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My Bitcoin Rant

The best aspect of Bitcoin is that it is a free currency, completely outside of the control of any government or central bank.

Funny thing is, the worst aspect of Bitcoin is that it is a free currency, completely outside of the control of any government or central bank.

I’m not the biggest fan of central bankers.  Like the rest of us, they are human and will err.  They are tasked with making critical decisions under conditions of murky uncertainty and face conflicting mandates and political agendas…not to mention the unimaginable stress and the emotional burden of knowing that the livelihood of 315 million Americans depend on them making the right policy decisions.

No one—not Bernanke or Yellen or the quants that Goldman Sachs keeps locked in the basement—is smart enough or has enough information  to effectively manage a currency, which is why central bankers constantly get it wrong.  It’s an impossible job.

But to adapt Winston Churchill’s quote on democracy—that it is the worst form of government except all those other forms that have been tried—I’ve reached the conclusion that the modern central banking system is the worst monetary system ever devised…except for all others that have ever been tried.

The classic gold standard encouraged punitively high interest rates during times of crisis—which is precisely the time when liquidity is most needed—and crucified the working classes on a cross of gold.  It also encouraged mercantilist economics—the scourge that Adam Smith preached against in the Wealth of Nations—which was a leading cause of wars in the post-industrial era.

The gold standard is never coming back.  But what about modern variants like Bitcoin?

At first blush, there is a lot to like.  It has the anonymity of cash.  It can be transferred without the disclosure requirements of the world banking system.  And the creation of new Bitcoins is preset according to an algorithm, making something like an Argentine-style devaluation impossible.

But let’s get serious here.  If your bank fails, you have FDIC insurance in place to protect your savings.  But who do you call when a Bitcoin exchange is hacked or shut down due to a bug? Or for that matter, when someone steals the laptop that was storing your Bitcoins?

Federal Reserve Chairmen are regularly asked to testify before Congress to explain their actions.  And if things ever got bad enough, the Federal Reserve has a physical location that could be stormed Bastille-style with pitchforks. (I’m joking.  Sort of.)   Though imperfect, there is a level of accountability.

But who do you drag in front of Congress when Bitcoin breaks?  Satoshi Nakamoto, the John-Galt-like character (or characters) that created the virtual currency under an assumed name?  Good luck with that.

Look, I don’t trust the government.  I agree with the gold bugs, Bitcoin enthusiasts and other assorted malcontents on that count.  But I do trust the government more than I trust a crypto-currency of murky origins backed by an algorithm that lives in the netherworld of the internet.

I’m not going to wag my finger and tell you not to speculate in Bitcoins.  If you like to trade, and you feel comfortable with the risks involved, go for it.  Had you bought at the right time last year, you could have made more than 10 times your money.

So by all means, speculate.  But don’t drink the Kool-Aid here and buy the ideology.  Bitcoin is a deeply flawed idea, and it is not a viable store of wealth.  I’m not opposed to the idea of a free-market parallel currency, and indeed precious metals have served that role to some extent ever since the fall of the gold standard.  Some future iteration of a Bitcoin-like currency might be a viable option.  But as of today, we’re simply not there yet.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here visit website  to receive his FREE weekly e-letter covering market insights, global trends, and the best stocks and ETFs to profit from today’s exciting megatrends.  This article first appeared on InvestorPlace.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Has Bitcoin Gone Establishment?

I’m not sure if this news is welcome or distressing to buy cheap cialis online Bitcoin’s hardcore libertarian ideologues, but the U.S. Justice Department and the SEC are about to give the virtual currency their blessing as offering a “legitimate” financial service, according to representatives from both agencies. That news is driving Bitcoin up to fresh all-time highs north of $650.

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Of course, the U.S. government now has skin in the game. After shutting down order generic sildenafil citrate Silk Road, an illegal drug trafficking website, the FBI walked away with the site’s Bitcoin stash, which amounted to about 1.5% of all Bitcoins in circulation.

If the government accepts Bitcoin as legitimate, half the gritty, underground appeal is gone. But for optimistic Bitcoin speculators investors, acceptance by the suits is a bullish sign of broadening demand for the anti-currency.

Demand from China helps, too. BTC China recently because the world’s largest Bitcoin exchange, overtaking Mt. Gox of Japan, and is using venture capital money to expand.

So, what’s the story here? Has the anti-currency come of age? Is Bitcoin “a thing” now?

No, it’s not. Frankly, it’s asinine, but I’ll get to that in a moment.

If you want to join the speculation party, be my guest. The “value” of a Bitcoin in dollar terms has tripled in the past month as the price has gone parabolic. As I’m writing this, it’s up by more than 26% in the past 24 hours alone. Who’s to say it can’t triple again in the next month?

But don’t put any money in Bitcoin that you can’t afford to lose. Bitcoins lost about 75% of their value in April, and at the time its price was less than half what it is today.

Furthermore, the arguments backing the currency are flimsy at best.

The Holey Argument for Bitcoin

Let’s start with its role as an anti-currency untainted by the world’s central banks and their quantitative easing.

If investors truly were concerned about debasement of the currency and a loss of purchasing power, then the prices of gold and other monetary precious metals would be rising.

They’re not.

After a brief blip this past summer, the price of gold has resumed the downtrend that started in October of last year. Gold is down about 30% in the past 13 months. Silver’s decline has been even more devastating, off about 40% since last October. Platinum? The price action has been a little more volatile, but platinum is also down about 20%. (ZeroHedge puts this into wonderful visual perspective in a recent post.)

I’m not the biggest fan of gold as an inflation and currency hedge. If I want to be out of the mainstream financial system, I prefer to buy something with tangible value, such as land or rental real estate. Gold collects no interest or rent, and in the event that all hell broke loose and society collapsed into anarchy (a perpetual Mad Max goldbug fantasy, it seems) gold would be as useless as paper currency.

The only currency that would have any value would be shotgun shells.

But all of that said, if Bitcoin were rising due to “fundamental reasons,” such as currency debasement, then precious metals should be following. The fact that they are not makes the rally highly suspect.

Furthermore, while the “full faith and credit” of the United States of America might not mean as much as it used to in the era of government shutdowns and default scares, what exactly are you putting your faith in with Bitcoin? An algorithm? The generous spirit of anarcho-libertarian hackers?

Given its anti-establishment ethos, you’re getting into bed with people with a questionable respect for the law. Earlier this month, a Chinese Bitcoin exchange “disappeared,” taking more than $4 million in Bitcoins with it. And this happened just days after a hacker stole $1.3 million in Bitcoins from an Australian online bank.

Bottom Line

Bitcoin is a bubble. Of course, bubbles can be fun, and it’s possible to make a killing in them. Plenty of speculators walked away from the greatest bubbles in history — everything from the Dutch tulip bulb bubble to the 1990s Internet bubble — laughing all the way to the bank.

So, I’m not going to wag my finger and tell you not to speculate. But I do recommend only trading with money you can afford to lose.

And take profits along the way.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Bitcoins and Gold: I Would Short Them Both If I Could

It is truly a digital age: gold bugs have gone virtual.

I’m talking about Bitcoin, of course.  I realize that Bitcoin is not gold and has nothing to do with gold; it is a true cyber currency made of nothing but ones and zeros.  But its popularity is driven by the same forces that have caused investors to run to gold over the past decade: fear of inflation and a general mistrust of the global financial system.

Five years from now, I have my doubts as to whether Bitcoin will still be around.  In order to be taken seriously, it has to reach that tipping point where it becomes a viable medium of exchange accepted by mainstream retailers and not merely a pet project for ideological anarcho-libertarians and other assorted malcontents.  It could happen; but I’m not betting on it.  It’s taken more than a decade for Paypal to be accepted at non-internet cash registers, and Paypal is denominated in a recognized currency.  I don’t see retailers spending the money to update their payment systems any time soon, and before they do I would see this little fad fizzling out.

But I digress.  Today, I have no recommendation to short Bitcoin.  As tempting as it is, it’s dangerous to short anything that is in the middle of a parabolic move.  (And, alas, I’m not sure if it’s even possible to short Bitcoin at this time, unless there are derivatives I am unaware of.)

Instead, I recommend shorting Bitcoin’s far older predecessor, the barbarous relic itself: gold.

Gold has been in virtual free far since October.  In that time period, we’ve seen six months of aggressive QE Infinity from the Federal Reserve, an inconclusive Italian election with the potential to plunge Europe back into crisis, a botched Cyprus bailout that threatened to set off a bank run, and the most aggressive monetary stimulus in modern history coming out of Japan.

If none of these developments can spark interest in gold, then it’s hard to see what will.  After a great decade-long run, it appears that the gold bull market has run its course.

Action to take: Short gold.  The easiest route is to short the SPDR Gold Trust (NYSE:$GLD), though if you want to throw a little gasoline on the fire, you can instead buy the Proshares Ultra Short Gold ETF (NYSE:$GLL), a leveraged inverse ETF.

Gold is a volatile commodity, and you should be careful when shorting it.  I recommend something along the lines of a 10% trailing stop.  Within 1-2 years, I expect gold to be trading back in the $1,000-$1,200 range.

Disclaimers: Sizemore Capital currently has no positions in any security mentioned.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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