Bitcoins: Risks, Rewards and Luxury Car Purchases

Bitcoin Car Purchases


Bitcoins: Risks, Rewards and Luxury Car Purchases

In December, it was reported that Orange County Lamborghini dealership had sold its first ever Tesla Model S Performance using bitcoins. The press was full of celebratory headlines about the ascent of this digital currency and Lamborghini had a field day with the free PR.

Soon, many companies scrambled onto the bandwagon and at the start of the New Year, it looked like bitcoin had become a tangible, socially accepted cryptocurrency that supported commercial transactions.  Price per unit soared to $1,124 (November 2013) – making it the most expensive currency in the world.


Crashes and Criminality

However, as we’ve come to expect with bitcoin, controversy and change is never far away. This week, prices plunged after one of the largest bitcoin exchanges, Japan’s Mt. Gox, suspended withdrawals following a software malfunction. According to Mt Gox, they’d discovered a bug that allowed cyber criminals to defraud currency exchanges, causing value to drop to $500 per bitcoin (February 10th).

This isn’t the first time bitcoin value has suffered. In mid-December 2013, value fell from an average of $1,000 to about $500 after a Chinese bitcoin trading exchange announced that it was no longer accepting Chinese currency. This was a forced decision based on a government crackdown that banned financial institutions from doing business in bitcoin –a move to protect Chinese currency against criminal activity. Russia soon followed suit.

Indeed, bitcoin and cyber criminals go hand-in-hand, with drug cartels and money launderers favoring it for its anonymity and tracing difficulties. Just last month, Charlie Shrem, the entrepreneur behind the bitcoin exchange website BitInstant, was arrested on money laundering charges after he sold 1 million bitcoins on the now defunct online black market, Silk Road.


The Future of Bitcoin

Bitcoin CarsNaturally, the value for any commodity declines when there is a perceived risk and it’ll be difficult for bitcoin to shake off its criminal associations. This new world economy is just that – incredibly new – and the kinks are being ironed out in a very public arena.

So much so that even well-meaning transactions like the Lamborghini bitcoin sale are being scrutinized for not being bitcoin enough. Turns out the Orange County dealership registered with BitPay, a bitcoin merchant provider, and converted the buyer’s bitcoins into US dollars. Some are saying that this doesn’t count but despite that, the dealership has received 20 serious inquiries from people wanting to pay for a luxury car using their bitcoins. But why?

Although volatile, bitcoin has proven a lucrative investment for many. In 2009, a Norwegian man impulsively invested $28 in bitcoin and then forgot all about it. 4 years later, it was worth a staggering $906,174 – enough to buy nine Tesla Model S Performance cars.  As such, many of bitcoins early investors are looking to buy up valuable assets with their accumulated cryptocurrency, perhaps before it’s too late. After all, a finance professor at Boston University School of Management has predicted that Bitcoin will trade for under $10 a share by the first half of 2014.

Until or indeed if bitcoin is ever properly regulated, it’s unlikely that dizzying profits will be achieved again but as with any new major digital concept, only time will tell.

Will Tesla Motors go bankrupt like Fisker did?

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