Bitcoin Regulation Vultures Circling

Many may believe that the sudden apparently positive attitude towards Bitcoin by governments and regulators is a positive development – but is it? Regulators are desperate to regulate Bitcoin while it is still in its early days so they can take full control as it evolves, taking away most of the value of Bitcoin in the process as a fully open source, distributed, peer to peer monetary system.

 

Any step down the road to regulation would clearly be very negative for Bitcoin, but ultimately can Bitcoin be regulated?

 

It is of course impossible to regulate Bitcoin itself through its very nature and the regulators are beginning to understand this. The regulators also know that by acting oppressively towards Bitcoin any chance of regulation and control will be diminished as the Bitcoin community takes evasive action. The only locations where Bitcoin can be regulated and therefore controlled are the decentralised exchanges, web based wallets, shops and services.

 

Regulated exchanges and web based wallets will no have to collect full photo ID and proof of address from users as an absolute minimum, and possibly other personal information as well. Further, the exchange will be compelled to divulge such personal information to the regulators or government agencies on demand, even for false reasons as happens now, simply to fish for information on someone. Government agencies will also have the power to freeze and cease Bitcoin accounts on a whim. It is also quite likely that exchanges and web based wallets will be secretly compelled to share user data with government agencies, NSA and others.

 

None of this can possible impact Bitcoin or the Bitcoin network itself per se, it will influence the way Bitcoin is used and accepted in the mainstream if users believe that they have to use a Bitcoin exchange and thus lose privacy and many of the benefits of using Bitcoin in the first place.

 

Of course ultimately every Bitcoin user has freedom of choice as to whether to use an exchange or web based wallet or not, and like security issues this is a matter for user education about the pro’s and con’s of using a Bitcoin exchange. Bitcoin users must also understand that it enforces personal responsibility in that is they make a mistake or error of judgement, they can lose Bitcoin without the possibility of having the transaction reversed or running to a regulator to complain. It might be that some Bitcoin users are not prepared to accept that responsibility and would prefer to be regulated for that reason – if so – that is there decision and responsibility.

 

New York is now actively accepting applications for Bitcoin and other crypto-currency exchanges in its area of jurisdiction. While this may seems like a Bitcoin friendly and welcoming development, comments by the New York Superintendent Of Financial Services betray the real agenda:

 

The recent problems at Mt. Gox and other firms further demonstrate the urgent need for stronger oversight of virtual currency exchanges, including robust standards for consumer protection, cyber security, and anti-money laundering compliance.

 

And:

 

Turning a blind eye and failing to put in place guardrails for virtual currency firms while consumers use that product is simply not a tenable strategy for regulators.

 

So it should be obvious that he is not welcoming Bitcoin exchanges because he believes in Bitcoin itself and wants to encourage its wider use, but rather by encouraging Bitcoin exchanges to set up shop in his jurisdiction, he can fully control both the exchanges and the people that use them. So this is a very slippery slope indeed and one that is negative for Bitcoin overall.

 

What then is the answer to this situation? The answer is threefold.

 

  1. The development of effective and seamless peer to peer exchanges that enable users to easily convert Bitcoin to fiat and vice versa without ever being exposed to a centralised exchange and therefore regulation and loss of privacy and anonymity.

 

  1. Educating Bitcoin users as to the implications of using a centralised exchange versus a decentralised peer to peer exchange.

 

  1. Educating users in how to use Bitcoin effectively and securely and thereby take full personal responsibility for their own actions and transactions.

 

The future success of Bitcoin globally ultimately lies on keeping Bitcoin true to its roots as a fully distributed, peer to peer, anonymous global monetary system, for the people, by the people, without any external interference by governments, banks or other self-interested entity.

Bitcoin Market Report: 9 May 2014

After sliding well below the $431 support level for a time on 6 May, the market staged an impressive recovery back above the support level, and went on to test resistance at $452. Since then BTC has been meandering between support and resistance in an impressive show of resilience and increasing volume.

 

Although the medium down trend remains in place until it is formally broken, which would currently be at around $450, the market is currently showing reluctance to trending any lower.

 

There was a time on 6 May when the exchange rate had broken well below support at $431, on the precipice of plunging much lower, below $300 and possibly even as low as $250. A very strong wave of buying came in to the market on 7 May, lifting the exchange rate all the way back to the exact resistance level of $452. Since then the exchange rate is forming a new range with interim support at $439 and resistance remaining at $452.

 

The new strength in the market is particularly impressive considering there was news from China of two more exchanges having banking facilities relating to Bitcoin restricted, with a final deadline from the Peoples Bank of China to be in full compliance by 10 May. In past weeks this news would have shaken the market, but this time it had almost no effect whatsoever. If the 10 May deadline by PBoC comes and goes without further market reaction, it is reasonable to conclude that the China effect that has blighted the Bitcoin market for so long will finally be over and behind the market.

 

Elsewhere the positive news continues to flow unabated on all fronts. While we cannot know the precise implications of each individual piece of news, taken collectively the future of Bitcoin is being reinforced on all almost fronts. The notable area where considerable work needs to be done is in mainstream consumer awareness. While a few months ago the general public was prepared to be open minded about and even welcome Bitcoin, the Mt. Gox debacle and the extremely prejudiced and inaccurate mainstream media reporting that followed it seriously damaged the credibility and public opinion of Bitcoin generally. Consequently Bitcoin largely remains in the hands of the original loyal following who are much more technically able to understand and use Bitcoin.

 

Before Bitcoin is ready for prime time and the mainstream various issues need to be addressed and are being addressed. The main ones are these:

 

  1. Ease of use: The general public are not technical and have no wish to be technical. Only a minute percentage of people can use a personal computer to its maximum capability, the majority content to know how to switch the PC on, surf the web and load and use a few programs in a basic way. Bitcoin must be at least as simple to use as online banking, Paypal and in particular a credit card with all security in place. Most wallets today are too complex for the majority especially with the need for two factor authentication, multi-sig etc. There is a big future for Bitcoin enabling companies and technologies such as for example the Bitcoin hardware wallet Trezor, a forerunner of such technologies. The general public are also extremely lax when it comes to backing up valuable data, often losing it sooner or later due to hard disk failure for example, so secure and simple backing up of wallets and Bitcoin related data also has large growth potential.

 

  1. Security: This is a huge issue with Bitcoin stealing trojans appearing at an alarming rate. Bitcoin is frequently being stolen from even experienced users, so the general public have no chance unless Bitcoin is made theft proof and simple to use at the same time. While “two factor authentication” and “multi-signature” are viable solutions, they still need to be usable by the majority, which again is where hardware solutions such as the Trezor come in.

 

  1. Exchange: Bitcoin needs to be able to be exchanged easily to and from Bitcoin and fiat currency as easily and conveniently as other currencies. Bitcoin exchanges are probably not the future therefore but an interim solution. The future must be in decentralised peer to peer exchanges and in particular Bitcoin ATM’s. Exchanges may still have a role in corporate type services.

 

Bitcoin Market Outlook

The market remains in the grip of the medium term down trend characterised by most players sitting on the sidelines and leaving BTC at the mercy of the short traders selling in to the down trend.

 

All it will take is the down trend to be broken to cause the shorts to cover Once a new up trend is established the previous short players will go long, and all those sitting on the sidelines waiting to buy in to the next phase of the bull market will do so. Taken with the ongoing flow of positive news it is quite likely that once a new bull market is established the exchange rate will move upwards rapidly, reclaiming much of the ground lost to the bears this year.

 

On the charts, the $450 area has now assumed even more significance, now being not only the resistance level, but also the point at which the exchange rate can break up through the trend line.

 

$452 is therefore shaping up to be the last major battle ground between bulls and bears, the prize being a new dynamic phase of the long term bull market. This next week will be crucial in this process.