Will Bitcoin bite you on the Arse?

We are the Village Green Preservation Society.

God save Donald Duck, vaudeville and variety.

We are the Desperate Dan Appreciation Society.

God save strawberry jam and all the different varieties.

Preserving the old ways from being abused.

Protecting the new ways, for me and for you.

 

What more can we do?

 

Some innovations in financial markets took years to become accepted, running alongside older methods. For instance, before futures markets, prices had been quoted in fractions. The finest prices were 1/128ths and known as a Clo/Clo, or slang for a very close price. Once futures came along, decimals were quoted side-by-side fractions, so1/128th became .0017825, until seemingly overnight fractions disappeared entirely. Also open outcry trading ran hand-in-hand with computerised trading many years before being superseded. On the other hand, some changes that were viewed as revolutionary were quickly dispensed with like the fax machine, which became redundant as cheap computing and the Internet took over. The fax machine did last long enough for me throw one at a runner only to open my briefcase later at my first senior board meeting to discover that one of my colleagues had filled my case with its broken parts. Some innovations such as slicing and dicing subprime loans have been disastrous and nothing short of criminal, while ‘The Euro’ was manufactured and propagated by politicians which says all you need to know about that project. Now we have crypto-currencies like Bitcoin and Ether, which don’t look like they are going away anytime soon. The total market value of bitcoin reached $100 billion in June, amid stories of an anonymous trader who made more than $200 million profit in a month trading the virtual currency. I had treated this concept with utter contempt when I first became aware of Bitcoin in 2009. Now eight years later, they are becoming increasingly relevant and — not that this is a necessary seal of approval — they can be traded, with the CME publishing reference rates for them. Bitcoin is the brainchild of Satoshi Nakamoto whose true identity remains unknown, and has been the subject of much speculation. It is not known whether the name “Satoshi Nakamoto” is real or a pseudonym, or indeed whether the name represents one person or a group of people. Bitcoin was invented to be a decentralized digital currency not tied to any government or central bank and first appeared in January 2009 at a time when central banks around the world were starting to under-take quantative easing and cranking up the printing presses. Bitcoins are produced roughly every 10 minutes as reward tokens for completion of a block-chain block (mined in Bitcoin parlance) and have a finite issue of 21million. On current speed of “mining” this total will be reached by 2040. Payments using Bitcoin can be done instantly anywhere across the globe using peer-to-peer technology and at a nominal cost. Tasks, like tracking of the transactions and issuing new money, are managed collectively by the network, making it safe and anonymous to an extent. However this has had some appeal to criminals on the dark internet which is concerning. Also worrying is that there has been a rapid increase in the value of bitcoin versus the Dollar to over $2,000 currently from $280 in 2014. Entrepreneurs have been quick to see the success of Bitcoin. There are now about 30 crypto-currencies floating around the internet – some of which have been invented to solve specific problems such as Potcoin which does what the label on the tin infers it will do. It handles payments in the legalised Cannabis sphere. These payments have been a problem for some time as in most US states, Cannabis is now legal but it is still illegal to bank the transactional profits from the $100bln a year legal market, hence creating a problem. Crypto-currencies are different and potentially fill a gap in the market for a method of trade for a new business mindset. In doing so, this keeps central bankers and governments scratching their heads and lessens their reins of power. It is unlikely that all the cryptocurrencies in circulation will survive or whether the survivor has even been invented yet. With a generation of traders brought up on the internet who are now questioning old fashioned methodologies and new fund raising processes such as Initial Coin Offerings are being accepted it does appear that some radical ideas on currency are prescient. For no other reason than they challenge the established order these innovations should be welcome. However a cautionary note should be sounded when crypto-currencies are seen as trading tools. Unlike traditional FX pairs, there are no underlying economics to support trading decisions: No GDP revisions, no CPI rates and no central bank minutes. So one is in effect punting purely on supply and demand and as such please be warned.

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