What are the real concerns for Bitcoin from the SEC? Reports surfaced over the past two days from a PCWorld article and a Forbes article yesterday. Are the concerns due to the pending trial and hype about Silk Road alleged website owner, Ross Ulbricht, who awaits trial in November legitimate?
Lobbyists for Master Card are appearing in Congress to offer the credit card provider side and the SEC issued on Thursday a warning that Bitcoin threats outweigh its value in use. It is interesting that the Forbes article notes that the loss to Mt.Gox bitcoin investors is only a third of what former US Treasury Secretary Larry Summers lost in the Harvard endowment fund.
Summers was a no cash hold and aggressively invested on the risk tolerance scale of the asset allocation model for his recommendations and subsequent investments of the Harvard endowment monies. Summers would not listen to the genius of the noted, Mohamed El-Erian of Pimco, and proceeded to lose $1.8 billion of the Harvard endowment placed at $6 billion at the time in 2009. He was even considered for Federal Reserve Board Chairman after that event.
Given that walk down history lane, Bitcoin is still in its early stages of development much as the Internet was in 1995. Investors were throwing money at Mt.Gox and fully aware that the bitcoins were held by company private ownership CEO Mark Karpeles in a centralized account. There was no board to ask questions or any other regulatory body at the time to require fiduciary responsibility of Karpeles
The SEC has always warned investors of too good to be true schemes and not knowing the principals of an investment offering. That is standard SEC fare and regulations. Susan Athey, Professor of Economics at Stanford University, took the stage at Disrupt NY 2014 technology convention earlier this week. She did an excellent and succinct job of explaining that bitcoin when used for a payment of a product or to buy a coffee is a purchase that can be made of bitcoin bought at the time and spent at that time on the purchase.
Long term holding of bitcoin for investment for later use has the same variations and risk levels as a commodity on the scale of high risk asset classes. So, bitcoin held long-term is the same as an investment in a commodity such as gold. She found the value variation percentage range of bitcoin over the past five years not much different than that of gold.
Since the Homeland Security Senate review last November and the IRS listing of bitcoin as a commodity, the status of bitcoin for investment or when use for payment of goods and services is very clear. The anonymous tracking of bitcoin actually is not so anonymous and the block chain stores every transaction. It is actually easier to track than cash in other types of drug deals or money laundering deals. There is nothing inherent in bitcoin transactions that make it more susceptible to illegal activity.
Benjamin Lawsky, the superintendent of the state of New York financial services, understood the value of bitcoin for transfer and supported its approval to gain BitLicense in the state for merchant and money service providers to operate the transfer of bitcoin and payments.
He understood what the World Bank reports in that 74% of the world’s population does not have access to formal financial services. Hence, it is cost efficient for someone working in New York City to transfer money to Puerto Rico or Eastern Europe for pennies compared to a $100 money wire transaction.
Most bitcoin fees will be at one-half percent of the amount of a purchase compared to 2-4 percent from a credit card merchant. Calculate the cost of a $30,000 Ducati motorcycle with a black American Express Card at 3 percent cost to the merchant compared to one-half percent or less cost to the merchant for the same transaction. Some bitcoin fee merchant packages are $30 per month up to one million dollars in sales. Consider that Ducati purchase with bitcoin.
The SEC may offer warnings as it would any investment and the lobbyists will argue for their credit card providers with large fees but Bitcoin is a virtual currency with a future and meets the needs of its supporters.