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Thursday, March 27, 2014 1:39 PM


Recommendation on Bitcoin


I have a recommendation to make on bitcoin but it's not to buy or sell or even to hold bitcoins.

Before I get to my recommendation, I have to admit that I am quite surprised that bitcoins surged from less than a cent to over $1000 (now around $520).

Treasury, Wall Street Embrace of Bitcoin

Early on, I wondered if bitcoin would even survive. But it's pretty clear now that bitcoin will survive.

I arrived at that conclusion when Wall Street embraced bitcoins (see High Frequency Bitcoin Trading Coming Your Way). In response, I stated "bitcoin is here to stay".

On March 18, I reported Treasury Department Places "Real Value" on Digital Currencies, Sees No Widespread Criminal Bitcoin Use; Virtual Currency Rules Coming Later This Year.

To me, that Treasury discussion was further evidence bitcoin is here to stay. I strongly suspect the Treasury wants to study digital currencies, possibly in advance of making the US dollar digital, and in the process making every cent traceable to someone at all times. Unfortunately, I believe such controls are coming.

Money is Made by Being Early

Bitcoin is front-page news. But money is not made when things hit the front page of the Wall Street Journal. Money is to be made in items on the 20th page of the Wall Street Journal, if not before that.

In 2009, $1,000 invested in bitcoins would be worth a staggering $50,000,000 today. That is the effect of investing in something that goes from one cent to $500. I missed it, so did nearly everyone else I know.

Recommendation

So, where are bitcoins headed next? If I knew that, I would have bought in 2009. I do not know, nor does anyone else. Yet, I do have a recommendation.

In light of bitcoin theft at Mt. Gox, at Flexcoin, and at Poloniex (see Two More Exchanges Hacked: "Flexcoin" Robbed of All Online Coins; "Poloniex" Missing 12.3% of Assets), for those who hold bitcoins, please hold bitcoins at a secure site.

Specifically, I recommend Netagio.

Why Netagio? Simple. I trust their digital currency safety, just as I trust the safety of my holdings at Goldmoney. Goldmoney and Netagio are related (See GoldMoney group launches new Bitcoin­‐focused company in the UK).

This of course makes me biased. I have a relationship with Goldmoney and by association with Netagio. Thus I struggled writing this post.

I do not make such recommendations lightly. I do now, not because of any current benefit (I have none), nor because of any expected future benefit (which there might be), but rather, because of multiple instances of fraud, at multiple places, people holding bitcoins need to hold them in a secure place.

Fees

Netagio currently has no storage fees. Some places like Xapo.com charge for bitcoin storage, whereas others like Coinbase.com do not.

I expect storage costs and/or transactions costs will eventually be the norm everywhere. I have no information regarding timeframe.

I can say, metal storage costs at Goldmoney are among the lowest in the industry for precious metal storage. If and when Netagio does charge storage fees, I would expect them to be among the lowest in the industry.

Financial Reporting

Given the IRS Clarifies Bitcoin as Property Not a Currency I asked Netagio if they handled financial transaction reporting and received this answer:

We provide the same type of information like we currently do now in GoldMoney. We give a currency value to any Bitcoins on the date they were received. For those who buy and sell Bitcoins through our platform, we'll be able to map the value of them at the time of the trade execution.

Supported Currencies

Netagio supports bitcoin trading in US dollars, Euros, and British Pounds. I suspect, but cannot guarantee other currencies will be added. Currently, most bitcoin exchanges support one or two currencies, but that may easily change as well.

Gold to Digital Transactions Coming

My opinion is that once a wider population of people are comfortable transacting with Bitcoin online, transferring gold to bitcoins is not far off.

Indeed, a quick check of Netagio shows You can Buy and Sell Gold with Bitcoins. That is something other bitcoin exchanges do not offer.

Personally, I do not want my predominant store of wealth sitting in bitcoin. I prefer gold. Others might prefer bitcoin.

For those who do prefer bitcoin, my suggestion is to question the security procedures at your current site, and if at all in doubt, move some or all of that storage somewhere else.

Specifically, look for a site where security is rock solid, where there is financial transaction accounting, and where multiple currencies are supported.

There may be other similar services elsewhere. As always, please do your own due diligence.

This is similar to my recommendation to not hold money in excess of the FDIC deposit insurance at any one bank. In this case, there is no deposit insurance anywhere in the Bitcoin world, so that makes it all the more important that you pick a site you can trust, with financial accounting, and with other services.

Again, this is not a recommendation to buy, hold, or trade bitcoins. Rather, if you do, please pick a site you can trust. Netagio is one such place, for all the reasons given above.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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