The next phase in the Bitcoin revolution would be the standardization of the exchanges where the coins are traded. Bitcoin happens to be in the open West prospector days of its evolution. The world has agreed a Bitcoin provides a stored way of measuring value in the same way 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. This has resulted in cheating since trading began. Crooked scales and filled ore all became section 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 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, by far the largest Bitcoin exchange, shut down because of 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 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 performed through swaps agreements which is why we follow the commercial traders in our own trading. A swap agreement is actually 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 will be the superhighways of the financial industry. They process massive volumes while collecting a little toll on each transaction. Therefore, the price on the individual swap is small however the sheer level 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 should have plunged across the globe 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 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. That is well off the December high of $1,200 but very close to the average price going back six months.
The last coincidentally timed little bit of the structural transformation from Bitcoin as an anarchist, alternative store of value that exists outside the institutionalized financial industry to being integrated 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 instead of currency and is therefore subject to property laws instead of currency laws. This enables 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 a good that could be exchanged for other goods and services, barter.
Bitcoin is a global marketplace executing transactions on an electric network. That sounds a lot just like the forex markets. Industry regulators and the banking industry are likely to quickly discover that the failure of Mt. Bitcoin Era Official has done 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 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 increasingly being put in place to continue its evolution as the financial industry is left to determine how to monetize it.