04 January 2018

EDITORIAL- Is Bitcoin Stable Enough to be a Currency

Image result for gold barsWould You Like to be Paid in US Dollars, Gold or Bitcoins?

Three stories that I read yesterday, gave me pause to think about cryptocurrency and in particular, to ask if Bitcoin is a currency:

We need to accept a definition of 'currency'.  

Merriam Webster defines currency as: Something (such as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange; Paper money in circulation; or, A common article for bartering (Furs were once used as currency). 

Other references suggest a system of money in general use; For example the US dollar is a strong currency that may be used to settle accounts in other countries. Synonyms for currency include: Money, legal tender, cash, banknotes, bills, notes, coins and coinage.

According to Wikipedia currencies can be classified into two monetary systems: fiat money and commodity money, depending on what guarantees the value (the economy at large vs. the government's physical metal reserves). Some currencies are legal tender in certain political jurisdictions, which means they cannot be refused as payment for debt. Others are simply traded for their economic value. 

For the most part, the concept, understanding and regulation of digital cryptocurrency is still developing. However, the idea of 'common acceptance' with slow intentional movements of value or 'limited volatility' is important for a monetary system to gain and hold the trust of those who intend to use it as a medium of exchange.

On Tuesday the Wall Street Journal reported that Founders Fund, run by Peter Thiel, a PayPal co-founder and early Facebook investor, has bought millions of dollars in Bitcoin. According to some reports, the venture capital firm bought about $15 million to $20 million of Bitcoin. This news drove Bitcoin to a new high, at one point surpassing US$15,040 – a 14% daily gain. Based on the idea of 'limited volatility' this movement suggested Bitcoin is not a currency. 

However, we observed that as Bitcoin's price climbed, trading in the Chicago Board Options Exchange (CBOE) Bitcoin futures was briefly halted in accordance with pre-set rules. The Chicago Mercantile Exchange (CME) and CBOE have both launched futures contracts tied to Bitcoin's price. These new futures markets allow institutional investors to hold something that looks like Bitcoin, without having to hold the actual cryptocurrency. Some of these investors have very deep pockets and previously faced regulatory roadblocks to accessing the Bitcoin asset class. Trading in futures contracts that are settled in cash and trusting the 'halt trade' mechanism to work will add confidence to Bitcoin investors and may in the long term solve the volatility issue.

However, there are still pot holes to be avoided with Bitcoin. Jason D. Rowley, is a venture capital and technology reporter based in Chicago. On December 12th he published an article on Crunchbase suggesting Bitcoin had lost its way as a means of exchanging value. He reviewed transaction cost and other elements that were once attractive to those who used Bitcoin.

So back to the question, Is Bitcoin stable enough to be a currency? 
For most mainstream transactions the answer is likely 'no' because of the volatility and risk of value changes involved. However, Proof of Concept (POC) work to understand the cryptocurrency system and how it will have a bearing on your business in the areas of exchange, taxation, smart contracts and settlement seems advisable.

The InfoStream article on Bitcoin last year, hardly anticipated the year this cryptocurrency experienced. However, the three stories at the beginning of this article are an indication of the type of disruption that is coming toward our global monetary system.

As to the other question: Paradigm accepts settlement in US dollars, doesn't accept Gold and is experimenting (fooling around might be a better term) with cryptocurrency. Here are two other links to the Bitcoin story for your convenience:

About Executive Producer, Larry R. Evans:
Larry Evans is an experienced innovator and strategist. He is Principal of The Paradigm Corporation, which is headquartered at Thunder Ridge just outside Crossfield, Alberta, Canada. He is known for bringing a unique and predictive lens to paradigm shifts during a career that spans 45 years. Now often from his wheel chair, he brings a grounded, tenacious view of brand, ecosystems and trusted relationships for the digital age. His perspective and values influence his life, business and ministry.

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