Bitcoin Is Here to Stay
The next phase in the Bitcoin revolution could be the standardization of the exchanges where in fact the coins are traded. Bitcoin is currently in the open West prospector days of its evolution. The world has agreed a Bitcoin provides a stored way of measuring value in the same way that gold and silver have throughout the ages. Like silver and gold, Bitcoin is only worth what the other person is willing to pay you for it. It has resulted in cheating since trading began. Crooked scales and filled ore all became portion of the norm as both the miners and the assayers sought to pad their bottom lines. This resulted in governmental oversight and the creation of centralized exchanges.
The Bitcoin dream has gone to police its community and remain beyond the physical scrutiny of any global government. The Utopian dream was shattered per month ago when Mt. Krogerexperiencee , undoubtedly the largest Bitcoin exchange, shut down because of security breach and theft of approximately $300 million worth of Bitcoin. Customers who had Bitcoin on deposit with Mt. Gox still do not know how much they’ll reunite. The issues at Mt. Gox lay bare the cyber security argument. Surprisingly, Bitcoin as a currency shows remarkable resilience. This resilience could very well be just the boost needed to legitimize the currency and the lean towards governmental involvement that may actually help this fledgling store of value soar to its mainstream potential.
The timing of the Mt. Gox incident may prove to be a boon for the currency. Tera Group, out of Summit New Jersey, already had proposed a bilateral agreement to the Commodity Trading Futures Commission (CFTC) to begin trading Bitcoins by way of a swap-execution facility or, centralized exchange. The vast majority of commercial currency trading is performed through swaps agreements which explains why we follow the commercial traders inside our own trading. A swap agreement is actually an insurance policy that delivers a guaranteed value at a particular point in time to safeguard against currency fluctuations. It’s what the commodity exchanges are founded on. The swap markets will be the superhighways of the financial industry. They process massive volumes while collecting a small toll on each transaction. Therefore, the cost on the individual swap is small however the sheer level of swaps processed makes it an enormous revenue source for all of the major banks.
The CFTC has yet to comment on Tera Group’s proposal. We commented in November that Bitcoin had transcended novelty status and that the revenue pool was becoming too big for global banks to ignore. Bitcoin’s resilience when confronted with the Mt. Gox debacle is really a testament to the power of a global grassroots movement. Bitcoin should have plunged across the globe as owners of Bitcoins tried to switch them for hard currency. The market’s response turned out to be very orderly. While prices did fall over the board, the market appeared to understand that it was an individual company’s problem and was therefore confined to Mt. Gox customers’ ability to get their money out. Subsequently, Bitcoin prices have stabilized around $585. This is well off the December high of $1,200 but very near the average price for the last six months.
The last coincidentally timed little bit of the structural transformation from Bitcoin being an anarchist, alternative store of value that exists outside the institutionalized financial industry to being integrated into that same economic climate is its ability to be taxed by the brick and mortar governments it was developed to circumvent. The Internal Revenue Service finally decided enough will do also it wants its cut. The IRS has declared Bitcoin as property rather than currency and is therefore subject to property laws instead of currency laws. This allows the IRS to get their share while legitimizing the necessity for a central exchange to ascertain value. It also eliminates arguments with the U.S. Treasury and Congress over legal tender issues. It’s simply valued as a good that can be exchanged for other goods and services, barter.
Bitcoin is a global marketplace executing transactions on an electronic network. That sounds an awful lot like the forex markets. Industry regulators and the banking industry are going to quickly discover that the failure of Mt. Gox has done more to encourage the average person resolve of global Bitcoin users instead of ending this upstart’s existence. Private users of Bitcoin will clamor for the government to protect its people from crooked exchanges in the same way farmers were cheated in the grain trade of ancient Egypt or gold and cattle by assayers and stockyards in the open West. Tera Group may be in the proper place at the proper time with the proper idea as Bitcoin could have proven itself to be self-sustaining at the retail level. Institutional and legal structures are increasingly being put in place to keep its evolution because the financial industry is left to determine how to monetize it.