Radical Investment Vehicles of 2013

Check out @weibmane's Tweet: https://twitter.com/weibmane/status/417432530091270144

Citigroup Gives a Minor Analytic View into They're Opinion as a Market Mover for Bitcoin

Zero Hedge: Citi: Bitcoin Could Look Attractive To Reserve Managers As A Complement To Gold. http://google.com/producer/s/CBIw4Zu2gQ8

Digital Currencies: Part 2

Quartz: Prepare for the coming deluge of digital currencies—and meet the people who would control them. http://google.com/producer/s/CBIwtsrjlQE

Will a Bitcoin ETF acting as a derivative for actual data token's drive Bitcoins price?

The Winklevoss twins of Facebook (FB) fame intend to launch a new ETF to track the price of Bitcoins, an online cryptocurrency that enjoyed a meteoric rise during bank crises in Europe. Bitcoin is an anonymous, peer-to-peer currency that is used for everything from purchasing electronics to money laundering and drug purchases. One of the biggest marketplaces for Bitcoin is a site called Silkroad, where users spend Bitcoin on everything from cocaine to ecstasy.

Said another way, Bitcoin is a currency that is "backed" by illegal activity – that's what keeps it so popular.

Is Bitcoin investable?

The main draw to Bitcoin is that it cannot be endlessly inflated – Bitcoins are "created" at a normalized pace until the total market size eventually caps itself at 21 million Bitcoins. That's the draw for most speculators. If Bitcoin were to become a real currency of the future, a limit of 21 million digital coins would make each coin tremendously valuable.

But there are questions about its legitimacy and investability. For one, it's an asset that really isn't; Bitcoins are just data on a network. Secondly, there are huge concerns about the potential legal challenges to Bitcoin. If Bitcoin is used to skirt taxes, buy drugs, and launder money, what government would want people to participate in it?

Why an ETF is a terrible idea

An ETF to track Bitcoin will add liquidity to the market. Currently, only about $10 million of Bitcoin trade hands daily on sites like Mt Gox, an online exchange site to convert dollars into digital coinage. Thus, like junk bonds and other thinly-traded instruments, a liquid ETF will essentially be seen as the market for the underlying because the ETF is more liquid than the underlying. That is to say that the derivative (the ETF) will lead the market for Bitcoin.

If this is your first foray into ETFs, you probably haven't seen what ETFs can do to a market. Just a few years ago, new ETFs for palladium and platinum were brought to the market to make commodities as available to retail investors as they are to institutional investors.

These ETFs, which bought the physical metal to hold in their own vaults, quickly drove the market for palladium and platinum. You can see the 2010 spike in platinum and palladium following the launch of these ETFs, ETFS Physical Palladium Shares (PALL) and ETFS Physical Platinum Shares (PPLT).

Platinum and palladium are two industrial metals used primarily in the automotive industry. While they certainly aren't a gold or silver, they're heavily traded on commodity exchanges around the world. However, the release of a small, sub-$1 billion ETF was enough to send prices reeling in short order.

Now consider what a new ETF would do to Bitcoin, a cryptocurrency with average daily volume hardly worthy of mentioning. Should this ETF launch with even modest fanfare, the underlying will rocket in value. There are 11,383,350 Bitcoin in existence at a price of roughly $70. Thus, the total market cap sits at less than $800 million.

So what happens when an ETF of any size…say, $200 million, comes into a market valued at a total of $800 million?

Prices skyrocket – If a sizable ETF were to launch in the next few months, prices for coins would necessarily skyrocket as it comes into the market to purchase Bitcoin for the fund.
Tracking errors ignite – Remember that an ETF share can be created or redeemed in a fraction of a second, but the major Bitcoin exchanges process transactions in the millions of dollars each day. A Bitcoin ETF is built on top of an illiquid market. The microcap ETFs stand as evidence that you can't build a quality investment in illiquid securities.

-Article Authorship not Attributed to Ethan Weibman

The Bitcoin Foundation finally has grownup and taken its well sourced fists up in full Offense to Washington

http://bitcoinmagazine.com/bitcoin-foundation-strikes-back-on-cease-and-desist-order/

The next Level in the Bitcoin Mining

Cryonic FrostBit™ Bitcoin Miner Unveiled to Consumers
1TH/s $14,995.00USD Nitrogen Cooled ASIC Miner

Dethroning BFL 500GH/s Miner at nearly half the cost...and it can be used for 3D rendering when the arms race is over.

Bitcoin London Conference Coverage

Full text of my keynote presentation at the BTC London conference: "Bitcoin is the future of money, banking and finance" http://www.reddit.com/r/Bitcoin/comments/1hnahd/full_text_of_my_keynote_presentation_at_the_btc/

Cryptocurrency ends its era of "anarchist" economist and Techies. Where is it Headed now?

The Politics Of Bitcoin Mixing Services

As the cryptocurrency arms race escalates beyond identity verification at exchange endpoints, mixing services for bitcoin may emerge as the next frontier in the battle for financial privacy.

If bitcoin exchange regulation becomes so effective that exchange operators are required to link specific bitcoin addresses to individual customers, then users may have few remaining choices should they want to maintain transactional privacy. Call it the law of unintended consequences for overarching bitcoin exchange regulation.

Two facets of the growing political debate on anonymizing services are the traditional centralized bitcoin mixers and the newer decentralized bitcoin mixers that require a modification to the Bitcoin protocol.

With traditional bitcoin mixers, the process could become highly-charged politically and the regulatory status of mixing services called into question. Reliable legal jurisdictions for operating bitcoin mixing services would therefore gain prominence since it reasonably could be viewed as a protected free speech issue. Potentially, Iceland could serve as a bitcoin mixing haven.

The emergence of services that mingle bitcoin for the purpose of returning bitcoin not associated with the original input address has had a somewhat spotty history. Also called bitcoin laundries, these web-based services charge bitcoin holders a nominal fee to receive different bitcoins than the ones initially transferred. The sites never handle national currencies like the dollar or euro so technically they are not exchanges. Also, the administrator of the service has to be trusted to delete any archival logs and not to run off with the coins.

The largest such service operating today is the Blockchain.info mixing service which has a maximum transaction size of 250 bitcoins and a 0.5% transaction fee. Transaction logs are removed after eight hours and customers can use the taint analysis tool to verify that coins were properly mixed. Other services include BitLaundry and The Bitcoin Laundry operated by Mike Gogulski.

Advances on the decentralized mixer front were highlighted in Olivier Coutu’s largely theoreticalpresentation at the Bitcoin Conference in San Jose. Although it resolves the trusted intermediary vulnerability, the political debate with decentralized mixers revolves around convincing bitcoin core developers that it is essential functionality or creating a different bitcoin client altogether. Either development approach would subsequently require majority support from the bitcoin mining community.

Zerocoin from Johns Hopkins University is a method whereby the trusted intermediary for mixing can be eliminated. The software is already written and soon to be released as open source code. However, it requires modifications to the core Bitcoin protocol and adoption by the majority of bitcoin miners. With the current political climate tilting towards full disclosure for bitcoin transactions, at least at the exchange level, it is unlikely that Bitcoin core developers would elevate bitcoin privacy to an “all-hands-on-deck” emergency priority. Yes, open source projects are comprised of political animals as well.

According to Johns Hopkins University cryptography professor Matthew Green, Zerocoin researchers are examining voluntary compliance options that reduce but don’t eliminate your transaction privacy, such as accountability limits on dollar amounts of anonymous transactions. This type of alternate approach to Zerocoin adoption would be possible without support of the Bitcoin client software. However, not integrating Zerocoin into the Bitcoin protocol would require third-party services to act as issuers of its anonymizing tokens with trust problems similar to the centralized laundry services.

Also, in-person exchange LocalBitcoins.com could act as a pure person-to-person mixing service for bitcoin users that meet in designated places like cafés. Personal mixing has the additional benefit of introducing plausible deniability into the entire bitcoin ecosystem because the coins cease becoming provably yours at that point. After seeing the LocalBitcoins selling-for-cash section in the U.S., Carol Van Cleef, a partner in Patton Boggs’ banking practice and adviser on anti-money laundering policies, ominouslywarned, “You better get yourself registered, or you better get your name off the list real fast.”

Vitalik Buterin of Bitcoin Magazine argues that Bitcoin is not losing its soul through regulation and that the core principles of the bitcoin protocol, such as user-defined anonymity and user-defined transactional privacy, remain intact due to optional mixing services. This is a critical point because, when it comes to bitcoin oversight, regulators and law enforcement must comprehend that which can be constrained versus that which cannot be constrained.

Otherwise, legislators and government officials risk inadvertently steering Bitcoin advancements in the direction of even more liberating decentralized architectures. Remember, it was the forceful and horrific crackdown on casual file sharers that provided the impetus for the remarkable BitTorrent technology.

One can only defer the bitcoin privacy issue for so long. At some point, Bitcoin core developers, mining operators, lobbyists, and industry thought leaders have to take a principled position and decide on what side of history they wish to stand.

+EPW Venture Capital LLC +Bitcoin News