Comments on MarketWatch’s Bitcoin Commentary

On Friday, Chuck Jaffe at MarketWatch recorded a video interview regarding Bitcoin as a currency investment vehicle. You can watch the video here.

He warns that while Bitcoin has been the best investment of 2011 (up 22,000%), that it is a highly volatile currency. Investing in Bitcoin has been very popular in light of it’s stellar performance, and the dismal performance of the US dollar and stock markets of late.

However, there are many risks to investing in Bitcoin.

1. Security. There are been numerous security breaches at major trading platforms. These have caused big swings in the value of Bitcoins.

2. Validity of trading platforms. Some trading and e-wallet platforms have unknown provenance. Some of these websites are hosted outside the USA, and even obscure the identities of those who operate the sites. It can be difficult to know if a site is legitimate, and if they shut down, there may be no way to recover lost funds.

3. Volatility. Because of these factors, and increasing hype in the media, Bitcoin prices have swung with a high level of volatility. While that can make a great investment opportunity, it can also be dangerous for those who are not trading in a real-time basis.

I think Jaffe does not understand that some of the bigger swings were created by security breaches at large exchanges. Over time, these exchanges will improve their Internet security, and new exchanges that are operated by professionals with backgrounds in trading, payments and security will emerge, and create a more stable market.

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About Dave

I have been into financial cryptography and alternative electronic currencies since the mid 1990s. I have attended the Financial Cryptography conference, and have invented patents in the fields of cryptography and security. I've built systems for Visa, the US Federal Reserve, NASD, and hundreds of banks around the world.

Posted on August 29, 2011, in Uncategorized. Bookmark the permalink. Leave a comment.

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