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 just as that gold and silver have throughout the ages. Like Bitcoin Era Official and silver, Bitcoin is only 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 portion 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 a month ago when Mt. Gox, by far the largest Bitcoin exchange, shut down because of 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 could very well 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 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 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 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 are the superhighways of the financial industry. They process massive volumes while collecting a small toll on each transaction. Therefore, the price on the average person swap is small however the sheer level of swaps processed makes it a huge revenue source for several 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 when confronted with the Mt. Gox debacle is a testament to the power of a global grassroots movement. Bitcoin must have plunged around the world 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 across the board, the market appeared to understand that it was a person company’s problem and was therefore confined to Mt. Gox customers’ ability to get their money out. Therefore, Bitcoin prices have stabilized around $585. That is well off the December most of $1,200 but very close to the average price for the last 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 built-into that same financial system is its ability to be taxed by the offline governments it was developed to circumvent. The Internal Revenue Service finally decided enough is enough and 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 enables the IRS to obtain 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 really a global marketplace executing transactions on an electronic network. That sounds an awful lot just 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 individual 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 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 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 because the financial industry is left to figure out how to monetize it.

Bitcoin Is Here to Stay
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