I am new to bitcoin and need some advice.

Richard branson excepts bitcoins to pay for your space flight,

He also mentions that he as also invested in "some bitcoins",

He gave bitcoin a bit more respectability, Raising the price of bitcoins without really committing to them, how many are going to be buying space flights with bitcoins, perhaps a few of his "friends"?

Bitcoin as been fairly stable yesterday/today but you can see guiding hands at play.

If bitcoin fails he makes millions/billions, If bitcoins succeeds he makes millions/billions, No wonder he's always smiling.

http://www.digitalspy.co.uk/tech/ne...ept-bitcoin-as-payment-for-space-flights.html

 

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Bitcoin is back from the dead.
Over $ 1,000 again today.

 

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I suspect, Branson's Bitcoin investment is very limited. From what I understand most of those accepting Bitcoin for commerce are doing so with a lot of caution and on a very limited basis.

 

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There is little risk IF you almost immediately sell them. Then Branson's loss is very likely, if any, to be less than when his customer pays for his ticket with a charge card.

Next day by edit (after accidental discovery that You can get live bitcoin quotes at: http://www.kitco.com/finance/bitcoin/ ,which seems to be an on-line market too.):
The buy sell spread at 8:37am NYC time on 7 Jan 14, was: bid 892.16 / ask 895.13 (or $2.97). Thus currently the worst cost of a quick re-sale is a 0.33% loss, or nearly 10 times less than accepting a credit card. Branson is no dummy - probably hopes all his customers pay with bitcoin instead of their credit cards.

The real cost to the buy and hold bitcoin speculation is the "opportunity cost." You pay up front and lose potential interest on your money. Also the value seems to go down as easily as it goes up. Bitcoin make a lot of sense for merchants, like Branson, as effectively most of their cost (that gives profits to credit card companies) can be transferred to their customers. It is the government and credit card companies who are the sure losers, if Bitcoin is widely used with current rules. Governments have power and don't like to lose, so expect to pay taxes on any bitcoin capital gains and perhaps other fees, like toll for use etc. (A monetary toll bridge of 2% on every transaction?) If there is any way for IRS to get data on all bitcoin transactions, a monetary toll bridge is a gift to the IRS and sort of a "national sales tax." IRS would not need to know who buyer or seller were or what goods were traded - no violation of privacy - Just take 1 or 2% cut in bitcoin as they pass thru the clearing houses between buyer & seller. As I understand it that data is already public, just the ID of the traders is not. As they say: "The road to hell is paved with good intentions." (Or should that be: "paved with bitcoins."?)

In my opinion, gold, is much better bet now than bitcoin. Gold has only gone up in 2014 - as I predicted it would - See: http://www.sciforums.com/showthread.php?134352-Gold-Bubble-goes-POP&p=3150435&viewfull=1#post3150435 and early posts that tell why (Comex vault lost 80+% of the deliverable gold it held in 2013, mainly to deliver to Asians real, not paper, gold paying 20+/- 5% premiums for the "real yellow stuff.") Even if there is no accelattion in the rate of people with long contracts climing physical gold rather than accepting dollars, Comex vault will be empty in about 85 days (assuming Comex does not start buying and paying what ever is demanded to avoid defaulting on delivery contracts.)

Of course there will be acceleration as now ~80 paper gold traders have a claim on the same ounce of gold. Some already are asking for their gold before one of the other 79 who can does. (Only a couple of months ago that claims to gold ratio was 50.) Most will get "German like" promises that they can get real gold in 2020.

I'll go further out on a limb and predict that on or before this Friday gold trades, in US, at $1248/oz. Note that is a non-convergent geometric series start. (It is already doing more than that in China!) Anyone with the gut to bet it does not?

later by edit: I just checked at Bloomberg (11:34 NYC time) and gold was already up today $3 to 1241.60/ oz. One still needs to wait until mid January (end of my first prediction of rapid price rise) but it does seem like the Paper Gold traders are losing control of the price of gold to the law of supply (too little) and demand (soaring beyond total gold production, including the re-melting of jewelry).

By later edit: at 2:50PM NYC time, Bloomberg gold was up only a dollar at $1239.60 continuing the pattern I have notice on most (all ?) 2014 days. I.e. the peak of the day is just after normal bed time in East coast cities of China and then falls down some. - May be a diurnal change in Chinese demand, doing this?

 

The volatility probably means that it is very overvalued or very undervalued.

 

Overvalued.

Considering the initial limitation in number of Bitcoin's and the amount of collateral put up for actual worth, is greatly overvalued. This is why it's just being used as fast exchanges, it's not something that people are going to want to invest in for a long durations, so it's definitely a short trading replacement. The question of course is how long is it actually going to last as something that can be traded before a bubble bursts from one legislative act or another?

 

Yes, as I said with details in post64:
"The real cost to the buy and hold bitcoin speculation is the "opportunity cost." You pay up front and lose potential interest on your money. Also the value seems to go down as easily as it goes up. Bitcoin make a lot of sense for merchants, like Branson, as effectively most of their cost (that gives profits to credit card companies) can be transferred to their customers. It is the government and credit card companies who are the sure losers, if Bitcoin is widely used with current rules. Governments have power and don't like to lose, so expect to pay taxes on any bitcoin capital gains and perhaps other fees, like toll for use etc. (A monetary toll bridge of 2% on every transaction?) If there is any way for IRS to get data on all bitcoin transactions, a monetary toll bridge is a gift to the IRS and sort of a "national sales tax." IRS would not need to know who buyer or seller were or what goods were traded - no violation of privacy - Just take 1 or 2% cut in bitcoin as they pass thru the clearing houses between buyer & seller. As I understand it that data is already public, just the ID of the traders is not. As they say: "The road to hell is paved with good intentions." (Or should that be: "paved with bitcoins."?)"

 

Possibly overvalued, but also possibly undervalued.
If the currency has a future as an internet currency, being changed into and out of Bitcoins immediately,
then its value is dependent on its usage.
The Bitcoin will rise in price the more it is used for this purpose, as a higher total value for the limited number of bitcoins will increase.
I probably haven't explained this very well, but I'll come back to it.

 

That is a big "if" and it puts the business at great risk. That is why corporations use currency hedges to mitigate their currency risk rather than praying they can immediately dump the currency, and therein lies the potential for another monetary crisis. This needs to be carefully watched. It's that old derivative trading thing all over again.

 

Wrong on both points.

Kitco* and half a dozen others make an online bitcoin market so in less than three minutes after taking in some significant value of bitcoin, Say Brason selling four trans-Atalant tickets to a family, his "bitcoin agent" can sell them for dollars or pound, etc. with a transaction cost of less than 0.5% - much better deal than letting the credit card company send him 97.5% of what the family put on their card at best a few days later.

No, by far the greatest use of currency hedge is when corporation (or even rich person) is under contract to pay IN THE FUTURE, a fixed sum, especially if that payment is to be made in some currency he does not have in the bank, but must buy. For example, Maxwell House (I assume they still sell a lot of coffee in the US) orders 50 tons of Brazilian coffee which will arrive 40 days later and must only then pay in Brazilian currency, the Real. Currently the dollar buys about 2.39Real, but as Brazil's Real grows stronger, a real possibility, he may only get 2.26 Real for his dollars in 40 days when he takes delivery and must pay. Rather than run the risk of paying 10% more dollars, he (1) buy the Real he needs in 40 days now, and lose interest as the sit in his vault* or (2) pay a smaller fee to hedge his debt payment. Hedge companies can give this protection cheaper as on average some Brazilian seller a US product is he importing and will pay for only when it gets to Brazil off sets his obligations to Maxwell House.

* It just sits in the vault as Brazil and many other countries have tariff and /or special taxes on "hot money" - a short term investment in Brazilian banks, to earn interest on Real he buys under option (1). Brazil's hot money tax is the IOF. I forget translation but something like "Impost On Fiancial monvents" ("Impost" is Portuguese for "tax").

Rapid flow of "hot money" into and especially out of a "2nd world country" can make great problems for the local currency. That is why they have these protective taxes. Normally, unless the financial officer of Maxwell House coffee want to speculated (and if wrong and then be fired), the most economical thing to do is hedge for 40 days.

* See how quick and easy it is here: http://www.kitco.com/finance/bitcoin/

 

LOL, you continue to impress me with your ignorance. And you never let your ignorance get in your way.

"See also: Foreign exchange hedge

Managers of multinational firms employ a number of foreign exchange hedging strategies in order to protect against exchange rate risk. Transaction exposure is often managed either with the use of the money markets, foreign exchange derivatives such as forward contracts, futures contracts, options, and swaps, or with operational techniques such as currency invoicing, leading and lagging of receipts and payments, and exposure netting.[6]



http://en.wikipedia.org/wiki/Foreign_exchange_risk

Just because there are markets to exchange a currency it doesn't mean you don't need to hedge. Bitcoin is not more liquid than other currencies. And every day corporations hedge their foreign currency risk in currencies that are much more liquid that Bitcoin. I repeat the danger remains. Bitcoin bears watching and could cause the next monetary crisis.

 

Other companies could insure that risk.

 

They could but in a speculative bubble someone is going to be left holding the bag when the bubble pops. What happens when the insurers cannot pay? During the last speculative bubble banks and shadow banks were left holding the bags and that is why government intervention (e.g. the bailout) was necessary. And that risk has not gone unnoticed. That is why China and some European countries have placed restrictions on Bitcoin.

 

No the laugh is on your ignorance. Even your own link tells exactly what I said and illustrated with Maxwell House importing Brazilian coffee.
This is the second sentence of your link:
" Investors and multinational businesses exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk which can have severe financial consequences if not managed appropriately.[3][4]"

I.e. no need to hedge the bitcoins paying Branson's airline for the family's trans-Atlantic ticket - just get what ever major currency you want in less that three minutes at Kitco etc. Hedging is ONLY done / needed when there is a FUTURE FIXED OBLIGATION TO PAY. (never to convert bitcoins you just got paid and don't want to hold.)

Yes. That is exactly what the hedge companies are doing. Off setting most of the risk with an "opposite hedge" granted to another business. To continue my illustration example:

If the hedge company must give Maxwell House 230,000 Brazilian real in 40 days, they will make and obligation to give say a Brazilian importer of US cars who must also pay ~$100,000 in 40 days when cars arrive in Brazil. ($100,000 = ~ 230,000 R$) With this "offsetting deal" what ever the hedge company loses, say giving Maxwell 230,000R$, they make up on the lower cost than paid to buy and give the the car importer the promised $100,000. (or conversely if the Real/ $ exchange rate moves the other way.) In the meantime they have the money both sources gave them 40 days earlier and are making a profit on it. (Perhaps lending the $100,000 to a tower company short term to pay its workers with until they can charge AT&T for the new functioning tower; etc with short term loan to a Brazilian company.)

Joe is just badly confused and/ or ignorant about hedging. When needed & why it is usually the cheapest alternative a company with fixed future obligation has.

 

LOL, good God Billy T you are funny. You are all over the place on this issue. You say I am wrong and then you argue my point in an effort to cover-up your shortcomings. Your incoherence is making it near impossible to have a decent dialogue in this forum.

The bottom line here is your solution of immediately dumping Bitcoin doesn't always work and doesn't sufficiently mitigate currency risk and that is why companies hedge their foreign currency positions as I stated in my previous post. My post you claimed to be wrong. And then went on to argue my point. You are being more than a little incoherent here Billy T. Companies hedge their foreign currency positions because immediately dumping the currency as you suggest doesn't solve their currency risk problems, hence the need for currency hedges. And contrary to your claim, if unchecked, those hedges could become the basis for the next monetary crisis. And as I previously stated that is why China and some European countries have taken actions to restrict Bitcoin transactions.

 

No that is just more of your ignorance on display. Hedging company almost ALWAYS MAKES MONEY and has essentially no risk with the offsetting hedge it can make. (They get to set the amount and schedule - The Brazilian car company may have wanted a $120,000 hedged for 45 days, as not only are there ~ 40 day of ocean transit delay but getting cars thru Brazilian customs will take at least 5 days. I.e. the car company is exposed to 20K currency risk for 45 days and 120K for the 5 days, but that is better than the $120,000 exposure for the full 45 days so they make the deal)

Both companies get all or most of the protection they wanted - no one is "holding the bag" - that is just your ignorant misunderstanding.
The hedge company collects in full in ADVANCE from both sides of the hedge. Read my posts explaining, even illustrating, that several times if needed.

I see from you post 75 ignorance: you think hedging for less than the 3 minutes needed to convert bitcoin into the currency of your choice online at Kitco, etc. with less than 0.5% transaction cost is needed but no need to hedge the credit card obligation to pay Branson many days later* only 97.5% of what Branson's customer put on his credit card to buy his air tickets with.

* Small "mom & pop" stores may not get paid by the credit card company but monthly. - For them getting paid in bitcoin can put the money in their account in three minutes at only 0.5% instead of ~2.5 or 3% deduction by the card company.

 

You need to tell that to Citigroup, Bank of American, or Lehman Brothers. Their hedging made money until they didn’t. Oops, Lehman isn’t in business anymore, a victim of their hedges and derivate trading. There were a lot of people left holding the bag just a few years ago during The Great Recession. Granted they were trading debt and hedging their debt exposures. But it’s essentially the same thing, derivative trading.

http://en.wikipedia.org/wiki/2012_JPMorgan_Chase_trading_loss

http://www.bloomberg.com/news/2013-...rased-on-foreign-currency-losses-hedging.html
“Encana Corp. (ECA), Canada’s largest natural-gas producer, saw profit wiped out in the first quarter after booking currency losses and provisions for hedging.

The net loss was $431 million, compared with net income of $12 million a year earlier, the Calgary-based company said today in a statement. It reported a non-operating foreign-exchange loss of $101 million, after an $86 million gain the prior year.

The result was “largely due to mark-to-market accounting of the company’s unrealized risk-management position and a non- operating foreign-exchange loss,” Encana said. It expects cost- reduction efforts to be reflected in second-half figures.”

LOL, you are all over the place Billy T again. Yeah, 3 minutes is a lifetime in a falling market. In unregulated or lightly regulated markets prices can fall through the floor in seconds much less minutes and you don’t have to look far to see recent examples. And no exposure is better than 3 minutes or 5 minutes, or an hour or a day, and that is why corporations hedge their currency and other risks. If the counterparty to a hedge always wins as you allege, there would be no need to hedge.

 

Finally a post that is not 100% false non-sense, but you had to switch away from the discussion of bitcoins and hedging by merchants and corporations with FUTURE FIX OBLIGTIONS TO PAY to Wall Street and banks to do it. I'm not going to follow you there as I agree some will end up hold the bag as basically they are just betting against each other.

Yes there are hedge funds on Wall Street and for every winner there is a losser. (Some hedge fund and bank owner of them, did get stuck "holding the bag" or even went "belly up." In fact, because of the overhead cost, they on average have not done as well as most indexed funds or those that Vanguard offers.

Please note the part of my earlier post, which is now bold and larger type. I never suggested that hedge funds and hedging could not be used by Wall Street an Banks. Yes they try to out guess or "out analysis" the competitors, and on net do long term more poor than less speculative investments as there is no-real economic function they serve. They are just betting against each other. Do not twist that to have me saying banks on average do not make money. Of course they do, some even with their now quasi-legal, disguised hedge funds.

The main reason banks are so profitable now, is they get "thin-air" money via the Fed and/or dumped their bad mortgage money paper on the tax payers, via Fanny and Freddy May initially some years ago when it was called, correctly, "toxic trash." Now the Fed is buying up 40 billion per month and that does help hold up the value of the mortgages. With this influx of near zero cost funds, the banks buy Treasury notes, the 10 year note paying ~3% now. Not too surprising that JP Morgan, who today had to pay 1.7 billion fine for helping Madoff in his Ponzi had the highest ever (not just in last 52 weeks) inflation corrected evaluation / net worth.

 

LOL, Billy T you are just a delusional. If it is 100% false as you claim then why are you agreeing with part of it?

The bottom line here is that you were wrong. Firms that hedge are not always profitable. Markets can go south quickly. And firms who engage in significant Bitcoin transactions will need to hedge their Bitcoin positions as they do with other currencies. And that hedging could lead to another monetary crisis. And as I have said several times now, that is why China and some European & Scandinavian countries are taking action to restrict Bitcoin transactions.

And no one is twisting anything you have written. You said, Hedging company almost ALWAYS MAKES MONEY and has essentially no risk”, and that is blatantly false.

No Billy, this is just more of your right wing nut cake conspiracy nonsense. First, what does “so profitable” mean exactly? And two the reason banks are profitable is because they have been recapitalized. It has nothing to do with the Fed per say. You and Michael labor under the false notion the Fed is giving or has given something to the banks for free, and that simply isn’t true. If you are referring to TARP, it was a program run by the US Treasury and not the Federal Reserve. The banks’ bad assets/debts were purchased by the US Treasury, not the Fed. Of the 609 billion spent by the taxpayer, all but 9.4 billion has been repaid as of yesterday.

http://projects.propublica.org/bailout/

Two, the Fed is not now nor has it every purchased toxic trash as you implied. The Fed is purchasing mortgage backed securities and Treasuries in the secondary markets to keep interest rates low and keep the economy growing. It isn’t giving the banks a “freebie”. Banks stocks have languished when compared to other stocks because interest rates have remained low. Banks stocks are now rallying on the prospect of higher interest rates. Because banks make money, just like other businesses when the price for the goods they sell increases, and in the case of banks, the interest rate is the price of the product they sell. So when interest rates go up, bank profits go up also. That is why bank stocks are now in full rally mode. And none of this is new; it has all been explained to you before.

Additionally, the stuff about JP Morgan has nothing to do with the Fed or the Treasury or bond or interest rates or hedges, or Bitcoin. I guess it feeds your conspiracy notions, but it shouldn’t. JP Morgan is being punished for its negligence in the Madoff Ponzi scheme.

 

All your bitcoin posts prior to post 77 switch of subject to hedging for profits by Wall Street firms were mostly false or at least ignorantly confused. I agreed with most of post 77 after you switched to speak of Wall Street firms that try to hedge for profits. Yes they can indeed end up "holding the bag" instead of making a profit. I clearly distinguished them from hedging firms that EARN a profit by providing a risk reduction service to other corportations. You try to make it not look that way by one of your standard DISHONNEST tricks - dropping an essential part of my sentences.

Here, now in red type, is what your dropped as it makes it completely clear that my statement that the hedging firms we were speaking of (prior to your post 77 switch to Wall Street hedging firms) do almost always make a profit for reason stated:

Yes, IF they don't essentially immediately convert the bitcoin into the currency of their choice. I.e. if they speculate - hold the bitcoin for even only a few days, (not the less than three minutes, I say Branson could, with on-line exchange costing less than 0.5% vs the 2.5 to 3% lost hit he takes when customer buys plane ticket with his charge card, plus the days of delay before Branson actually gets paid by the credit card company). With quick conversion into local currency of the bitcoin it is almost exactly the same as if the customer had paid with cash. Actually bitcoin is better for Branson than if the customer paid cash for even a second reason! (Not just the 0.5% vs 2.5 to3% advantage) I. e. that cash will just sit in the cash register until some one can take it to the bank, but the bitcoin cash is available for immediate on-line transfer to an interest producing account in less than three minutes!

No. "that hedging" by corporation with Fixed debt to pay IN THE FUTURE (40 days in my illustration example with Maxwell House importing Brazilian coffee - the other side of the hedge with the Brazilian car company), makes for STABILITY by removing the currency exchange risk for both sides via the service providing hedge company. - Why it EARNS and deserve a profit.(Unlike Wall Street Hedge firms trying to out quess some other investors to profit from their losses.)

False. All countries encourage / facilitate / international trading companies to hedge away the exchange rate risk as doing that (or farmer selling his crop before it is even planted, etc.) are actions in the modern economy designed to reduce uncertainity / risk and promote more stable markets. The main reason why governments don't want to see bitcoin, replace a significant part of commerce that in the past has used their national currency is the profit they make by creating currency and the taxation of its use. For example, each green dollar that exist gave the government about 97 cents in profit. (only cost 3 cents or less to produce and place into general circulation by paying it to a government employee as part of his salary) Electronic, "thin air" dollars the Fed creates and for example buys mortgages with, are 99.99+ percent pure profit as producing them by the millions is only a few key strokes on the Fed's computers.

SUMMARY: Your post is typical of you. Misquote. (Intentional distort by omitting essential parts of sentences) Make unsupported false assertion. Switch subjects (From business hedging future debts that reduces uncertainty / risk & promotes stability to speak of Wall Street hedge firms try to be the one which guessed correctly and made a profit, instead of the Wall Street firm on the other side of the deal that lost money.)

About the Wall Street hedger, yes, but completely correct about the firms providing hedging service to corporations, like Maxwell House, with fixed future debt obligations to pay. YOU ARE BASICLLY DISHONEST OR AT LEAST TOO CONFUSED AND IGNORANT TO FOLLOW MY CLEAR DISCUSSION, so distort it so as to stuff words with a twisted meaning (from their clear meaning with full quote of the sentence) in my mouth.