Monthly Archives: June 2017

If you are investing, does bitcoin have an intrinsic value, like gold? To me, bitcoins look more like tulip bulbs. Photograph: Benoit Tessier/Reuters

How can I invest in bitcoin? Id like to invest a few hundred pounds. Andy

There are at least three ways, though only one of them looks rational today. First, you could mine your own bitcoins. Second, you could buy some from an exchange. Third, you could buy shares in a fund that has invested in bitcoins.

Please note that answering your question is not a recommendation, and I am not qualified to give advice on investments. However, as electronic payments expert Dave Birch put it to me on Twitter: one doesnt invest in bitcoin, one gambles on bitcoin.

The problem is that people can make money by buying things that are essentially worthless, such as used postage stamps, Beanie Babies, and (historically) tulip bulbs. Tulipmania operated on the bigger fool theory, also known among stock traders as momentum investing. For example, tulip bulb prices may be insane but they keep going up. I may be a fool to buy them, but I expect a bigger fool to buy them from me. Simply replace buy low, sell high with buy high, sell higher. This works until you run out of fools.

However, you can buy things that dont depend on bigger fools appearing, such as land and gold. Their prices may vary dramatically, but over the long term, they retain real value. When tulip bulb prices were tumbling, everyone wanted to sell. When gold prices tumble, people with money look forward to an investment opportunity.

Bitcoin is a digital currency. If you want to buy a camera for 250, then you need a way to transfer 250 to the seller. In theory, it doesnt matter if you pay cash, write a cheque, email the money via PayPal or use bitcoin. In reality, you have to balance a range of factors including convenience, security and transaction costs. Id use a credit card, if possible, because bitcoin payments are not reversible and offer no consumer protection.

But if you are investing, does bitcoin have an intrinsic value, like gold? To me, bitcoins look more like tulip bulbs.

The price of a bitcoin may increase because, for example, it is attractive to technology enthusiasts, and because we are all reading stories about how people made or failed to make fortunes. But, like tulip bulbs, bitcoins could be worthless when the bubble bursts.

As Henry Blodget told CNBC: Look, this is a perfect asset for a speculative bubble. There is a finite supply. There is no intrinsic value. If anybody is persuading you that it should somehow be related to some GDP or gold put down the Kool-Aid and back away.

You could argue that banknotes dont have any intrinsic value either. However, banknotes are backed by governments that have a strong interest in keeping their value relatively stable. Governments dont (yet) care what happens to bitcoins.

Bitcoins are mined by people solving problems with computers. In the beginning, the best way to make money from bitcoins was to mine them with a home PC. However, bitcoin mining becomes more difficult the more miners there are. Today, you need specialised hardware, and you need to join a mining pool where large numbers of miners work together and share the results. Coins are not pure profit because of the cost of the hardware and the electricity consumed when mining. Also, you dont know what bitcoins will be worth when you start mining them.

However, there must be dozens of digital currencies besides bitcoin, and the CoinChoose website lists a Top 20. Well known alternatives include Ethereum, Litecoin, Dogecoin and Bytecoin. You might find one that is still worth mining, or that might represent a better gamble than bitcoin. CryptoCompare is another useful website.

Ethereum is interesting because its backed by an alliance that includes JP Morgan, Microsoft, Intel, Banco Santander, Credit Suisse Group, UBS and BP. Its designed to perform transactions very much faster than bitcoin, and its hashing system is decentralised by design. It favours individuals, not mining pools.

You can buy bitcoins from a bitcoin exchange or online broker, directly from another individual, or from an ATM. Coin ATM Radar lists about 50 bitcoin ATMs in London, many of them in convenience stores. As when buying foreign currencies, theres a fee, which can range from 3.1% to 17.6%. The website covers 56 countries and you can search for an ATM near you.

A bitcoin ATM usually takes cash from your bank card, though some only accept banknotes. It sends your digital currency (bitcoin, litecoin etc) to your wallet, which could be a smartphone app, or to your email address. Some ATMs can print paper wallets that you can scan later.

If you buy a digital currency from an exchange, it may well offer you an online wallet, but your money is at risk unless you have the keys. When the Mt Gox bitcoin exchange was hacked, around 850,000 bitcoins went missing. It was a $450m loss at the time, but at todays exchange rate, it would be $2bn.

There are dozens of different wallets for different purposes, with hot wallets on smartphones and cold storage wallets held offline on paper, on hardware devices (cards, thumbdrives etc) or on separate PCs. These are equivalent to your spending money and your savings account respectively.

You will need to research wallets. However, We Use Coins has a decent guide, and it recommends BitPays Copay to beginners. Its easy to use and it runs on iOS, Android, Windows and Windows Phone, MacOS and Linux. It can also handle shared accounts.

I used my Android phone to search for bitcoin wallet on Google Play, and gave up when it produced around 200 results. Copay was near the top. It only took two minutes to create a wallet, and it prompted me to make a backup: Watch out! If this device is replaced or this app is deleted, neither you nor BitPay can recover your funds without a backup.

It also warned me that Anyone with your backup phrase can access or spend your bitcoin. I dutifully wrote it down.

Once the wallet is set up, you can use the app to buy bitcoins from Coinbase in 33 countries, and from Glidera in the USA. It can take several days to buy or sell bitcoins via Coinbase.

Some investors presumably ones who do not have teenage children think bitcoin is for the tech-savvy, difficult to buy and perhaps even harder to store safely. This has given rise to funds that buy bitcoins or related assets such as mining companies. Last month, The Motley Fool described one ETF as The Worst Way to Buy Bitcoin. At the time, the story said, shares in the Bitcoin Investment Trust cost about twice as much as the bitcoins it owned, but typically they have traded at an average premium of 39% to underlying value of the bitcoin.

You could buy dollar bills for $1 each, so why would anyone pay $1.39 to invest in a $1 bill which is actually worth less than $1, because of the 2% annual management fee? Answer: the laws of supply and demand.

Other American investors were conned by a Ponzi scheme that offered shares in bitcoin mining machinery.

Stories like that could be signs of a bubble market, but if so, when and how it will end is impossible to say.

Have you got another question for Jack? Email it to Ask.Jack@theguardian.com

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How can I invest in bitcoin? - The Guardian

Say what you will about the cryprocurrency market in the first half of the year, but give it this: it wasnt boring.

In contrast to the U.S. equity market, where a popular measure of volatility has been hovering near a multidecade low since May, there was nothing but volatility in the realm of digital currencies, underscored by jaw-dropping gains on the year and a gut-wrenching drop this month.

Digital currencies hit a number of key milestones in 2017, including breaking into the 12-digit club, as the combined market value of all cryptocurrenciesled especially by bitcoin and ethereumsurpassed $100 billion for the first time ever, and currently stands near $104 billion.

Cryptocurrencies have become so prominent that major semiconductor stocks have started to move based on how readily their chips are used by miners, who use high-powered computers in a race to solve complex puzzles. Those who solve these problems are rewarded with the digital gold of bitcoin and other digital currencies.

The volatile ride cryptocurrencies in garnering increased attention from mainstream companies and average Joes and Janes, belies the setbacks it has faced on the regulatory front. Notably, the Securities and Exchange Commission in March rejected what would have been the first bitcoin exchange-traded fund, as well as the reputation hits from recent high-profile cyberattacks where bitcoin ransoms were demanded.

Still, the overall trend in crypto in 2017, as it was last year, was shockingly positive. The price of single bitcoin BTCUSD, -1.98% currently sits at $2,565.47, up 165% thus far this year, though down 15% from a record high above $3,000 hit earlier this month.

Gains for ethereum has been even more pronounced. Not only has bitcoins chief rival surged past it in terms of daily trading volume, according to CoinDesk data, but it is also up nearly 3,500% on the year, having rallied from $8.40 at the end of 2016 to a shade under $300 presently. And that surge includes ethereums current bear market, as it is down more than 20% from a record hit earlier this month.

See also: Heres how blindingly fast bitcoin has been surging

Read more: How cryptocurrency ethereum looks set to overtake bitcoinin one chart

The size and scope of the rallies in digital currencies easily eclipses the year-to-date move of more traditional assets like stocks. For example, the S&P 500 index SPX, -0.37% despite enjoying its own run-up, has gained a much milder 9% year to date, the Dow Jones Industrial Average DJIA, -0.19% is up 8.6%, while the tech-heavy Nasdaq Composite Index COMP, -0.96% is up a touch more than 15% in 2017. Among the best performing commodities, palladium PAN7, -1.77% is up more than 25% on the year. None of those rallies approach the year-to-date surges in popular cryptocurrencies.

Perhaps for that reason, questions about whether these digital currencies are in a bubble have emergeda debate that will undoubtedly continue to rage in the second half of the year. That is particularly if they show further stabilization and add to their string of records.

Whatever, the future holds for bitcoin, it appears that with its $42 billion valuationenough that it has become bigger than such iconic brands as Delta Air Lines DAL, +0.56% and Deere & Co. DE, -0.40% one can no longer argue that bitcoin is simply a niche asset, even if bitcoin and its rivals are risky and untested.

And while one proposed metric for bitcoin valuation suggests the digital currency is within historical realms, Morgan Stanley recently argued that government regulation was needed for bitcoin to continue its dalliance into the record books.

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What delivered the best return of 2017's first half? Bitcoin and ethereum - MarketWatch

Theres volatility. And then theres bitcoin volatility.

With virtual currency flash crashes and a recent string of ransomware attacks all but obliterating bitcoins incremental stability, its become hard to find a comparable asset. Indeed, the closest match is an exchange-traded fund on leverage steroids thats supposed to be highly volatile.

Bitcoin now swings more than the Direxion Daily Junior Gold Miners Index Bull 3x Share, or JNUG, an ETF that uses borrowed funds to deliver three times the return on an index tracking small-cap mining companies. And the volatility spread between bitcoin and the inverse short version of the fund, JDST, is the smallest in more thanthree years.

The uptick in volatility looms over the bitcoin markets legitimization. Since a bubble burst in 2014, the cryptocurrency had become more stable, with two-month realized volatility reaching its lowest level in April 2016. But the recent price swings are a painful reminder that bitcoin has a long way to go before it behaves like a mainstream currency, if it ever does, said Dave Nadig, chief executive officer of San Francisco-based research firm ETF.com.

There have been a lot of advances and its been taken more seriously by investors and institutions, Nadig said. But there are all sorts of small steps that start legitimizing a market, and by design bitcoin is inherently unregulated. Part of the reason you end up with volatility is because of the lack of market structure.

Considering some high profile investors have pinned their hopes on bitcoins stabilization, the resurgence of wild swings isnt a great look. Former hedge fund manager Michael Novogratz has 10 percent of his capital invested in cryptocurrencies, which he said could become a $5 trillion industry, and is looking to add more bitcoin if it falls below $2,000. Its currently trading for more than $2,500.

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Bitcoin has enjoyed a 167 percent advance so far this year, but has become increasingly correlated to a smaller but growing virtual currency based on the ethereum blockchain. Known as ether, that cryptocurrency quickly plunged from more than $300 to 10 cents last week on Coinbases GDAX exchange before snapping back. Its currently trading for around $309, according to prices compiled by CoinMarketCap.com.

Over the last two and a half years to mid-last year, volatility had been trending way down and compared to roughly that of small-caps, Spencer Bogart, head of research at Blockchain Capital LLC, said by phone.Some of the major drivers now have been bitcoin trading with other cryptocurrencies, and when you have these big run ups, it increases the chances youll have a large drop.

To be sure, precious metal markets have been seen low volatility recently, helping bitcoin jump above the miners index. The CBOE/COMEX Gold Volatility Index has fallen 25 percent this year, reaching an all-time low last month. Even so, JDST and JNUG are still the third and fourth most volatile ETFs out of the more than 2,000 in the U.S.

Gold and cryptocurrencies are often considered related in the financial markets because of their standing as alternatives to cash. However the precious metal, which has been used in this way for ages, is typically more stable than bitcoin, which started in 2009.

JNUGs realized volatility is nearly one point lower than bitcoin, according to 25-day data compiled by Bloomberg. Thats the first time bitcoin jumped above the ETF since early 2014, when the cryptocurrency plunged 44 percent in two months following a surge in prices from $13 to $746 in just one year.

The broad arc is that there has been an increase in acceptance of bitcoin among various pools of capital, Bogart said. The volatility of it in some ways could be turning away some traditional larger investors who say, I cant touch this, its too volatile.

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Bitcoin Has Become So Volatile It Looks Like an ETF on Steroids - Bloomberg

A Connecticut resident pleaded guilty this week tofraud and money laundering offenses committed as part of an elaborate effort to steal cryptocurrency.

In Hartford Federal Court on Tuesday, 35-year-old Michael Richo of Wallingford, Connecticut, admitted to stealing$365,000 in bitcoin througha phishing scheme in which he posted fraudulent links designed to resemble popular dark market websites, according to a release from the USDepartment of Justice.

Prosecutors found he later used this information to monitor the bitcoin accounts and balances of victims. Richo admitted he stole over 10,000 usernames and passwords in such a method, using these to sell the victims' assets on bitcoin exchange platforms for US currency.

No details were provided as to the nature of the accounts that were compromised, and whetherthey were software wallets (in which the users controlled their funds) or hosted wallet services (where the bitcoins in question were maintained by a company).

Still, the guilty plea advances a case that began when Richo was arrestedlast October on charges of computer fraud, wire fraud and identity theft.Ultimately, he pleaded guilty to one count of money laundering and one count of device fraud charges that carry a maximum sentence of 30 years of imprisonment.

Richo is scheduled to be sentenced in September.

Gavel and handcuffsimage via Shutterstock

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Bitcoin Phishing Scheme Perpetrator Pleads Guilty in Connecticut Court - CoinDesk