This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Waking From the Bitcoin Dream

NEW YORK (TheStreet) -- There was always something utopian about bitcoin, the idea that you could have money without government.

It attracted libertarians like an Ayn Rand seminar, a Ron Paul speech and a Rand Paul bumper sticker rolled into one.

The U.S. had nongovernment money for almost 80 years. From the fall of the Second Bank of the United States under Andrew Jackson in 1836, to the rise of the Federal Reserve under Woodrow Wilson 100 years ago, money in the U.S. was backed exclusively by gold.

When the government ran out of gold, as it did in 1895, it had to go to the market just like any other deadbeat. Those who protested this "cross of gold," such as William Jennings Bryan, were politically crucified on it.

But that pregovernment money was subject to sudden collapse, if the bankers backing it faced a sudden run by depositors. This happened repeatedly in the 19th century. It happened to bitcoin this week when the Mt. Gox exchange suddenly went dark.

Jens Finkhauser, who works at spriteCloud in Germany, says the Mt. Gox failure was a technical event, calling the Bitcoin protocol, "the worst documented of any I have seen in my career." Bitcoin blogger Ryan Selkis, writing as Ryan Galt, suggested something more nefarious was going on.

Other bitcoin players put out a statement at The Coinbase blog, saying they would coordinate to reassure the market, and calling for a higher bar on market makers:

"including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading."

The collapse even caused Sen. Tom Carper (D., Del.), a virtual currencies enthusiast, to go poetic with a statement calling on the government to "steer the boat away from nefarious actors," while industry partners "row the boat into law abiding waters."

What it all comes down to is this. For any medium of exchange to work, it needs a strong hand to back it up. Gold had J.P. Morgan, not the institution run by Jamie Dimon but the real man, in the flesh, rosacea'd nose and all.

Bitcoin doesn't have that.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,501.65 -12.72 -0.08%
S&P 500 1,875.39 -4.16 -0.22%
NASDAQ 4,126.9670 -34.4910 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs