How Penny Stocks Rode the Bitcoin Wave
It was a matter of time, and it didn’t take long. If investors heard the word Bitcoin, they were buying whatever 5¢ penny stock was involved. It didn’t matter what the business was actually planning on doing, who the CEO was, what the company’s financial position looked like, or how ridiculous the concept.
Can you blame the opportunist penny stock company? Why not mention that you’re rolling out Bitcoin gift baskets, or the latest cryptocurrency digital wallet, and watch as money flows into your otherwise lifeless stock. The shares of your company would be driven higher by the day.
Although the players were not all publicly traded penny stocks at first, many new businesses were created as a part of the Bitcoin wave, and for many of them the next logical step was to issue shares. From Bitcoin technology consultancies, to server farms to handle the network processing load, the opportunities were numerous.
Even the digital wallets in use by Bitcoin enthusiasts are seeing improved and enhanced security protocols, and with any technological advancement comes a whole range of business possibilities.
It didn’t take long for the stock market world to get involved with the Bitcoin mania in a big way. Entire investment funds sprung up, such as Global Advisors Bitcoin Investment Fund Limited and Bitcoin Investment Trust — only two examples of many.
Meanwhile, the Bitcoin-related startups began emerging, and due to the borderless nature of digital currencies, these weren’t limited to the United States. Initial public offerings of cryptocurrency stocks emerged in nations all around the world. For example, Vogogo began trading publicly in 2014, and identified itself as a Bitcoin Compliance Solutions company. Its parent stock exchange was (and is) the Toronto Venture Exchange in Canada, and the shares trade with the ticker symbol VGO.
The Bitcoin Investment Trust became the first publicly traded Bitcoin fund. Using the ticker symbol GBTC, the shares began trading on the over-the-counter market in May 2015.
This is the part where Bitcoin will sound very different from conventional currencies. Perhaps there is a downside when you cut out the middleman, as Bitcoin was intended to do.
Early on, Bitcoin was implicated in the transactions for many illicit deals, from child pornography to assassination payments, major gun and weapon sales, illegal drugs, and money laundering. The secretive nature of Bitcoin transactions made it a perfect vehicle for individuals who did not want to be exposed.
After the early days, much of this activity was curbed, caught, and even resulted in some arrests. The concealed nature of Bitcoin transactions suddenly did not provide as much cover for “the bad guys.”
This is when Bitcoin made the jump to the mainstream, fueled by the investor mania, constant media coverage, and dramatically soaring prices. Almost poetically, this is where some of the biggest problems for speculators arose:
- 2010–present: There were dozens of minor and major Bitcoin-related thefts, and the vast majority of the lost funds will never be recovered. Millions were lost (in U.S. dollar equivalents) from various scams, hacks, and direct digital thefts.
- February 2014: Mt. Gox, the largest Bitcoin exchange, handling as much as 70 percent of all BTC transactions, suspended all transactions and filed for bankruptcy. An audit revealed 850,000 Bitcoins were missing, valued at $450 million at the time. 200,000 Bitcoins have subsequently been recovered, but the rest are likely stolen or lost forever.
- March 18, 2015: The World Bitcoin Association in Manhattan filed for bankruptcy.
- March 31, 2015: Two U.S. agents investigating and working to shut down the illicit activities in cryptocurrencies, one from the Drug Enforcement Agency (DEA) and one from the U.S. Secret Service, were formally charged with Bitcoin thefts of their own.
- April 6, 2015: The Bitcoin Foundation, whose founders were linked to crimes and offshore relocation, was called “effectively bankrupt” by one of its board members.
These are merely some notable examples, from among numerous risks, thefts, scams, and bankruptcies. The complete list would take an entire book on its own.
The advantages of the new currency — specifically, its secretive, tax-free, borderless nature — actually contributed greatly to its eventual weakness. If a Bitcoin transaction does not incur regulation and taxes, and is independent of any specific nation, there is no regulatory body responsible for helping to locate stolen funds.
In some cases, it may take months to figure out exactly where a theft actually took place, and then years more to ascertain which, if any, regulatory or law-enforcement body should (or even could) do anything about the event.
Although instant, anonymous, borderless, tax-free transactions make a tremendous deal of logical sense, there always will be a slight advantage to more conventional methods. For example, if someone robs your bank, the authorities will recover the funds and put the bad guys in jail. In fact, you’ll likely be paid by insurance if you suffer any losses. Not a bad arrangement, considering that it only costs you a slight fraction of interest for your transactions.