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 planet has agreed that a Bitcoin provides a stored measure of value in the same way that silver and gold have through the entire ages. Like gold and silver, Bitcoin is worth what your partner is ready to pay you for it. This has led to 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 gone to police its own 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 due to a security breach and theft of around $300 million worth of Bitcoin. Customers who had Bitcoin on deposit with Mt. Gox still do not know how much they’ll get back. The problems at Mt. Gox lay bare the cyber security argument. Surprisingly, Bitcoin as a currency has shown remarkable resilience. This resilience may 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 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 trading Bitcoins by way of a swap-execution facility or, centralized exchange. Almost all commercial currency trading is done through swaps agreements which explains why we follow the commercial traders inside our own trading. A swap agreement is basically an insurance policy that provides a guaranteed value at a specific 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 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 a testament to the energy of a global grassroots movement. Bitcoin should have plunged across the globe as owners of Bitcoins tried to switch them for hard currency. Bitcoin Era Site ended up being very orderly. While prices did fall across the board, the market appeared to understand that it was a person company’s problem and was therefore confined to Mt. Gox customers’ capability to get their money out. As a result, Bitcoin prices have stabilized around $585. This is well off the December high of $1,200 but very close to the average price going back six months.
The last coincidentally timed piece 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 offline 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 rather than currency laws. This enables the IRS to get their share while legitimizing the need for a central exchange to see value. In addition, it eliminates arguments with the U.S. Treasury and Congress over legal tender issues. It’s simply valued as a good that could be exchanged for other goods and services, barter.
Bitcoin is really a global marketplace executing transactions on an electric 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 did 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 just as farmers were cheated in the grain trade of ancient Egypt or gold and cattle by assayers and stockyards in the Wild West. Tera Group could be in the right place at the proper time with the right idea as Bitcoin may have proven itself to be self-sustaining at the retail level. Institutional and legal structures are being put in place to continue its evolution as the financial industry is left to determine how to monetize it.