The next phase in the Bitcoin revolution could be the standardization of the exchanges where in fact the coins are traded. Bitcoin happens to be in the open West prospector days of its evolution. The planet has agreed that 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. It has led to cheating since trading began. Crooked scales and filled ore all became section of the norm as both 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 own community and remain beyond the physical scrutiny of any global government. Bitcoin Era Review was shattered a 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 has shown 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 by way of a swap-execution facility or, centralized exchange. Almost all commercial currency trading is performed through swaps agreements which is why we follow the commercial traders in our own trading. A swap agreement is basically an insurance policy that delivers 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 will be 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 but 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 in the face of the Mt. Gox debacle is really a testament to the power of a worldwide 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 an individual company’s problem and was therefore confined to Mt. Gox customers’ ability to get their money out. Therefore, Bitcoin prices have stabilized around $585. This is well off the December most of $1,200 but very near 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 integrated 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 will do also it wants its cut. The IRS has declared Bitcoin as property rather than currency and is therefore at the mercy of property laws instead of currency laws. This enables the IRS to get their share while legitimizing the need for a central exchange to ascertain 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 electronic network. That sounds an awful lot like the forex markets. Industry regulators and the banking industry are likely to quickly discover 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 just as 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 right place at the proper time with the proper idea as Bitcoin may 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 figure out how to monetize it.