, is essentially throwing away a chunk of your money, or perhaps breaking even in the case of mining (given hardware depreciation).

So as the U.S. faces a potential "double dip" recession, consider building a diverse portfolio of bonds, commodities, and stock from highly stable companies (GOOGAAPLIBM, etc.) as a way to guard your assets -- and avoid the bitcoins.


Comments     Threshold


This article is over a month old, voting and posting comments is disabled

Financial advice from DT?
By ZmaxDP on 8/8/2011 7:40:22 PM , Rating: 3
Don't get me wrong, I think your analysis of Bitcoins is spot on, but Bonds aren't what they are cracked up to be in this economy either. we got less than a day from defaulting, some states are in a state of default on certain bonds. The better way to say this is - there is no magic safe haven in our economy. Diversity is your best bet - and in that sense having a little money in bitcoins isn't the end of the world. Putting it all there is dumb in any economy.




RE: Financial advice from DT?
By ClownPuncher on 8/8/2011 7:47:55 PM , Rating: 6
"When I needed financial advice, I decided to enter the 36 chambers and step to the muhfukkin Wu, where they told me to diversify my bonds. Now I'm makin' stacks and drinkin' 'gnac every day!"


RE: Financial advice from DT?
By amanojaku on 8/8/2011 9:17:04 PM , Rating: 2
RE: Financial advice from DT?
By johnsonx on 8/9/2011 12:11:32 AM , Rating: 2
lol, classic!


RE: Financial advice from DT?
By StevoLincolnite on 8/9/2011 4:00:43 AM , Rating: 2
quote:
there is no magic safe haven in our economy.


Was/Is it really that bad?
During the global financial crisis... Things here in Australia weren't to bad as we saw continued growth through the entire thing, so I really didn't pay much attention to it.

Might be a good time to start looking at investing in the up and coming powerhouse called China perhaps.


RE: Financial advice from DT?
By The Raven on 8/9/2011 10:49:21 AM , Rating: 2
quote:
During the global financial crisis... Things here in Australia weren't to bad as we saw continued growth through the entire thing, so I really didn't pay much attention to it.
I think they are talking about the US in particular (though the principles apply everywhere). So I'm sure what you speak of is where Austrailia picked up what the US dropped. I don't know much about Austrailia, but the limited knowledge I do have indicates that you guys have better policies than the US. I can't imagine anybody being any worse than us. Nor could I imagine stupider people at the helm (and no I'm not just referring to Pres. Obama). I'm talking about maybe 95% of the population of DC.


RE: Financial advice from DT?
By jeepga on 8/9/2011 9:01:11 AM , Rating: 3
We weren't close to defaulting. I'm so sick of hearing that nonsense. Cuts would have had to be made, but we wouldn't have defaulted on our loan obligations. That was just scare tactics from the media and POS politicians.


RE: Financial advice from DT?
By The Raven on 8/9/2011 10:57:30 AM , Rating: 2
Your're right. We wouldn't have defaulted. We would've just started printing money like crazy to pay our debts. HYPERINFLATION!!! Oooo boogey boogey!!

But no one would believe that, so the networks just say that we would default. Because THAT is scary ;-)


RE: Financial advice from DT?
By The Raven on 8/9/2011 10:58:17 AM , Rating: 3
quote:
We would've just started printing money like crazy
Correction: "continued printing money like crazy"


RE: Financial advice from DT?
By Ringold on 8/9/2011 11:47:00 AM , Rating: 3
Exactly; we've been printing billions, they've just called it "quantitative easing." Not going to be pretty when we have to pay the piper for all of that.


RE: Financial advice from DT?
By NellyFromMA on 8/9/2011 9:27:55 AM , Rating: 2
Meh. We didn't default. All is paid on time. There is a lot of overreaction going on right now. The internet takes us in each direction of extreme by higher magnitutdes and what you're seeing is just that. What I mean is, our highs are higher and lows lower and as a society, globally, we are learning how to to adjust to a much father reaching, more integrated life with internet than ever before. Politicians are feeling accountability in ways they never have before. We'll see what happens, but don't start the panic bus already


RE: Financial advice from DT?
By The Raven on 8/9/2011 11:00:57 AM , Rating: 2
quote:
Politicians are feeling accountability in ways they never have before.
Yeah but it doesn't help if they are accountable to more and more morons who just want money from Obama's stash or money to invade sand countries X, Y and Z.


RE: Financial advice from DT?
By skirvmi on 8/9/2011 2:40:16 PM , Rating: 2
Bitcoins are a speculative market at best. Anyone who puts there entire nest egg in any one place, much less speculating on something like this, is asking to be burned.

Assuming the article is spot on and you don't buy into any of the other more publicized uses for bitcoins, there would still be value in the trade of these coins. The transactional fee's to buy and sell the coins are much lower than buying typical market funds (even non-managed funds). If the correlation was indeed true, it could be a easy way to play in the market without paying all of the broker fees.


RE: Financial advice from DT?
By TSS on 8/9/2011 4:30:55 PM , Rating: 2
I've been following money.cnn.com and other financial websites since the start of the 2008 crisis and if theres one thing that taught me it's that financial "experts and analysts" don't know jack sh!t about investing and the economy either. According to them america's been out of the recession for more then a year now. Right....

Simplest example: CNN had a overview on analyst expectations on apple earnings after they came out. 8 of the top 10 spots out of 30, where people correctly or came close to predicting the earnings where held by bloggers and amateurs. All the other "professionals" didn't even come close.

Honestly DT's as good a place if any to get financial advise. Atleast here you'll have a community with a certain amount of reason discussing the articles. Opposed to CNN's trollers, spammers and general ignorant audience.

As for the comming crisis... if the world really goes to hell your safest investment is a gun. You try protecting your house from looters with a bond.


"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki