Jun
02

Bitcoin Is Here to Stay

The next phase in the Bitcoin revolution will be the standardization of the exchanges where in fact the coins are traded. Bitcoin happens to be in the open West prospector days of its evolution. The world has agreed a Bitcoin provides a stored measure of 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 ready to pay you for it. It has resulted in cheating since trading began. Crooked scales and filled ore all became section of the norm as both the miners and the assayers sought to pad their bottom lines. This led to governmental oversight and the creation of centralized exchanges.

The Bitcoin dream has been to police its community and remain beyond the physical scrutiny of any global government. The Utopian dream was shattered per month ago when Mt. Gox, 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 have no idea 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 may be just the boost needed to legitimize the currency and the lean towards governmental involvement that could actually help this fledgling store of value soar to its mainstream potential.

The timing of the Mt. Gox incident may end up being 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 with trading Bitcoins through a swap-execution facility or, centralized exchange. Almost all commercial currency trading is done through swaps agreements which is why we follow the commercial traders inside our own trading. A swap agreement is actually an insurance policy that provides 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 are the superhighways of the financial industry. They process massive volumes while collecting a small toll on each transaction. Therefore, the price on the individual swap is small but the sheer level of swaps processed makes it a huge 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 large for global banks to ignore. Bitcoin’s resilience when confronted with the Mt. Gox debacle is a testament to the power of a worldwide 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’ capability to get their money out. Subsequently, Bitcoin prices have stabilized around $585. This is well off the December high of $1,200 but very close to 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 financial system is its ability to be taxed by the brick and mortar governments it had been developed to circumvent. THE INNER Revenue Service finally decided enough will do and it wants its cut. The IRS has declared Bitcoin as property instead of currency and is therefore subject to property laws rather than currency laws. This enables the IRS to obtain their share while legitimizing the need 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 which can be exchanged for other goods and services, barter.

Bitcoin is really a global marketplace executing transactions on an electronic network. That sounds an awful lot just like the forex markets. Industry regulators and the banking industry are likely to quickly discover that the failure of Mt. Gox has done more to encourage the average person resolve of global Bitcoin users rather than ending this upstart’s existence. technical analysis of Bitcoin will clamor for the government to protect its people from crooked exchanges just as farmers were cheated in the grain trade of ancient Egypt or gold and cattle by assayers and stockyards in the open West. Tera Group could be in the right place at the proper time with the right 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 as the financial industry is left to figure out how to monetize it.