The next phase in the Bitcoin revolution is definitely the standardization of the exchanges where in fact the coins are traded. Bitcoin is currently in the Wild West prospector days of its evolution. Bitcoin Revolution Official has agreed that a Bitcoin provides a stored way of measuring value just as that gold and silver have through the entire ages. Like silver and gold, Bitcoin is only worth what your partner is willing to pay you for it. This has led to cheating since trading began. Crooked scales and filled ore all became area of the norm as both the miners and the assayers sought to pad their bottom lines. This led to 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 per month ago when Mt. Gox, by far the largest Bitcoin exchange, shut down 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 prove to be 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 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 protect 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 individual swap is small but the sheer volume 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 power of a global grassroots movement. Bitcoin should 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 a person company’s problem and was therefore confined to Mt. Gox customers’ ability to get their money out. Because of this, Bitcoin prices have stabilized around $585. That is well off the December most of $1,200 but very near the average price for the last 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 financial system is its capability to be taxed by the brick and mortar governments it had been developed to circumvent. THE INNER Revenue Service finally decided enough will do and it wants its cut. The IRS has declared Bitcoin as property instead of currency and is therefore at the mercy of property laws rather than currency laws. This allows 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. 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 a global marketplace executing transactions on an electronic network. That sounds a 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 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 could 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.