[updated April 2016]
Is Bitcoin Dead?
Bitcoin has been a subject of controversy since the very beginning, and now, according to Yahoo, not even financial specialists are hesitating to say so. Mike Hearn, a famous bitcoin developer, stated how the entire project regarding this cryptocurrency has failed, and how the technical collapse is inevitable.
Taavet Hinrikus, CEO of payment app TransferWise agrees, in his statement for Business Insider magazine:
“I think the growth of bitcoin has probably been driven mostly by greed, by people thinking ‘oh the value must — can only — go up.’ I think we’re kind of seeing that cool down now.”
Hinrikus still admits how bitcoin brought significant advancements in financial and banking technologies. The technology of blockchain is supposed to transform online finances completely, and Hinrikus sees big potential there and not in bitcoin as a currency.
Jamie Dimon, CEO of the JPMorgan is seeing potential in blockchain as well, and JPMorgan will be one of the first banks to test out this technology that should revolutionize often slow, unreliable and expensive banking technologies.
Fans of bitcoin and bitcoin community claim, how this could all be propaganda created by TransferWise that is dealing with fiat currency. However, just a quick glance over their portfolio of investors like Peter Thiel, Marc Andreessen, and Richard Branson, and $100 million raised for now.
This could be considered a huge disadvantage, as it could lower the bitcoins visibility and popularity, as no matter what experts think, bitcoin still isn’t accepted by the general public.
[updated Feb 2016]
We got a report that another country decided to go hard against binary options Bitcoin trading on their soil. Many regulators are going after the cryptocurrency since the price is volatile and, as many believe, governments are trying to prevent a parallel money from becoming widely spread relative to their own money. In any case, the FSMA – Financial Markets and Services Authority, in Belgium has announced they are banning the use of derivatives based on BitCoin. This will hit many of traders that loved to use this asset in their portfolios. The ban is implemented in Belgium, Netherlands and in France now as other countries are still examining this phenomenon.
Bitcoin – Overview
What is Bitcoin?
Bitcoin is a first popular digital currency, meaning there is no paper version as most of us are accustomed. The most important part of a currency is that it is seen as the medium of account, meaning that people count on it, however, this is not something bitcoin has reached. Another part is the medium of exchange feature, meaning that it can be used to pay at places that accept it. A software developer called Satoshi Nakamoto (a pseudonym) created the currency that is “mined” with the power of expensive computer all over the world. When the currency peaked at more than $1000 per bitcoin it also crashed suddenly. Maximum of bitcoins that are ever to be created is 21 million.
Catch Me if You Can
It seems that each year, media gets into a frenzy over the purported capture of Nakamoto, and each year the same media shuts up as soon as they figure out that was not the guy. Last year it was another Nakamoto in California – a train builder. This year it was an Australian professor with suspicious Linked In profile and Ph.D. thesis that cannot be obtained. Emin Gur Sirer in Technology Review has a nice sum up why these kinds of things happen and how to spot Satoshi Nakamoto.
Belgium changes rules to halt Bitcoin trading
Point is that, since it is traded in other currencies, it can be used to build binary options around it. Unfortunately, that will not be possible in Belgium as it is not possible in Netherlands and France. Binary options bitcoin trading is obviously being put under pressure and we want to see what this means for traders.
FSMA sees potential risks of trading derivatives based on bitcoin since there have been reports and events when platforms for bitcoin have been hacked and this damaged the bitcoin itself, sending the price lower, as opposed to periods when the price soared. FSMA sees this as an operational risk that is not present with other assets. Since the exchange rate volatility (see picture above ) is far greater than with any other currency, this implies any lack of guarantee for the face value of bitcoins, FSMA also thinks that derivatives based on the virtual currency can be dangerous. The price of bitcoin was not affected by the move since there is hardly any consensus across the EU on how to treat BitCoin. In the end, the EU level directive from the European Commission will be the deciding piece of legislature. Binary options bitcoin trading was very popular among the subset of traders who used the currency themselves. Trough binary options bitcoin they saw another way to take part in this global phenomenon.
Banks Show More Interest in Bitcoin
Recently the news broke that BlockChain, a bitcoin e-wallet provider that has gained ground in the market, was approached by more than 100 banks. The banks were primarily interested in the technology that enables transactions so they can integrate it into their own systems. Thi sis an important development since banks have been typically very conservative and preferred regulatory actions to guard their own sector which seems to be under threat from nascent technology firms, as well as the tech giants like Apple and Google, in providing transaction services. For banks it is not primarily about using Bitcoin and related services, but about acquiring and running technology behind it.
Gur Sirer correctly notes that banking infrastructure is old and we need newer tech to increase efficiency and reduce cost. This was also noticed in Finextra article that looks at the creation of Bitcoin as being a reaction to slow financial regulation.
Other FBO Bitcoin resources
Trading BitCoins in Binary Options
Using Bitcoin to deposit or withdraw money from the trading account
In binary options, there are two ways traders can get involved with bitcoin. One is to use the visual currency to deposit with the broker, for a small number of brokers offering this option. Then, the binary options trader will need to have his own bitcoin wallet, while the binary options broker will have to have the same thing in order to receive bitcoin as payment. BeastOptions is one of the binary options brokers supporting payments in bitcoin.
Trading binary options with Bitcoin as the underlying asset
Traders can also trade binary options based on the price of bitcoin, this is something FSMA is going after here. Binary Options bitcoin contracts are not allowed to Belgian customers. However, it is unclear what repercussions might this have for unregulated brokers in binary options since after all this is a global internet business. We may see a small grey zone where Belgian traders will be able to trade bitcoin as we see with US brokers today.
Other classes of brokers are CySEC regulated binary brokers that, under the MiFID directive can offer investment services across the EU. These so-called, “passport” providers use the single financial market of EU to provide bitcoin trading all over the Community. However, it remains to be seen how FSMA will enforce them to respect the ban. This is the case with TopOption, one of the brokers that are regulated by Fair Binary Options broker list. They have binary options based on Bitcoin but are seizing to advertise binary options bitcoin trading in Belgium, as they are doing in France and Netherlands. Traders from these countries should not rely to trade binary options based on bitcoin with them. There only a few binary options brokers that still offer binary options trading.
Bitcoin Binary Options in the US
In November 2014, North American Derivative Exchange announced they are introducing Bitcoin binary options. The daily and weekly bitcoin contracts were taking prices by price index published by TeraExchange. Both subjects, NADEX and TeraExchange were regulated by CFTC.
According to Timothy McDermott, NADEX chief executive, the binaries were supposed to give traders exposure to bitcoin’s volatility with much lower risk rate. In the meantime, TeraExchange was no longer in favour of CFTC, and in September 2015, the regulating body charged TE for failing to prohibit circular trading schemes involved.
Since than TeraExchange has somewhat fallen out of favor with the CFTC as in September 2015 the regulator charged it for failing to enforce prohibitions against circular trading schemes. The charges by the CFTC against Tera were simultaneously settled, with the regulator requiring that the platform ceases and desist from any future violations.
The situation with Bitcoin binary options trading was uncertain until February 2016 when NADEX suspended bitcoin all together.
The Future of Bitcoin
Bitcoin is widely considered to be an extremely exotic product in every way. It is surrounded by mysteries, and it is completely expected to wonder who is dr. Nakamoto, why did he do all this and is there any point in mining for bitcoins. One thing must be clear: all innovations seem a bit odd. We are now wondering whether the bitcoin craze will last, just like our grandparents were wondering is it really possible to send a man to the moon.
Wencos Casares, a Brazilian technology entrepreneur and founder of Xapo, Bitcoin wallet startup, found good words to describe what Bitcoin is at the moment:
“Right now Bitcoin feels like the Internet before the browser.”
What Casares was trying to say is that bitcoin is there, on the internet, but many people simply don’t understand the process behind it or don’t know how to use it. Bitcoin is surrounded by speculations and mysteries, and in a way, it requires proper infrastructure, just like social networks needed it ten years ago. Now, everything is social networking, but it is too soon to say that bitcoin will have the same faith.
Changing Times for Bitcoin
In the very beginning, bitcoin was experiencing serious growing pains. Inefficient companies, connections to drug overlords and criminals, as well as scandal with Japanese bitcoin exchange Mt. Gox, created an environment that was not beneficial for bitcoin image.
Present situation helped bitcoin clean its image. Exchanges are becoming more serious and regulated, despite the fact that some countries are doing everything to ban this innovation. Software regarding bitcoin has become very safe and reliable, but bitcoin still lacks some features that would make it more user-friendly. For example, bitcoin can handle only three transactions per second, which simply isn’t enough for it to become a serious and acknowledged payment protocol.
Core development team has its own ideas on improving bitcoin, but one developer group launched a solution called Bitcoin Classic that can fork 2MB fork size. Their method is already accepted by many miners like Bitmain, Bitfury and BW.com, as well as by bitcoin wallets likeXapo. Will this change the face of bitcoin? Only time can tell.
One thing is sure, even with all necessary infrastructure, decentralized mining (nowadays China holds 50% hash rate) and better image, bitcoin cannot expect to become widely popular like PayPal or Visa card. These things take time and innovations in mobile technology regarding bitcoin mining might be the key to the future success.
Banks vs. Bitcoin
After the great economy crisis, the world experienced in the last decade, general public changed their view about banks. Some even go that far to claim that money as we know it will disappear and be replaced with cryptocurrencies like bitcoin. However, it is reasonable to believe that this will not happen so soon (or at all).
Banks have learned many lessons from bitcoin, and now, many of them are trying to create their own blockchains that will improve the security of funds. Many see this attempt as a failure, as successful blockchaining requires decentralized system, but forget the fact that replacing bitcoin is not what the banks want. They have their own reasons, like creating a safer environment and using this method for their own operational causes. In the world of smartphones, cloud technology, smart contracts, etc., blockchains will be used for improving internal infrastructure, and creating highly customizable solutions.
What Will Really Happen?
In times like this, it is impossible to predict further development of bitcoin. According to the present circumstances, bitcoin is here to stay and is not another fad. It fluctuates just like any other currency, and has a value. Isn’t that what the bitcoin was trying to avoid, and be something completely new and independent from the existing currencies? Just a quick glimpse over online forums shows how bitcoin is often compared by USD, and that users still calculate in ‘real life’ currencies and not in bitcoin.
The technology behind bitcoin is already being adjusted and implemented in existing financial services, so, if nothing else, we will be thankful for bitcoin, for innovations it brought to the financial sector.