Getting highs (and lows) with Bitcoin
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The FBI has shut down Silk Road, a website where users could anonymously “buy any drug imaginable”. The site’s founder, Ross Ulbricht (screenname Dread Pirate Roberts), was indicted for narcotics trafficking, computer hacking, money laundering, and allegedly ordering the assassination of two online enemies.
This is all very bad news for the more than 900,000 registered Silk Road users looking to buy illegal goods. Gerry Smith writes that Silk Road copycats are already popping up to fill demand for drugs. But counterintuitively, it’s good news for Bitcoin, argues Kevin Roose:
The problem, for those pushing for Bitcoin’s mainstream adoption as an alternative currency, has always been how to flush the bad guys out of the system. You can’t stop Bitcoin transactions from certain regions or accounts, since they don’t take place over a regulated exchange. And you can’t keep shady people from using Bitcoin, since the currency’s anonymity accounts for much of its appeal. The only thing you can do is shut down the places where the bad guys tend to congregate.
Bloomberg BusinessWeek’s Joshua Brustein spoke to Fred Ehrsam, the founder of Bitcoin wallet service Coinbase, who called Silk Road’s demise “a huge positive”. Silk Road, he says, was the “biggest target that people might speak negatively about when it comes to Bitcoin, and takes it off the map”.
Bitcoin may look less nefarious with Silk Road out of the picture, but as a currency you’d want your checking account denominated in, it still has a fundamental problem: volatility. The value of a Bitcoin fell from just over $140 to below $118 in the hours after Silk Road closed, and previously rose from $13 at the start of the year to $266 in early April.
Steve Hanke, a professor at Johns Hopkins, said back during the height of spring Bitcoin bloom that, “to say highly speculative would be the understatement of the century”. It doesn’t do anything of the things money is supposed to do, Justin Wolfers pointed out. As Izabella Kaminska said, “if you believe a currency’s value lies in its stability, Bitcoin represents the polar opposite”. Instead, it’s more like a “tech IPO, circa 1999”.
The FBI may have marginally helped Bitcoin’s deal with is reputation problem. But by design, there isn’t any central authority that can sort out its volatility problem. — Ben Walsh
On to today’s links:
The government shutdown makes it very hard to know how bad for the economy the government shutdown is – Marketplace
America’s economic data is being held hostage – Calculated Risk
Two years and $750,000: what it took for ProPublica to expose the dangers of Tylenol – The Atlantic
In the last 10 years, “more than 1,500 Americans died after accidentally taking too much acetaminophen” – ProPublica
“We’re not going to be disrespected. We have to get something out of this. And I don’t know what that even is” – Washington Examiner
Meanwhile: “You got to be almost dead before you can get Medicaid in Mississippi” – NYT
Wall Street is annoyed that the Tea Party doesn’t need their campaign contributions – Politico
“Republicans are no longer the party of business” – Bloomberg BusinessWeek
Bill Ackman still thinks Herbalife is an illegal pyramid scheme, but only in a 60% equity short sort of way – Bloomberg
Pershing Square’s letter to investors – FT Alphaville
Mutual funds are crushing hedge funds this year – Business Insider