BitCoin is a digital only currency which is getting its name in the news recently, mostly for negative reasons. Among other things, the FBI recently seized at least 3.6$ million worth of BitCoin and shut down a site responsible for drug sales, weapon sales and murder for cash which accepted payments only in BitCoin.
Over 1.2$ billion of BitCoin were changing hands per year, a very significant amount of all of the digital currency changing hands per year. There are a lot of digital transactions through Paypal (NASDAQ:EBAY), but BitCoin also transfers a large amount yearly.
In August, New York State demanded records on at least 22 BitCoin companies:
"Declaring Bitcoin "a virtual Wild West for narcotraffickers and other criminals," the New York State Department of Financial Services is stepping into the sheriff's boots.
"We believe that - for a number of reasons - putting in place appropriate regulatory safeguards for virtual currencies will be beneficial to the long-term strength of the virtual currency industry," said NYSDFS superintendent Benjamin Lawsky in a statement."
In July, Thailand banned BitCoin:
"Senior members of the Foreign Exchange Administration and Policy Department concluded that because there were no existing laws that apply to Bitcoin and the fact that the cryptocurrency "straddles multiple financial facets", a wide range of Bitcoin activities should be illegal. These include buying and selling bitcoins, selling or buying any goods or services in exchange for bitcoins, sending bitcoins abroad or receiving them from anyone located outside of Thailand. The ruling has led Bitcoin Co. Ltd to cease operations until Thai laws are updated."
We would like to present some perspective both for and against BitCoin either becoming more popular or imploding.
The following are some potential benefits of BitCoin:
No one's in charge
".... One of Bitcoin's biggest drawbacks is also its biggest strength: a lack of a regulating body. Whether that's good or bad is a matter of who you ask.
...It can be kind of hard to wrap your mind around a currency with no inherent value, but the US dollar falls under that very same description. Ever since Richard Nixon axed the gold standard in 1971, US currency has had nothing physical to back it up. From the US Treasury to Bank of America's databases, our entire currency system is resting on one big, elaborate web of trust. The United States government is pretty good for a third-party regulator, but nothing is without its flaws.
.... Another benefit of this lack of central control is that the government can't block you from giving out Bitcoins. In 2010, the US government sought to silence Wikileaks by cutting off its money supply. Both banks and credit card companies were forbidden from transferring any incoming donations to the site."
Some are even wondering whether BitCoin should be legal at all.
The General Counsel of the BitCoin Foundation says the following:
"Sure, it's possible. But I can't imagine that many people would look at Bitcoin today and think if I need a way to move illicit funds around, that this would be an ideal system for it. It's private, not anonymous. There was this whole Bitcoin magical thinking that occurred in the early days that because of Bitcoin's unique properties, it's invulnerable to law enforcement. It was never true, and it's now been conclusively proven that it's not true.
Law enforcement through traditional methodologies was able to find someone who ran this illegal operation. Bitcoin didn't pose any sort of unique threat to the law enforcement community. You wonder if the law enforcement community would have been able to detect and intercede in this if the whole system was run on cash. The point being that Bitcoin is less desirable for the criminal element than other systems that are out there like cash or even a centralized virtual currency system."
At least two new sites have recently quickly formed to replace the function of The Silk Road. It is hard to deny now that a lot of BitCoin usage has been for illicit purposes and we believe BitCoin has more chances of being targeted now for that reason.
We believe that this shutdown by the FBI will have some very negative effects on the future of BitCoin as there will be lots of scrutiny on the negative aspects of illegal usage and very little focus on any regular aspects for commerce.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.