Bitcoin is getting hit hard. The reason, Bitcoin does not seem to be ready for prime time, at least in the opinion of the US Securities and Exchange Commission. The Winklevoss twins applied for permission to issue an ETF backed by Bitcoins. Seems that there were not enough investor protections in the design of the fund to prevent “fraud and manipulative acts and practices” by bad actors. Therefore, the SEC said it was in the public interest to reject their application. The following link will take you to a copy of the SEC’s ruling.
SEC Bitcoin ETF Rejection on Scribd
The deadline for the SEC was Saturday, March 10, 2017, so the chatter suggested that the SEC would make an announcement today, Friday, March 10. The price action over the last 24 hours has been a bit curious. Bitcoins were trading in the around $1200s and then popped by over $100, consolidated that moved back put towards the $1300 level again. Such price action suggests “information leakage.” This is a euphemism for insider trading. Unfortunately for these folks, they were sorry mistaken. When the SEC made their announcement, the price of Bitcoin hit an air pocket and quickly fell toward $1100.
Does this spell the end of Bitcoin and cryptocurrencies? Hardly. Bitcoin has become very popular in China as a tool for moving wealth out of the country. The Chinese government has recognized this and is in the process of regulating the trading of BitCoin. The Japanese have a Yen for Bitcoin as well. Trading is becoming popular in that country and who knows who will take a shine to it next.
We are intrigued by Bitcoin and will continue to follow the story. The calling is figuring out what a Bitcoin is worth. It is not backed by anything, but its supply is limited. Current stock of Bitcoin is about 16 million and the most that can ever be created is about $21 million. At the end of the day, bitcoins will be priced on the basis of supply and demand. If there is a demand for bitcoin, they will have value.
On the flip side, Bitcoin is a construct of technology. As a result, there is the possibility that there will be competing Cryptocurrencies and indeed there are alternatives. According to Wikipedia, there are at least 24 cryptocurrencies that could one day become an alternative to Bitcoin. Bear in mind, however, that Bitcoin clearly has first mover advantage and that may be what matters in the long run.
Image Source | David McBee, Pexels.com
