The next phase in the Bitcoin revolution will be 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 that a Bitcoin provides a stored measure of value just as that gold and silver have through the entire ages. Like gold and silver, Bitcoin is worth what the other person is willing to pay you for it. This has resulted in cheating since trading began. Crooked scales and filled ore all became part 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 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 problems at Mt. Gox lay bare the cyber security argument. Surprisingly, Bitcoin as a currency has shown remarkable resilience. This resilience could very well 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 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 by way of a swap-execution facility or, centralized exchange. The vast majority of commercial currency trading is done through swaps agreements which is why we follow the commercial traders inside our own trading. A swap agreement is actually an insurance policy that provides a guaranteed value at a particular 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 cost on the average person swap is small however the sheer volume 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 across the globe 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 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. Due to this fact, 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 as an anarchist, alternative store of value that exists outside the institutionalized financial industry to being built-into that same economic climate is its ability to be taxed by the brick and mortar governments it had been developed to circumvent. Bitcoin Era decided enough will do also it wants its cut. The IRS has declared Bitcoin as property instead of currency and is therefore subject to property laws rather than currency laws. This enables the IRS to get 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 a lot like the forex markets. Industry regulators and the banking industry are going to quickly find that the failure of Mt. Gox has done 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 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 Wild West. Tera Group could be in the proper place at the right time with the proper 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 determine how to monetize it.