The next phase in the Bitcoin revolution will be the standardization of the exchanges where the coins are traded. Bitcoin happens to be in the Wild West prospector days of its evolution. The world has agreed a Bitcoin provides a stored measure of value just as that silver and gold have through the entire ages. Like gold and silver, Bitcoin is only worth what your partner is willing to pay you for it. It has resulted in cheating since trading began. Crooked scales and filled ore all became area of the norm as both 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 own community and remain beyond the physical scrutiny of any global government. The Utopian dream was shattered a month ago when Mt. Gox, by far the largest Bitcoin exchange, turn off 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 shows remarkable resilience. This resilience could very well be just the boost had a need to legitimize the currency and the lean towards governmental involvement which 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 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 in our own trading. A swap agreement is actually an insurance policy that provides a guaranteed value at a particular point in time to protect against currency fluctuations. technical analysis 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 cost on the individual swap is small but the sheer volume of swaps processed makes it an enormous revenue source for several 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 in the face of the Mt. Gox debacle is a testament to the power of a global grassroots movement. Bitcoin must have plunged across the globe as owners of Bitcoins tried to exchange 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. Because of this, Bitcoin prices have stabilized around $585. This is well off the December most 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 as an anarchist, alternative store of value that exists beyond your 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 INNER 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 obtain 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 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 likely to quickly discover that the failure of Mt. Gox did more to encourage the individual resolve of global Bitcoin users rather than ending this upstart’s existence. Private users of Bitcoin will clamor for the federal government to protect its folks 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 may be in the right place at the right time with the proper 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 keep its evolution because the financial industry is left to determine how to monetize it.