Following the Bitcoin story is like riding a thrilling rollercoaster. There’s ups and downs along the way, but it does seem like the cryptocurrency is gaining legitimacy slowly. Only, it’s not yet seen as a currency.
The most recent mark of distinction came from the commodities future trading commission or CFTC, which classified the coins as “commodities.” In theory, this puts it in the same league as gold, silver and oil. Complex derivatives are also part of commodities, so in some ways it may be a perfect fit. The department’s officers explained that they were thrilled at the prospects of innovative technology changing finance, but wanted to provide a regulatory framework to ensure the rules are being followed. Innovation should not excuse the operators in this market from the rules that apply to the traders in the commodities derivative markets. The efforts to regulate the market for Bitcoins has come as part of push to protect investors against dodgy dealings and unscrupulous elements.
Some commodities traders are, however, confused about the situation. Many of the traders who are used to dealing in derivatives for tangible like gold and silver are perplexed by the decision. Some aspects of bitcoin may be similar to gold, but the cryptocurrency is still in its early stages and is digital. Bitcoin is a virtual currency that has been around for almost a decade. The sophisticated virtual currency is shrouded in mystery and has had a very topsy turvy path to mainstream attention. The currency previously reached a peak of $1,100 in 2013, which was the highest in its short history. Currently, each coin is valued at $233. Mt.Gox, one of the most popular marketplaces for the coins, recently imploded, which is what has led to the steep fall in price.
During the Greek crisis this year, the Bitcoins got more public awareness as the Greeks used it to circumvent the Euro. Bitcoin ATMs were springing up in Athens when the government restricted the outflow and withdrawals to 60 Euros a day. During the four weeks of the banks’ shut down, Bitcoin use was up by more than 500% in the country. The increased use of Bitcoins was a display of the currency’s power to work through government regulations and provide a lifeline to those put under pressure by macroeconomic challenges. The latest regulations have come right after the Department of Financial Services announced new rules for operators who wanted to deal with the currency. The virtual currency operators were now made to apply for a license to be able to deal with Bitcoins and other such currencies. With growing enthusiasm and legitimate financial institutions looking into the currency, it seems the demand for a decentralized currency is strong. Phil Flynn, a market analyst at the Price Futures Group, says Bitcoin has all the makings of a great futures contract. With official recognition, it may be able to generate substantial interest in the community in the future.
But a recent report by Bloomberg Business found that the community at large is still somewhat undecided about where the currency should go next. The Internal Revenue Service counts the coins as property for tax purposes, while a judge thinks it is a currency, and now the CTFC has labelled it a commodity. This disparity between regulators has further deepened the debate about what Bitcoins really are.
Many in the community have called for a more cohesive approach to the currency. Mike Hearn, a software developer who specializes in Bitcoin has said that the ruling by the authorities may be challenged since it doesn’t make sense that the same thing could be treated differently by authorities. This disparity has mostly occurred in the United States. Bitcoins are officially regarded as a currency under the tax system of the United Kingdom, whereas a Japanese judge ruled last year that the coins were not property. Exchange founders feel that if the U.S. tax authorities do not regulate the currency well, it may force them to move the exchanges out of the country and incorporate offshore.
Some entrepreneurs have said that the appeal of Bitcoin has always been its use as a remittance tool, but this new ruling affects that use negatively. The lack of compliance regulation has always kept the costs down and made the use of the currency viable. With growing regulation, the costs may spiral and many startups in this sphere may have to shut shop. Regulators, they say, need to be talking to each other and getting the currency legitimized in the right way.