Bitcoin prices have headed back toward highs above $4,900 since Oct. 5, trading at near $4,300 as fear of a China crackdown receded and big banks indicated they want in on the action.
Bitcoin traders, however, have a love-hate relationship with the banks. They want the trade and think that making cryptocurrencies mainstream would inevitably lead to huge profits for those who got in early. On the other hand, they fear the competition, and regulation, that big banks bring with them.
It was a tweet by Goldman Sachs Group Inc (NYSE:GS) CEO Lloyd Blankfein that led to the latest speculative run-up.
Still thinking about #Bitcoin. No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.
— Lloyd Blankfein (@lloydblankfein) October 3, 2017
The Tweet Heard Round the World
For Bitcoin, it was the “tweet heard ’round the world.”
Each time law enforcement agency breaks cases based on crypto-coins, a new upgrade appears to protect anonymity. Anonymity for honest men, but also for drug runners, cyber-criminals and terrorists of all kinds.
Blackrock, Inc. (NYSE:BLK) CEO Larry Fink is among the conflicted. The rise of Bitcoin, he says, shows just how much money laundering is going on around the world.
Despite the conflict, big banks like Goldman are talking of dipping their toes into Bitcoin trading. Those who chart Bitcoin pricing don’t know what to make of the recent action — is it a head-and-shoulders top or is it about to break the 50-day moving average trend line and head to new highs?
Convertibility and Legality
Two key issues are bedeviling the technology right now, convertibility and legality.
Convertibility, the movement of value between cryptocurrencies like Bitcoin and fiat currencies like the U.S. dollar, is behind many recent forks, which aims to increase the rate at which cryptocurrency blockchains can handle transactions. Inside that goal, developers are arguing over possible cyberattacks on the blockchain, and whether new software must be deployed to meet the threat.
The legality issue is being played out between code protecting anonymity and governments seeking to ban anonymity. India and China are leading the political side of the battle, demanding that cryptocurrency holders be unmasked and prove they’re legitimate.
The other side consists of miners and traders in places that have not clamped down, like South Korea and Japan. There are reports that North Korea is also trying to mine Bitcoin and hack virtual currency exchanges.
The U.S. has been on both sides of the fence.
Banking regulators are talking up rules to let bankers like Blankfein into the market with clean hands. At the same time, the government is extraditing BTC-e Bitcoin exchange operator Alexander Vinnik, a move Russia calls “kidnapping.”
Questions like taking Bitcoin as legal tender, defining Bitcoin as securities and taxing Bitcoin gains are a sideshow to these larger battles.
Make It Legal?
Why not simply launch a government-backed, convertible virtual currency through an Initial Coin Offering, as India is considering and Dubai has done through emCash?
That’s what all the recent ICO frenzy is really all about, the creation of new ways to turn fiat currency into value. Investors can buy coins, put them in an ICO, and launch new markets with them. Securities and Exchange Commission chair Jay Clayton calls these another version of the old “pump and dump” scam, where phony stocks were kited with publicity, sold to the gullible, then allowed to become worthless.
Overstock.com, Inc. (NASDAQ:OSTK), which began as a competitor to Amazon.com, Inc. (NASDAQ:AMZN) now wants to build a government-regulated market to trade ICO tokens, and the stock briefly rose 25% on the news.
When a press release about someone wanting to engage in government-regulated ICO trading gets a $200 million bump into an otherwise-obscure stock, something very real is going on.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN. To follow the value of cryptocurrencies bookmark https://coinmarketcap.com.
