The Trouble with Bitcoins

Already an internationally accepted virtual currency, Bitcoins represent somewhat of an intellectual feast for anyone interested in the creation/ functioning of currencies and economic theorists. Many seasoned, legitimate investors are already investing in so-called 'Bitcoin start-ups'. This makes this rapidly evolving virtual currency something to be taken a little more seriously than one would have thought to begin with. Average investors, however, should, at least for the moment, not consider this as an investment opportunity just yet.

To begin with, this type of currency is still very much in what can be described as an 'adolescent' stage of its development. There is no telling if or how many other virtual currencies are likely to 'hit' the scene, who will be likely to back them and where the future will take any of them.

Recent statements by some quarters, announcing that Bitcoins should have a definite place among investor portfolios, are optimistic at best and dangerous at worst. There is no way in which it is possible to foretell where Bitcoins, or their value for that matter, will be in 5 or 10 years' time. Only fortune tellers would have a chance of predicting this, and, to be perfectly honest, they simply do not have a place in serious investment.

There is no doubt that Bitcoins do provide a perfectly legitimate method of making payments across international borders. Cash transactions can be cumbersome on this level, to say the least. Using Bitcoins is also an acceptable alternative in situations where credit card transactions are not possible or desirable.

There are, however, several factors that make investing in this currency extremely risky. The first of these factors is the fact that this currency has not really been able to be time-tested. Potential hazards include, among others, start-ups and 'wannabees' gaining a foothold within the market of virtual currency. This could have a significant impact on future Bitcoin value.

Then, of course, there are regulatory issues. New and spreading rapidly, the concept of virtual currencies operates outside of the limits of regulatory controls and central banking systems. This leaves it wide open to regulatory intervention. Just in May of this year, for instance, the largest Bitcoin exchange's assets were seized by US authorities. As it is, this may just the start of a series of such interventions.

There is no doubt that virtual currencies will play an increasingly important and long term part of international trade before long. In the meantime, however, there are too many unanswered questions and a lack of adequate safe-guards to make this type of currency a wise investment option.

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