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Government warnings as Bitcoins grow in popularity in the Netherlands09 December 2013, by Alexandra Gowling
Both the Dutch government and the Dutch central bank De Nederlandsche Bank (DNB) have warned against placing too much trust, or money, into virtual currencies like Bitcoins.
According to DNB, Bitcoins and other similar currencies fall outside the scope of the Dutch Financial Supervision Act, meaning the DNB does not supervise these currencies or the companies trading in them.
The risks of trading in these currencies is that their exchange rates are highly volatile and there is no central issuing institution that consumers could hold liable.
The former president of DNB Nout Wellink went even further recently, when he likened the Bitcoin hype to tulip mania, the famous 17th century economic bubble built up around the importation of tulip bulbs to the Netherlands. At its peak, the price for a single tulip bulb in 1637 stood at 10 times the annual income of a skilled Dutch craftsman.
"At least then you got a tulip," Wellink said in a meeting with students at the University of Amsterdam. "Now you get nothing."
Dutch Finance Minister Jeroen Dijsselbloem also expressed a need for caution over virtual currency transactions.
"They are not authorised payment methods, there is no supervision over them and nor are there any guarantees. People need to be very aware. On the one hand it is fun, but if it grows to a certain size and there is the risk of a bubble forming, then people are at risk," he said.
More and more places are willing to trade in Bitcoins, however, including well-known business in the Netherlands such as thuisbezorgd.nl, a food delivery service. There are also services such as BitMerchant popping up, which helps stores and websites accept Bitcoins and also exchange them for euros.
The value of Bitcoins has increased 8.900 per cent since January 1, 2013, turning some Bitcoin owners in the Netherlands into new millionaires.
Bitcoin cost five cents in 2010, while the price went up to around 120 US dollars in April 2013, then jumped up to nearly 700 dollars in November. Currently, they are trading at over 1.000 dollars.
The spike in their value has led to three major Bitcoin thefts in a month. Cyber criminals stole from two online Bitcoin payment providers (4.100 Bitcoins and 1.295 Bitcoins respectively) and at least 5.400 Bitcoins from Sheep Marketplace, a Silk Road competitor.
Reactions to Bitcoin abroad
The price recently took a hit, however, when the central bank of the People’s Republic of China prohibited financial institutions from handling Bitcoin transactions.
The bank said that Bitcoin had "no real meaning" and does not enjoy the same legal status as a regular currency.
It also said that citizens were free to participate in transactions via the internet, provided that they carried the risks themselves.
This is quite different to the approach taken by the USA’s Federal Reserve Chairman recently when he said that Bitcoin "may have long-term promise," while the Royal Mint in the UK is considering allowing one of the Channel Islands to be the first to mint physical Bitcoins.
Market analysts, however, say that many people are buying Bitcoins simply because they believe they will go higher: a sign of rampant speculation, like tulip mania, of which they recommended serious investors steer well clear.