Bitcoin Setback and Government Regulation

This week, Bitcoin suffered a huge setback when one of the exchanges in Japan, MtGox, went offline. I won’t explain the whole background on Bitcoin, which you can learn about further here. In short, it is a digital currency not run by any government which are stored in exchanges. People who owned Bitcoins at MtGox lost over a $100 million worth of it.

The worst possible outcome of this, however, is not Bitcoin failing, but governments using this as an excuse to regulate more of our lives financially in terms of how and where we put our wealth.

I admittedly have limited knowledge about Bitcoin. My main interest, or dismay, is the way in which libertarians have argued bitterly amongst each other on this. Gary North described it as a Ponzi scheme, while Paul Rosenburg at Freeman’s Perspective has described it as a viable alternative money to fiat (paper) currency, and Jeffrey Tucker of Lassiez-Faire Books believes it deprives governments of a monopoly on currencies.

Compared to the major problems in the country and the world, this is a debatable topic. It is not a fundamental issue that we all have to hold hands together on in perfect unity.

Regardless of whether or not Bitcoin is money or a good investment, this recent incident is proof that you should not put all your eggs in one basket. Diversification is critical to avoiding a financial disaster, which is what has happened to those who placed a large amount of their wealth in Bitcoin.

I may still buy Bitcoin in the future, but I won’t be buying so much that my financial situation is dependent on it remaining stable. With all investments there are risks.

Unfortunately, now governments around the world are looking at ways to regulate Bitcoin, rather than allowing the free market to determine where people put their wealth. If things are left as they are, those who invest in Bitcoin in the future will learn from this mistake and undertake measures to protect their investment from another disaster like this. This will also allow other competing virtual currencies to appear that will address these problems much as Nintendo did with video game consoles after the 1983 video crash. We didn’t need governments to regulate the quality of video game systems then, and we don’t need them to get involved in virtual/digital currencies, either.

Both Gary North and Paul Rosenburg have written articles in response to the MtGox debacle, which can you read here and here.

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