There’s been a deluge of coverage of Bitcoin lately, coinciding with the increasingly popular cryptocurrency’s dramatic rise (and fall) in price. It’s not just the all-time high values for Bitcoin that are garnering attention; it’s also the volatile swings in prices that invariably seem to follow.
There’s a strong case to be made that Bitcoin represents not an alternative currency but a purely speculative gambit. (It’s noteworthy that the CFTC chose to recognize Bitcoin as a commodity rather than a currency for regulatory purposes.) Plain and simple, its volatile price makes it an awful store of value—which is perhaps the most important function of any form of money. Even worse, despite the secure blockchain technology that underlies Bitcoin, the cryptocoin has repeatedly been targeted by hackers and scammers.
Yet Another Seizure
In addition to dramatic price fluctuations that have wiped out huge portions of Bitcoin’s value in the past, it is also vulnerable to hacking or surprise seizure.
This is what has reportedly happened with a popular Bitcoin wallet known as Coinbase. In essence, such a digital “wallet” is just a repository for your Bitcoins. These services have been compared to a bank account.
Of course, any Bitcoin wallet is going to suffer from the very same problems as a bank account for your fiat money: It is subject to vanishing into digital oblivion or being seized by the “wallet” service at any time, with absolutely no recourse for the owner.
In the case of Coinbase, little-known laws in Wyoming and Hawaii that make using Bitcoin problematic caused the service to stop accepting new users residing in those states. However, Coinbase took this one step further, freezing out current users from WY and HI from accessing or even viewing their Bitcoin balances. Appeals and complaints yielded no resolution. In effect, the wallet simply confiscated the assets in these accounts with bold impunity. Despite outraged customers and formal complaints to the Better Business Bureau (BBB), there seems to be no solution in sight for these individuals at the moment.
The troubling incident is reminiscent of the crisis that caused Mt. Gox, a popular Bitcoin exchange, to collapse in 2014 after hacking resulted in millions of dollars worth of stolen Bitcoins and frozen trading accounts.
How will Bitcoin respond to this apparent vulnerability in the future? Unfortunately, there don’t seem to be any straightforward solutions right now. Even if the cryptocurrency “goes mainstream,” so to speak, there’s nothing to prevent the same confiscatory behavior by official gatekeepers, regardless of whether they would ultimately be private or state-run.
Either case has historical precedent that doesn’t bode well for Bitcoin owners. One can compare this to President Franklin Roosevelt’s seizure of the nation’s gold through Executive Order 6102 in 1933, colloquially known as the “Gold Confiscation Act.” In the case of a private institution doing something similar, one need look no further than the bank bail-ins that occurred in Iceland after the financial crisis.
One could simply avoid all of this risk and headache by storing one’s wealth in physical precious metals rather than trusting speculative bubbles like Bitcoin.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.