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A.J. Watkinson
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A.J cut his teeth while working for more than 12 years on the corporate side of the financial services industry in the suburbs of New York City. In addition, A.J. has successfully traded stocks, options and currencies as an independent trader since the late 90's. Eventually A.J. moved out of... More
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  • Bitcoin Revisited- Still A $250 Price Target 0 comments
    Feb 13, 2014 10:31 AM

    In November last year I called for a collapse of Bitcoin pricing to $250 (see article here). While it never quite made it as low as $250- it did collapse from a high of $1163 (on November 30th ironically) to trade just seven days later at $542 (on December 7).

    That's a collapse of more than 50%! Far too risky for my taste, and I'm certain the taste of plenty of novice traders.

    But to those naysayers out there, fair enough- I missed my price target... I can own up to that.

    Now, after recent events at Bitcoin exchanges across the world, we may just see this price target become a reality. Actually, if events continue to unfold on their current pace- the concept of Bitcoin could become the single-largest financial fail of all time.

    If you're not in tune with the world of Bitcoins, let me fill you in.

    Last week Mt. Gox, one of the largest (and original) Bitcoin exchanges had to "temporarily" suspend withdrawals. The news led to a massive sell off amounting to a single-day drop in value of 20%!

    In my opinion, I think that was a rather controlled drop given the circumstances...

    Think about it- if your local bank decided to suspend all withdrawals of US Dollars you'd be outraged. But what if say Chase Bank, one of the largest banks in the country, decided to suspend withdrawals at ALL it's branches? We'd see MASS HYSTERIA!

    In my last article I pointed to one of my concerns with this new virtual currency. Here's what I said-

    "I simply can't get past the fact that Bitcoin was first made popular on a role-playing fantasy card trading website."

    I continued to tell you that Mt. Gox became the first and largest Bitcoin exchange quoting prices and keeping an active market. And sadly this site was found to be involved in some black market activity and assets belonging to the Mt. Gox exchange were seized, due to their relationship with the Silk Road drugs market.

    Fast forward to today-

    Nothing has changed. I ask a question to all Bitcoin investors out there in cyberspace,

    Since you're trading a virtual currency, who is regulating this currency? You're exchanging your cash into a currency that is not backed by the full faith and credit of the US government or any government for that matter. In fact, Indonesia has specifically banned the currency warning citizens

    "Bitcoin and other virtual currencies are neither currency nor legal payment tools in Indonesia. People are advised to be careful about Bitcoin and other virtual currencies"

    And it's not looking like Bitcoin exchanges can get themselves in a position to be regulated by the US.

    Last month, CNBC ran an article in which both Treasury Secretary Jack Lew, and Chase Bank CEO Jamie Diamon discussed the trouble with the entire Bitcoins concept...

    Jack Lew was quoted by CNBC saying,

    "From the government's perspective, we have to make sure [bitcoin] does not become an avenue to funding illegal activities or to funding activities that have malign purposes like terrorist activities"

    And Chase Bank's top exec told CNBC,

    "Bitcoin will eventually be made to follow the same standards as all other payment systems... That will probably be the end of them."

    To make matters worse, just yesterday multiple Bitcoin exchanges experienced "hacking" or attacks in the form of distributed denial of service attack. This is increasing the list of financial analysts that are warning off investors. And as each new site gets hacked, so grows the already negative cloud surrounding Bitcoin.

    Let me leave you with some food for thought that might just hopefully wake up some folks on the fence about leaving any real money in Bitcoins. The recent attacks on Bitcoin exchanges would be like terrorists attacking various branches of a massive bank, all in the same day. That is far from possible (welcome to the benefit of physical currency).

    In addition, Bitcoins exist in a world of bits and bytes- you can't spend them with the exception of a very small handful of active stores (online of course). You can't fold a Bitcoin in your pocket and go out to dinner. You can't pay your mortgage, car payment, or electric bill. It's not a real world currency.

    Finally, in my last article Bitcoin bulls mocked me for relating it to any type of standard investment. Well, if we follow that logic- it's not an investment that can be bought and sold based on fundamentals or technical patterns.

    So if it's not a currency, and it's not an investment... then what exactly is a Bitcoin?

    It's nothing more than a piece of code with no intrinsic value that has no shot of replacing all currencies. Bank on that!

    Bitcoin $250? I'm feeling more and more confident we'll see Bitcoin $0 before too long.

    And don't say I didn't tell you back in 2013 not to trust anything that's born on a fantasy role-playing card website. I'd take a penny stock over a Bitcoin any day!

    Keeping you one step ahead,

    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. I have no business relationship with any company whose stock is mentioned in this article.

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