Bitcoin quietly goes legit
The US Marshals Service doesn’t normally make economic policy but this week they apparently did so by auctioning 30,000 Bitcoins, a crypto currency I have written about before. This auction effectively legitimizes Bitcoins as part of the world economy. Am I the only one to notice this?
My first column on this subject was a cautionary tale pointing out the two great areas of vulnerability for Bitcoin: 1) the US Government might declare Bitcoins illegal, and; 2) someone might gain control of a majority of Bitcoins in which case their value could be manipulated. While number two is still theoretically possible it becomes less likely every day. And number one seems to have been put to rest by the U.S. Marshals.
The Marshals dispose of property confiscated by federal authorities, giving the proceeds to the Treasury Department and back to the Department of Justice. This auction -- worth about $11 million -- could not have happened without the permission of both agencies (Treasury and Justice). This is why I can claim that economic policy has been made, because it was authorized by the very agencies normally responsible for such policies.
When drug dealers lose their helicopters, Swiss watches, and Cigarette speed boats, the US Marshals sell them for money. However the Marshals don’t sell confiscated drugs because drugs are illegal and are destroyed. If Bitcoins were illegal they, too, would have been destroyed, not sold. Hence Bitcoins are not illegal.
And why should they be, really? Between derivative securities, futures and options there are already plenty of financial instruments that don’t look much like money to me but are treated as such.
Now, even though nobody has yet announced it, we can add Bitcoins to that list.
And who bought all those Bitcoins? Third generation VC Tim Draper, saying he’ll use the coins as a currency hedge.
In theory this threatens the US dollar‘s role as the reserve currency, but that theory is pretty weak with a finite number of Bitcoins even possible and most users still thinking of it as anonymous dollars.
It’s this anonymous nature of Bitcoins that has me puzzled. My guess is they aren’t anonymous at all and the NSA has thrown its elves into de-cyphering Bitcoin metadata. Otherwise this auction would never have happened.
Where is Edward Snowden when we need him?