The next phase in the Bitcoin revolution is definitely the standardization of the exchanges where the coins are traded. Bitcoin is currently in the open West prospector days of its evolution. The planet has agreed a Bitcoin provides a stored measure of value in the same way that silver and gold have through the entire ages. Like silver and gold, Bitcoin is worth what the other person is willing to pay you for it. This has led to cheating since trading began. Crooked scales and filled ore all became the main 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 been to police its 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, turn off due to a 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 issues 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 which could actually help this fledgling store of value soar to its mainstream potential.
The timing of the Mt. Gox incident may prove to be 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. Almost all commercial currency trading is done through swaps agreements which explains 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 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 average person swap is small however the sheer volume 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 large for global banks to ignore. Bitcoin’s resilience in the face of the Mt. Gox debacle is a testament to the power of a global grassroots movement. Bitcoin should have plunged across the globe as owners of Bitcoins tried to switch them for hard currency. The market’s response ended up being 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. Subsequently, Bitcoin prices have stabilized around $585. This 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 built-into that same economic climate is its ability 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 instead of 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. Bitcoin Era 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 electric network. That sounds a lot like the forex markets. Industry regulators and the banking industry are going to quickly find that the failure of Mt. Gox did 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 may be in the proper place at the right time with the right idea as Bitcoin could have proven itself to be self-sustaining at the retail level. Institutional and legal structures are being put in place to keep its evolution as the financial industry is left to determine how to monetize it.