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back to article Go on, buy Bitcoin. But DON'T say we didn't WARN YOU

Buying virtual currencies, such as Bitcoin, presents a number of risks that consumers should be aware of before purchasing such assets, the European Banking Authority (EBA) has warned. The regulator said that because virtual currency is not regulated, consumers risk losing their money by "buying, holding or trading" them. " …

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Too be fair

A lot of those risks are the same with regular currency.

There's nothing that the EBA can do if someone nicks my leather wallet either.

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Re: Too be fair

"There's nothing that the EBA can do if someone nicks my leather wallet either."

But most people don't use their wallets as bank accounts, nor keep significant portions of their net worth in them. No one is getting into Bitcoins for the sake of stashing a couple of hundred bucks.

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Re: Too be fair

Keeping a couple of hundred bucks in a virtual digital wallet to pay for small stuff was exactly my intention when I started and I think was probably the intention of the inventor. Bitcoin is supposed to make small value items cheaper by removing the costs imposed by banks and credit card companies. I have never been convinced it works for larger transactions even when you have to pay a bank to transfer funds via a banker's draft or CHAPS payment. it definitely has a niche though.

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Re: Too be fair

I think many Cypriots would have done better off last year leaving their money in Bitcoin even if it hadn't gone crazy.

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Re: Too be fair

"Keeping a couple of hundred bucks in a virtual digital wallet to pay for small stuff was exactly my intention when I started and I think was probably the intention of the inventor. "

Basicly the same way i look at it. Instead of having a small amount of cash in my paypal account might as well have it in a bitcoin-wallet. Well, at least assuming the prices settle somewhere long term.

Doesnt matter how much a single coin costs as long as you have like a hundered (or whatever) bucks worth of them in your wallet, instead of pretty much $(daily_random_value).

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Re: Too be fair

Maybe true, but have a chat to the Cypriots about keeping your net wealth in the bank and see what they tell you.

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So, the police can seize bitcoins (leaving their owner without any means of redress,) because they don't regard bitcoins as a 'real' asset, yet the taxman will still tax you on these virtual assets...

Surely the state can't have it both ways?

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It is panto season....

... oh yes they can! (but they shouldn't)

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Gav

Makes your choices and takes your chances

Where does this article say that the police would not regard bitcoins as a "real" asset?

The risk here is no different from storing your cash in a bank that got closed down due to illegal activity. Until the matter is sorted out, you will have difficulty accessing your money. It may never get sorted out. In which case, tough luck, you are a victim of crime and making the mistake of storing your wealth in an institute that shouldn't have been trusted.

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Re: Makes your choices and takes your chances

"Where does this article say that the police would not regard bitcoins as a "real" asset?"

That's poor phrasing on my part, sorry. What I meant was that the police and prosecutors don't think they have to follow the usual laws surrounding asset seizures. This is because bitcoins are neither a tangible asset nor are they a currency - not even an electronic representation of a real-world currency. Bitcoins are (as I understand at least) just hashs and AFAIK it is not possible to 'own' a hash.

A few months back the Dutch authorities seized a bitcoin exchange that was allegedly run by people engaged in money laundering. Plenty of innocent people had bitcoins stored on the exchange. The Dutch just liquidated them all into real currency which they kept. There's no chance of anyone getting their bitcoins back since they didn't 'own' them in the first place.

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cos they have the men with guns?

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Re: Makes your choices and takes your chances

Actually if you have your money in a bank that was closed down for illegal activity you WILL get your cash back so long as you weren't part of the illegal activity.

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Re: Makes your choices and takes your chances

But if you had data on a cloud service that was being used for pirating movies and it is shut down - you don't get your data back

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Re: Makes your choices and takes your chances

It is like what happened to the carousel fraudsters who deposited their money in First Curaçao International Bank.

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Why not? I am reasonably sure it happens with some frequency in the US with criminal asset forfeitures. The assets are forfeited, all too often under seriously questionable conditions, but the IRS regards income gained from criminal activity the same way it looks at income from legal employment: subject to income tax.

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Re: Makes your choices and takes your chances

It's surprising that wasn't challenged legally. It's like arguing that your bank balance is meaningless because it's just a number, and numbers can't have value.

The authorities might have had a point if they'd simply destroyed the hashes. But once they sold them it should have been easy to argue that they received currency with tangible benefit, and therefore in practice the hashes were a tangible asset.

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Re: Makes your choices and takes your chances

In this case it sounds like the Dutch authorities are punishing the people unnecessarily, and making a point not to undermine standard government units or that we (the real crooks in questions) will take them. Sound about right? That is why you don't keep them on an exchange, simple, keep them encrypted on a removable storage device... and/or on your secure device

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Tulips !

It's just like tulip mania of the 17th century, bitcoin owners beware.

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Re: Tulips !

I suspect that's exactly what it is. Last year it was gold, and anyone ramping it would give a dozen different reasons why it would only go up forever (Indian jewellery, scarcity, 'because China', PCB manufacture, etc), yet it's 30% down on that peak now and the gold rampers have had to find another target.

I'm certain this volatility is down to news hyperbole much like gold 18 months ago. Bitcoin could be the start of something new and useful, but all the 'me too'/quick buck guys are giving it a dirty image as a speculators paradise at the moment. The maths behind it is genuinely impressive, the twonks ramping it aren't.

Hopefully it'll settle and find its true level as well the hundred or so copycat coins cashing in on a free ride on the hype. Then it may be useful for more than triangulation between other currencies exchange (something that can already be done by other means, but it is a good addition to the gene pool)

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Re: Tulips !

Ah yes, who can forget.

I tried Bitcoin, but got bored waiting for the entire history of all transactions everywhere to be downloaded to my virtual wallet. Seemed pretty unwieldy to me. I've probably lost a fortune as I gave up and did something else...

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@Cliff Volatility

The volatility may also have a fair bit to do with the news around Bitcoin. As mentioned in this report the EBA have issued a health warning, and China appears to have banned Bitcoin.

In other news the US have been issuing warnings to do with Money Laundering on Bitcoin businesses. These would seem to be appropriate given that one of the most well know marketplaces was closed down by the FBI for trading stuff that would require money laundering....

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Re: Tulips !

I rather loathe the Tulip example. Most accounts are based on a single 1841 work by Charles Mackay which itself is based on propaganda. There is a growing body of research that says that far from being a widespread mania was just confined to a small group of bored rich gentlemen trying to distract themselves from the horrors of the plague. Other bubble examples may be more pertinent.

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Re: Tulips !

So use a wallet that doesn't download the entire blockchain. There are several choices, they use an online service to get information but your wallet is still secure on your pc.

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Re: Tulips ! @ Jonathan 29

It's a good example, where hot money chases a commodity (or interest/exchange rate) and distorts the market only to return to it's natural level later with disastrous consequence for the late investor.

History is littered with bubbles:

Canal mania, railway mania, south sea bubble, Barber boom, Dotcom bubble, numerous property booms - the list is endless.

"When you see a bandwagon it's too late." - Sir James Goldsmith (but I suspect it's an old gold rush saying).

The smarts have already been and gone, taking their profits with them, the only people still there are the fall guys who are going to learn the hard way.

To quote from the best black comedy ever written, Kind Hearts and Coronets (1949)

"The fact is, old boy, we sold short...and the market hasn't dropped as we expected."

"I feel entitled to point out that we here...regard our function as the encouragement of constructive investment...and not the financing of mere gambling transactions."

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Re: Tulips ! @ Jonathan 29

Point was, that the Tulip Mania remains disputed, due to inconclusive historical evidence.

Then again I must say, how long can tulips stay in shape until they rot and become worthless? I've never heard of Bitcoin or Gold to rot, or physically degrade into a worthless shape. (Not taking irradiated gold into consideration, Goldfinger says hi)

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Anonymous Coward

Re: Tulips ! @ Jonathan 29

Bitcoin is not in a bubble.

Bubbles grow, grow and grow more and then pop.

Bitcoin is volatile but with 50% downward swings this week it is certainly not a bubble!

Those who believe otherwise will be feeling rather gutted by next summer!

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Re: Tulips !

Note that downloading/storing the entire blockchain is no longer a requirement for a bitcoin wallet.

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Re: Tulips ! @ Jonathan 29

So use one of those examples then.

But you won't, because things like property, dotcoms etc, whilst they've had bubbles, are still things that recover, and indeed go on to boom. The Internet was a bubble, but not in the sense that it disappeared - far from it.

No, Bitcoin critics cling to the Tulip example not because of the bubble aspects of Bitcoin, but because they want to compare it to something utterly laughable, as well as something that's useless as a currency or store of value (even though none of the reasons for that apply to Bitcoin).

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Re: Tulips ! @ Mark

Yeah right Mark, go tell that to Bernard Madoff.

I'll take a standard medium of exchange that's backed by national wealth, Swiss francs will do nicely.

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Re: Tulips ! @ Mark

Bitcoins value is determined solely by the belief of the market that it has value. The problem with bitcoin is that unlike money as such it has no powerful sponsor.

So for example above 'rm -rf' quotes the Swiss Franc which has value because the Swiss government and banks say it has value (as do probably a lot of well heeled people holding bank accounts in Switzerland).

The key question then is why people (other than for use in illegal markets) will exchange bitcoin for other currencies. Particularly if more established fiscal markets start to either warn against, reject or outright ban bitcoin.

This is happening now and as I have speculated above may well be having a direct effect on the value of bitcoin. Personally I would assume that if there is sufficient adverse bitcoin news from reputable fiscal organisations it's value will collapse completely.

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Re: Tulips ! @ Mark

>Bitcoins value is determined solely by the belief of the market that it has value

Any currency only has value because the market believes it has value.

Having a government backing it doesn't necessarily help. Ask anyone holding Reichsmarks in 1945 or confederate dollars in 1865, or Iranian Rials in 201x.

The idea of bitcoin was that it was a universal currency that could be traded without the permission, knowledge and fee taking from VISA/Amex/Paypal. It's no more anonymous than them and is used in astronomically fewer criminal activities than the good old $ in which we trust

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Re: Tulips !

Probably most people didn't spend 2500 Dutch Florins a time on tulip bulbs. It was after all a massive amount of money in those days. They would have bought something like daffodil bulbs instead, or they would have decided not to bother with spring flowers in their gardens.

Nevertheless, despite massive inflation in every other product since 1637, tulips are still considerably cheaper today than they were 376 years ago.

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Re: Tulips ! @ Jonathan 29

This particular 50% downward swing is a bear trap. They do happen fairly frequently in the upward phase of a bubble.

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Re: Tulips ! @ YAAC

"Any currency only has value because the market believes it has value."

A currency is in effect a promissory note, an IOU which may be exchanged for goods and services. Now there is a certain demand for these IOU's based on the underwriter's (normally government or bond issuer) ability to honour these promissory notes which is what gives a currency it's worth. If the government is broke or unable to honour all these notes then the value falls or at worst it becomes worthless (see Weimar Republic) and you are left holding nothing. Of course confederate dollars were worthless because the confederate government was broke.

Now bitcoins are promissory notes which are not backed by any financial institution or state and are wholly valued by floating free market exchange rate mechanisms which makes them very risky indeed. As yet the minting of bitcoins has not been cracked so the promissory notes retain perceived value solely on the basis of encryption algorithms. The crash of 2008 will be nothing compared to the coming bitcoin market crash, at least in a UK bank the deposit is guaranteed up £85000.

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Re: Tulips ! @ YAAC

Outside the country (we do trade internationally!) a currency only has the value that the currency markets place on it. Whatever statements the government of $COUNTRY$ make, that does't decide how many USD their pieces of paper are worth.

The UK government guarantees your bank account, but it only guarantees it in £. It doesn't guarantee that you will be able to buy the same amount of Oil/gold/whatever with it. That is the real value of an international currency.

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Re: Tulips ! @ Jonathan 29

Then again I must say, how long can tulips stay in shape until they rot and become worthless?

Notwithstanding the post above casting doubt on whether "tulip mania" was a real thing or not, apparently it wasn't about speculating on the value of particular tulips (which will rot, as you say) but a bet on the futures market-how much a particular genetic line might be worth... though again with the caveat that predicting whether a particular line will produce interesting (read "valuable") blooms is notoriously difficult.

As for Bitcoin, it does seem to have all the classic hallmarks of a bubble, but a halving of value does, paradoxically, make it more attractive right now...

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Re: Tulips ! @ YAAC

> If the government is broke or unable to honour all these notes then the value falls or at worst it becomes worthless

In ye olden times perhaps. Currency used to be backed by gold, then (Sterling) silver, now there's nothing. The government doesn't promise anything. Not only that, national debts are multiple times the value of the economy, so the currency is worthless anyway.

We just pretend everything is ok to put off the awful day when we can't avoid the fact that it isn't.

Then you can say, "Hello Weimar" and probably everything that came after it too.

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Re: @Cliff Volatility

This is because the crooks in business at the top now are threatened perhaps. If I was them I'd be sending out the headhunters too. Same reason cancer cures will not be allowed in society. People are asleep. Anything that has the potential to destroy paper currencies, and bring about a free market over time will ruin their main controlling societal pin. I'm not a bitcoiner but I sure am thinking about it now that the price has settled down a bit. What governments of the world are starting to realize is that it is potentially beyond the reach of the grubby little fingers.

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Rampant speculation

Buying bitcoin would be fine if people intended to spend it. But they're not. It's a series of speculative bubbles by people hyping up the currency so they can exit and exchange their bitcoins back to real money and a profit.

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Re: Rampant speculation

That's the thing. Bitcoinseems almost seems to be designed for the bubble to burst. The goal of most anyone who is investing is to ramp up the price and then sell everything to get more real cash.

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Re: Rampant speculation

I "invested" about £30 in bitcoin because I wanted a fast and easy way to buy stuff online (and perhaps locally) and today my wad is worth about £19. I'm not worried because over the next few days it'll go back up, but there again I didn't buy it as an investment. I reckon if people use it as a trading currency rather than a means of sticking on over on The Man it'll succeed.

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Re: Rampant speculation

"sell everything to get more real cash."

and by real cash you mean the dollars and pounds that the central bankers have been printing $£Trilions of to give to banksters and russian gangsters, eh?

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Re: I reckon if people

It would but that's the rub. I have yet to see a story or post where the prevailing subtext wasn't sticking it to the man. So long as that remains true it is either a speculative bubble or thugs using it for money laundering purposes.

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Re: dollars and pounds that the central bankers have been printing $£Trilions of

Yup. Those work in 99.9% of the stores that sell stuff.

The fact that russian gangsters have some as well is just proof that it is good. They are professionals, after all. They won't go after something that has bad returns on investment.

So call me when a russian mobster is hoarding Bitcoins - that's when I'll believe it has value.

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Anonymous Coward

banking regulator: Don't come crying to us when someone steals it

not like your money's really safe in a bank but hey, there's a difference called "banks' reputation" :)

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Re: banking regulator: Don't come crying to us when someone steals it

The great thing about real banks is you can put your real money in them and be guaranteed to have lost money thanks to inflation. If you're lucky the bank will even charge you for the pleasure of losing money, or spending it.

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Anonymous Coward

Re: banking regulator: Don't come crying to us when someone steals it

Exactly.

And for reasons not recently made widely clear, when a bank fouls up, governments mostly seem to think they are obliged to protect the institution rather than the investor, and that "protecting the institution" is more important than the effects (austerity etc) of the cost being passed on to the tax paying public (and others). Which other business sector runs government that way?

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Re: banking regulator: Don't come crying to us when someone steals it

Their is no reason why governments should protect the investor, in fact they should be the first to get a haircut, up to 100%, when banks go tits-up.

I think you may have meant "depositor"

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Anonymous Coward

Re: banking regulator: Don't come crying to us when someone steals it

"I think you may have meant "depositor""

I think you may have hit the nail fairly and squarely on the head. Sorry. Thank you (genuinely) for the correction.

I'll see if I can find a convenient rock to crawl back under,

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