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 Wild West prospector days of its evolution. The planet has agreed a Bitcoin provides a stored measure of value just as that gold and silver have throughout the ages. Like gold and silver, Bitcoin is only worth what your partner is ready to pay you for it. It has led to cheating since trading began. Bitcoin Era Site and filled ore all became portion 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, turn off 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 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 had a need 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 NJ, 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 performed through swaps agreements which explains 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 particular 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 cost on the average person 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 big for global banks to ignore. Bitcoin’s resilience in the face of the Mt. Gox debacle is really a testament to the energy of a worldwide grassroots movement. Bitcoin must have plunged around the world as owners of Bitcoins tried to exchange them for hard currency. The market’s response ended up being very orderly. While prices did fall across the board, the market seemed 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. That 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 piece of the structural transformation from Bitcoin as an anarchist, alternative store of value that exists outside the institutionalized financial industry to being built-into that same financial system is its capability to be taxed by the offline governments it was developed to circumvent. The Internal Revenue Service finally decided enough will do and 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 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 could be exchanged for other goods and services, barter.
Bitcoin is a global marketplace executing transactions on an electronic network. That sounds a 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 rather than ending this upstart’s existence. Private users of Bitcoin will clamor for the federal 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 Wild West. Tera Group could be in the right 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.