Paul Koster, Director of the Netherlands Stockholder’s Association (Vereniging van Effectenbezitters), went on a rant against Bitcoin in a January 15 article calling for the Central Bank to completely ban the cryptocurrency.
Koster argues that because of the recent decline in the market price of Bitcoin the currency is too unstable for potential investors such as banks to take a risk on it.
“These volatile Bitcoin price fluctuations prove that this market is not supervised and/or regulated by any government or institution. As a result, it is impossible for banks, consumers, investors and retailers to estimate the potential risks of getting involved with Bitcoin.”
The Dutch Central Bank (DCB) issued a warning about Bitcoin and other virtual currencies in 2013. The warning said that because virtual currencies “fall outside of the scope of the Dutch Financial Supervision Act (Wet op het financiceel toezicht),” they advised consumers to be aware of potential risks. They also warned that exchange rates were volatile and that there was no central issuing institution that could be held liable for losses.
Koster did not mention the warning, or the nature of investment. He said:
“I don’t know why they even allow Bitcoin. It is a wild market with endless potential risks.”
This is strange language from a professional investor, and even stranger coming from the director of the Stockholder’s Association. The timing of the message also happens to coincide with the recent price decline.
Koster ignores a number of salient facts. Investments, by their very nature, are risky. One well-known rule in investment is that the greater the risk, the higher the potential return. Many individuals held Bitcoins when the price was only US$1 who would argue with Koster about his opinions. If you were holding 100 bitcoins in early 2012, you would have been able to sell them 12 months later for about US$1 million, at about a 1000% profit. Since then, Bitcoin has lost approximately 75% of its value, but is still several times more valuable than it was in 2012.
Where were Koster’s objections when the stock market crashed in October 2008 and most stocks bottomed out, putting companies completely out of business? There were no calls during this period to eliminate the trading of stocks because of potential risks. We might be able to understand Koster’s recent objections more clearly through this statement:
“I really can’t understand why a newly-developed financial system outside of our current legal financial model is legitimate. I do understand technology is advancing at an accelerated pace, but I strongly feel central bankers should be wary and reluctant about getting involved in ‘other’ financial systems. In fact, it would be better if they prohibited Bitcoin immediately.”
A traditionalist could logically be worried about his place in a new economic paradigm. Despite the steep decline in prices, the currency is gaining rapid acceptance by not only the general public, but by the retail community. Even banks, such as the European Union Fidor Bank, are beginning to come around to the idea of Bitcoin. For someone like Koster, who has worked in the traditional financial system for most of his life, these changes could be troubling.
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