The next phase in the Bitcoin revolution will be the standardization of the exchanges where in fact the coins are traded. Bitcoin is currently in the Wild West prospector days of its evolution. The planet 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 your partner is willing to pay you for it. This has resulted in cheating since trading began. Crooked scales and filled ore all became area 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 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, shut down due to a 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 problems at Mt. Gox lay bare the cyber security argument. Surprisingly, Bitcoin as a currency has shown 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.
Bitcoin Revolution Site of the Mt. Gox incident may end up being a boon for the currency. Tera Group, out of Summit NJ, already had proposed a bilateral agreement to the Commodity Trading Futures Commission (CFTC) to begin trading Bitcoins through a swap-execution facility or, centralized exchange. The vast majority of commercial currency trading is done through swaps agreements which is why we follow the commercial traders in our own trading. A swap agreement is basically an insurance policy that delivers a guaranteed value at a specific point in time to protect 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 average person swap is small but the sheer volume of swaps processed makes it a huge revenue source for all of the major banks.
The CFTC has yet to touch upon 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 really a testament to the power of a worldwide grassroots movement. Bitcoin should have plunged around the world as owners of Bitcoins tried to switch them for hard currency. The market’s response 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. Consequently, Bitcoin prices have stabilized around $585. That is well off the December high of $1,200 but very near the average price for the last 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 built-into that same economic climate is its capability to be taxed by the brick and mortar governments it was developed to circumvent. THE INNER Revenue Service finally decided enough is enough and 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 enables the IRS to obtain their share while legitimizing the necessity for a central exchange to see 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 really 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 find that the failure of Mt. Gox has done more to encourage the individual resolve of global Bitcoin users instead of ending this upstart’s existence. Private users of Bitcoin will clamor for the 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 open West. Tera Group may be in the proper place at the proper time with the proper idea as Bitcoin may 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 determine how to monetize it.