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With the newest Chinese legislation prohibiting the acceptance of the digital currency, Bitcoin, it seems that the currency's progress toward monetary legitimacy may have stopped. Expert tax planning attorney Joe Garza explains why this could be the end of BItcoin.
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TaxTrendsWeekly.com
2014Tax Trends Weekly
December 2013
Why Bitcoin May Have Finally Bitten the Dust
TaxTrendsWeekly.com
Financial news wouldn’t be the same these days without updates Bitcoin, the digital currency that has undergone erratic spikes in value since it was launched in 2008. But now, it looks like the end of Bitcoin’s glory days may soon be approaching. The October Silkroad takedown may not have been enough to hurt Bitcoin in the long-term, but recent news from China doesn’t look good for the once regulation-free currency. The New York Times reports that “If Bitcoin is a bubble, as its critics contend, it is showing signs of deflating.”
This week, BTC Chi-na—the largest Bit-coin exchange in the world—announced that it would no lon-ger accept deposits of Chinese currency. This was revealed only a few weeks after the Chinese government banned large financial institutions from trading in Bit-coins. Even some European countries are starting to crackdown on Bitcoin, although on a much smaller scale. Norway has just emulated Germany in its decision to levy a capital gains tax on citizens’ Bitcoin assets.
Bitcoin Worth the Risk?
Though some may bemoan the end of Bitcoin’s glory days, it is clear that for many investors, the risks of Bitcoin have far outweighed their benefits. Not only is Bitcoin a totally uninsured asset, but it is one that has proven incred-ibly easy to steal. This month, approximately $100m. worth of Bitcoins was pilfered from customers of Sheep Marketplace, an online bazaar for illegal drugs. But people making shady purchases haven’t been the only ones to suffer. At the end of October Chinese Bitcoin trading platform, GBL vanished without a trace, taking over $4 million of its customers money with it.
Apparently, the thing that makes Bitcoin so great for thieves is that “owner-ship” of a Bitcoin is defined by nothing more than access to a “private cryp-tographic key to unlock a specific address,” according to an article on The Verge. If someone else gets a hold of your key—well, they can do whatever they want with your Bitcoins. It’s not even that difficult access keys since many
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services store private keys of their users online. And even though Bitcoins can be publicly traced online, laundering them can be easy thanks to anonymous services known as tumblers.
So, could Bitcoins stay strong if investigators discover a way to make them more traceable? It couldn’t hurt, but with China essentially out of the Bitcoin game and other governments cracking down on the currency, opportunities for Bitcoin are rapidly shrinking. Even more importantly, analysts have long been predicting that Bitcoin is in a speculative bubble that is soon to burst.
