Bitcoin Is Here to Stay

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 planet has agreed that 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 worth what the other person is ready to pay you for it. It has led to cheating since trading began. Crooked scales and filled ore all became the main 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 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 around $300 million worth of Bitcoin. Customers who had Bitcoin on deposit with Mt. Gox still have no idea 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 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 by way of a swap-execution facility or, centralized exchange. Almost all commercial currency trading is performed through swaps agreements which is 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 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 little toll on each transaction. Therefore, the cost on the individual swap is small but the sheer level of swaps processed makes it a huge 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 energy of a global grassroots movement. Bitcoin must 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 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 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 as an anarchist, alternative store of value that exists beyond your institutionalized financial industry to being built-into that same economic climate is its capability to be taxed by the offline governments it had been developed to circumvent. Bitcoin Era decided enough will do also it wants its cut. The IRS has declared Bitcoin as property instead of currency and is therefore subject to property laws instead of currency laws. This allows the IRS to get their share while legitimizing the necessity for a central exchange to ascertain value. In addition, it eliminates arguments with the U.S. Treasury and Congress over legal tender issues. It’s simply valued as an excellent that may 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 find 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 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 may 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 increasingly being put in place to keep its evolution because the financial industry is left to determine how to monetize it.