Bitcoin, the electronic pseudo-currency which is independent of any country or state is about to enter the commodities market, simultaneously exiting the area of non-regulation.
What is Bitcoin?
Bitcoins are created by computers through solving complex math problems and are then released gradually over time. The main idea behind Bitcoin was to create a tradable currency that functions without the interference of governments or central banks. Considering that the amount of the currency which is in circulation at any point is outside of the control of central banks, the value of Bitcoin is completely unaffected by inflation.
Although this sounds like the perfect solution for creating a stable electronic currency, this is not actually the case. Due to the fact that Bitcoin is not truly used in any significant way for commerce, and purely exists as a speculative instrument, its price has proven to be very volatile swinging from less than $200 per coin to over $400 per during last year. This however, has not affected the volume of trading in the currency, mostly due to lack of regulation surrounding it, which gave it so much appeal to its early adopters.
From no Regulation to Commodity
With the Commodity Futures Trading Commission planning to regulate Bitcoin as a commodity it will have significant effect on both the commodities and Bitcoin markets. Some of the effects are already taking place with the CFTC moving to prevent the unregulated trading of the electronic currency.
While this new position changes the very idea of the Bitcoin’s ‘interference free’ trading, it will also change and increase the potential investor base for the currency. Institutional investors who have to follow laws and regulations which are consistent with fiduciary duties were not in a position to invest in Bitcoin before, but now that door is open for them.
While all the changes that come with the new regulation by the CFTC will take time to implement, it is clear that Bitcoin may indeed have a viable future as a true investment product.