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 open West prospector days of its evolution. The planet has agreed a Bitcoin provides a stored way of measuring value in the same way that silver and gold have throughout the ages. Like silver and gold, Bitcoin is only worth what your partner is ready 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 own community and remain beyond the physical scrutiny of any global government. The Utopian dream was shattered a 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 needed to legitimize the currency and the lean towards governmental involvement that may 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 with 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 safeguard 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 but the sheer level of swaps processed makes it an enormous revenue source for all 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 when confronted with 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 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. 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 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 brick and mortar governments it had been developed to circumvent. Bitcoin Era Official decided enough is enough also it wants its cut. The IRS has declared Bitcoin as property instead of currency and is therefore at the mercy of property laws instead of currency laws. This allows 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 an excellent which can be exchanged for other goods and services, barter.
Bitcoin is really a global marketplace executing transactions on an electric network. That sounds an awful lot just like the forex markets. Industry regulators and the banking industry are likely to quickly find that the failure of Mt. Gox has done more to encourage the individual resolve of global Bitcoin users rather than ending this upstart’s existence. Private users of Bitcoin will clamor for the government to protect its folks 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 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 increasingly being put in place to continue its evolution because the financial industry is left to figure out how to monetize it.