The commodity futures trading commission in the United States source CFTC decided that Bitcoin (BTC), the virtual currency, is now a regulated commodity and trading the crypto-currency will come under CFTC regulation rules. While Forex trading for about.com focuses mainly on currencies within larger economies, this shift in bit coin is worth informing you on to help you see what the future may hold for this hotly debated topic.
Why regulate Bitcoin?
Bitcoin has had a bit of an identity crisis. Because the virtual currency is an encrypted line of code as opposed to Fiat form or paper currency, its early years have seen Bitcoin used for transactions online. A fair share of the transactions was intended not to be tracked. Think illegal substances or items being sold and paid for online, through forums that have now been shut down like Silk Road.
Additionally, Bitcoin brokerages sprung up seemingly overnight while other companies tossed aside their original business plan to focus on Bitcoins without a complete understanding of the marketplace, which led to volatile swings in the value of the crypto currency and the eventual bankruptcy of some of the brokerages like Mt. Gox, who filed for bankruptcy in Japan after losing $480 million worth of Bitcoins. This means a little understood market without regulation was being used to potentially conduct illegal transactions as well as entice investors and traders, who were financially harmed when the brokerages they trusted ended up going down.
This was a perfect storm to encourage regulation.
What does regulation mean?
First, the CFTC can now assert their authority to provide oversight of the trading of crypto currency futures and options, which will squeeze out small unreliable shops from enticing investors the United States as well as encouraging larger financial firms to get into the game. This could get interesting in terms of offerings in the future as well as the eventual offering for more online transactions and legal businesses with Bitcoin similar to how companies like Visa and MasterCard allow for digital transactions in a regulated manner.
Some early supporters of Bitcoin feel this introduction of regulation will harm the potential growth and innovation surrounded by Bitcoin. Their argument is that the freedom to experiment how to use Bitcoin will be suffocated, but if that comes at the expense of fraudsters gaining an edge, and that’s a worthy price to pay. However the price of Bitcoin has already seen this fear play out as price top doubts in late 2013 around $1100 and currently sits around $230 as of the time in this writing in early fall of 2015.
The (Assumed) Future of Bitcoin
It is hard to imagine itcoin as a financial instrument in the same manner as gold or other high-value commodities. While there is a limited amounts, there is too much mystery in its current form to attract the masses like other commodities do it different point of the business cycle. Rather, Bitcoin is currently presumed to have more of a role in transactions and potentially new financial products that Wall Street banks will create in order to test the appetite for a new form of currency.
Optimists for the future of Bitcoin are looking to Wall Street technology gurus such as Blythe Masters to usher bit into its new era. A recent Bloomberg article explained how Masters, who helped create the credit default swap market, could usher in a new age of Bitcoin with her latest creation, Blockchain. The intention of Blockchain will bring Bitcoin to the masses by allowing people to buy and sell Bitcoins without the need for an intermediary, which was historically necessary and clouded with distrust due to the players in the Bitcoin and game at its beginning. If this does take off, as many in Wall Street suspected to than the regulations may have, the perfect time