With Bitcoin's price at an all time high, the currency must respond to regulatory pressures.
As I write this blog post Bitcoin is currently trading for $10,695.80. In case this doesn’t mean very much to you here's a little context. January 1st 2017 Bitcoin traded for $972.95. A year before that one Bitcoin would run you $432.31. That is returns of approximately 1000% if you bought in January 2017 and 2300% had you bought in January 2016. A staggering investment.
In the future will we become just as excited for Bitcoin price jumps as we are when the Dow reaches a new high? I hate to say that I am apprehensive.
Cryptocurrency Goes Legit
The decentralized cryptocurrency was created in 2009 by an anonymous individual operating under the alias Satoshi Nakamoto. Bitcoin is traded peer to peer and transactions are completely anonymous. This has made the currency a preferred method of exchange for websites on the dark web selling a host of illicit materials. More and more however, we are seeing Bitcoin stepping into the spotlight as a means of transaction with legitimate businesses such as Newegg, Expedia, and Overstock. As the currency gains traction, regulatory bodies have taken notice.
The Commodity Futures Trading Commission (CFTC) recently approved financial institutions to trade cryptocurrency futures. Both CME Group and CBOE Global Markets will begin offerings as early as mid December. This seems like a big step forward for the legitimacy of digital currencies such as Bitcoin, but going legit has its drawbacks.
Where there is the opportunity for huge capital gains you can bet your bottom dollar that Uncle Sam will be there to get a piece of the action. A U.S. District Court Judge released a ruling demanding that popular Bitcoin transaction platform Coinbase release the records for users with accounts valued at more than $20,000 between 2013 and 2015. This came after the IRS determined that cryptocurrencies are property, not currency, and can be taxed as such. This may spell the end for unregualted gains on the investment of cryptocurrency.
The market for cryptocurrency, which in some cases can still be the Wild West, is becoming more regulated by the day. As huge capital gains and privacy disappear what will the future of online currency look like? Is it destined to become just another Dollar substitute or something greater? Only time will tell. I’ll be closely watching this space in the future for further developments.
Update: January 2018. As the speculative bubble seems to have burst, yet more confusion surrounds the currency and its role in the financial market at large.