The next phase in the Bitcoin revolution would be the standardization of the exchanges where in fact the coins are traded. Bitcoin is currently in the open West prospector days of its evolution. The world has agreed a Bitcoin provides a stored way of measuring value just as that gold and silver have throughout the ages. Like gold and silver, Bitcoin is only worth what the other person is willing to pay you for it. It has resulted in cheating since trading began. Crooked scales and filled ore all became section of the norm as both the 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 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 do not know 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 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 with trading Bitcoins through a swap-execution facility or, centralized exchange. Almost all commercial currency trading is done through swaps agreements which is why we follow the commercial traders inside 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 will be 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 level of swaps processed makes it an enormous 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 big for global banks to ignore. Bitcoin’s resilience when confronted with the Mt. coincapcentral is really a testament to the energy of a global grassroots movement. Bitcoin must have plunged around the world 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 seemed to understand that it was an individual company’s problem and was therefore confined to Mt. Gox customers’ ability 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 close to the average price going back six months.
The last coincidentally timed piece of the structural transformation from Bitcoin being an anarchist, alternative store of value that exists beyond your institutionalized financial industry to being integrated into that same economic climate is its capability to be taxed by the brick and mortar governments it was developed to circumvent. The Internal Revenue Service finally decided enough is enough 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 allows 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 an excellent that can be exchanged for other goods and services, barter.
Bitcoin is a global marketplace executing transactions on an electric network. That sounds an awful 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 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 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 open West. Tera Group may be in the proper 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 being put in place to keep its evolution because the financial industry is left to figure out how to monetize it.