Opinion
Reading Los Angeles: Join The Times' new book club
Opinion Editorial

Let investors ride out bitcoin's booms and busts

The sudden collapse of the Mt. Gox bitcoin exchange Tuesday demonstrated to the public just how risky the virtual currency can be. Prosecutors have rushed to investigate, and regulators in the U.S. and Japan, where Mt. Gox was based, are mulling how to extend their purview to bitcoin trades. One senator even called for a ban on the currency. Investors, however, have long been keenly aware of the perils associated with the volatile commodity. While the currency is in its infancy, those with little appetite for risk should stay away. But it's too early to write bitcoins off or treat them like a banking system in dire need of oversight.

As with gold, bitcoins are in limited supply, and their value rises or falls with the demand from investors. They are bought and sold electronically through online exchanges and stored in digital wallets that only their owners can open. The strong security built into the technology also deters counterfeiting and boosts authenticity, which is one reason online merchants are starting to accept them in lieu of credit cards.

Those are the pluses. On the other side, the anonymity bitcoin provides has made it popular among those who buy and sell guns and illegal drugs online. The currency has also been prone to bubbles. Three times since late 2012, the value of bitcoins has skyrocketed, only to plummet days or weeks later. The most recent bust, triggered when Mt. Gox's customers sought to empty their accounts, led the exchange to shut down.

Why Mt. Gox foundered remains a mystery, and investigators should find out whether financial crimes played a role. But its failure should not be seen as a death knell for bitcoins; prices stabilized quickly after Mt. Gox shuttered, showing that investors aren't ready to give up on the virtual currency. And why should they be? Bitcoins may have lost half their value since last year's peak, but they're still selling for 56 times the price they were at the beginning of 2013. Meanwhile, venture capitalists have poured more than $98 million into bitcoin-related start-ups.

Many of those venture capitalists are betting that bitcoins will mature into an ultra-low-cost alternative to Visa and American Express. That's not likely to happen, though, until bitcoin starts behaving less like a high-risk stock and more like a currency, with far more stable prices. That process is best left to those who have bet on bitcoins, free from the dictates of regulators who can't possibly move as fast as the technology. It's appropriate for governments to guard against bitcoin-related crime. But rather than trying to regulate away bitcoin's financial risks, governments should let the relatively small community of users — all of whom got involved of their own free will — absorb the growing pains.

Copyright © 2015, Los Angeles Times
Related Content
  • Bitcoin's problems are much worse than you thought
    Bitcoin's problems are much worse than you thought

    The bitcoin faithful would like you to believe that the virtual currency's recent price swings result solely from the crisis at Mt. Gox, a leading bitcoin exchange firm headquartered in Tokyo.

  • Are Bitcoin believers the new Apple fanboys?
    Are Bitcoin believers the new Apple fanboys?

    Watching true believers in action is always fascinating and often terrifying. Consider the mobilization of the bitcoin faithful every time someone writes an article questioning whether bitcoins really are the greatest advance in currency since Yap islanders invented the stone coin.

  • The bitcoin crash of 2013: Don't you feel silly now?
    The bitcoin crash of 2013: Don't you feel silly now?

    People who thought that bitcoins could serve as either an investment vehicle or an alternative world currency got their heads handed to them on Thursday and Friday. That's when the price of the attention-grabbing crypto-currency got crushed, falling from a quoted $1,200 per "coin" to less than...

  • Two bills protecting patients in healthcare networks deserve passage
    Two bills protecting patients in healthcare networks deserve passage

    The heathcare reforms in the 2010 Patient Protection and Affordable Care Act remain a work in progress, with some of the law's mandates causing new problems or exacerbating older flaws. One is inaccurate lists of the healthcare providers in insurers' networks; another is surprise bills by out-of-network...

  • In hiking the minimum wage, don't leave tipped workers behind
    In hiking the minimum wage, don't leave tipped workers behind

    Who is responsible for paying a worker's wage? The business owner or the customer? That question is at the heart of a debate over whether business owners in California should be able to pay their tipped workers a lower minimum wage.

  • Will L.A. County give its art the space it's due?
    Will L.A. County give its art the space it's due?

    In a prelude to its 50th anniversary celebration, the Los Angeles County Museum of Art released Swiss architect Peter Zumthor's most recent plan to expand the museum at the end of March. County money has been earmarked, and there's a sense that LACMA may finally deliver on its decades-old dream...

Comments
Loading