Wall Street sees Bitcoin’s legacy as payment system

While a Texas Senate candidate is accepting Bitcoin campaign donations, and Overstock.com customers can use the technology to buy engagement rings, Wall Street sees its future more as a payment system than a currency.

Either way, it’s been a profitable investment. Created in 2008, Bitcoin’s value took off last year, leaping about 60-fold in the past 12 months to $936.51 yesterday, with prices ranging from $16 to more than $1,200, according to bitcoincharts.com. Gold plunged 26% in the same period, while the second best-performing major currency, the 18-nation euro, climbed 7.3% vs. a basket of its major peers.

While its supporters have embraced Bitcoin as an alternative to currencies vulnerable to sovereign debasement, China’s central bank has banned lenders from handling the virtual money and Finland’s authorities said it lacks the characteristics of a real currency. Citigroup Inc., the second-largest foreign-exchange trader, said Bitcoin could benefit society if it eases transactions, even though about 1% of owners hold some 80% of the digital money.

“Bitcoin, in essence, is just an evolution of a payment system,” Sebastien Galy, a New York-based senior foreign-exchange strategist at Societe Generale SA, said by phone Jan. 14. “The ultimate concept of transaction, the innovation, is certainly progress in the means of transaction.”

Anonymous Network

Bitcoin was introduced by Satoshi Nakamoto, which may be a pseudonym for one or more programmers. The anonymous network is protected by cryptographic codes and works outside the banking system, allowing users to transact with one another directly. It doesn’t exist in physical form and has no coins or bills.

“The original Bitcoin was designed to operate outside the financial system,” Steven Englander, the head of currency trading for major industrialized nations at Citigroup in New York, said by e-mail Jan. 13. “There is nothing to stop existing payments processors from adopting generic Bitcoin payments technology.”

Bitcoin’s market value has expanded to about $10.6 billion. The supply will be capped at 21 million, with about half of that already in circulation, according to Bitcoin.org, a repository for information on the system. The price of an individual Bitcoin jumped from $100 in July, to $200 in October and more than $1,000 this month.

For Offit Capital Advisors LLC, this volatility could be its fatal flaw.

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