The facets and future of bitcoin

October 19, 2015 12:00 PM
December Editor's Note

Never has so much been written about a market with so little being understood. Ever since Bitcoin as a concept has entered our consciousness as the next big thing, it has grown in stature, but I, for one, never quite got it. 

I understood the followers — many from the gold bug world who fear that fiat currencies will inevitably fail. But just as with gold bugs, I never understood how cryptocurrencies would provide any greater solution to hyperinflation — or a zombie apocalypse for that matter — than gold. I still don’t, but after reading this month’s cover story by FINalternative’s Managing Editor Steven Lord, I do understand a little more about the development of Bitcoin and all of its related markets and moving components. 

In “The Many Facets of Bitcoin” Lord digs deep into this world, describes its evolution and provides an outlook for the future. Lord says that Bitcoin, as a concept, maybe be facing a critical point in 2016. This is probably true, though; critical stages set their own criteria and bitcoin as a market, asset class, alternative payment system or whatever it evolves into may be on its own timetable. Lord gives equal time to Bitcoin critics (see “Bitcoin Skeptic”) as well as its supporters (see “Ventures in Bitcoin and Bitcoin Advocates). 

At its core, it is trying to solve a pretty complex problem in complex times, so the evolution of Bitcoin  into whatever form it grows into may take longer than its advocates expect, and may be around longer than it critics’ obituaries proclaim. 
In the midst of working on this issue we had another anniversary of 9/11. I am not sure why, but I looked back on our coverage of that life changing event. Few industries where more affected than financial markets. We actually were evacuated as our offices at the time were in the shadow of the Sears Tower (now Willis Tower) in downtown Chicago — a possible target of that day’s attacks. In the days that followed, we interviewed many sources and friends who were on the scene. 

We found a remarkable preparedness that made the immense tragedy of the day in human toll, less so in business and operational terms because of the complex disaster recovery steps taken in years prior. One of the main drivers of that preparedness has become somewhat of a joke. That was the Y2K scare. Remember that? There were folks worried that the world could possibly turn upside down as computer systems would shut down and the new digital age we were entering would turn on its designers. It all seems a bit silly now but the hours of work building back-up systems and processes originally designed to hold off a possible Y2K Armageddon may have been well spent. It helped the world be better prepared for a dramatic shock. 

Well, many folks believe there is a dramatic shock on the horizon in terms of money transfers, fiat currencies, reserves currencies; basically, the way capital flows and is valued around the world. I simply have not grasped the concept of cryptocurrencies well enough to be able to tell you if it is the wave of the future or simply a fad, but it is clear that the design work on bitcoin, the block chain and all the processes that support them will be time well spent. Exactly how it will benefit the world is unclear — it may be widely different that the champions of the space anticipate now — but I am sure it will add value in the end. We just need to figure out how.

In this month’s market focus (see “Crude History,” page 28), we talk to numerous analysts about their outlook on the crude oil market. It was a difficult task coming amid an historic downturn interrupted by a three-day 28% rally. The yearlong downturn in crude coupled with the shifts in power of the major producers has created a lot of uncertainty regarding the long-term price. In “A crude debate (page 14) Donald Luskin and Phil Flynn provide competing views of where they see the crude prices moving in the long term. 

Speaking of zombie apocalypses, I am writing this on the eve of the Federal Reserve’s September 2015 meeting. We noted in “Wild volatility,” (page 65) how equity markets have remained volatile following the August correction. Many observers feel another shoe will drop. Perhaps it will be when the Fed finally makes a call on tightening. One thing is for certain, though, the back and forth regarding “if” and “when” they tighten rates is equally or more responsible for market volatility than the potential for a 25 basis point rate increase. 

 

 

Daniel P. Collins
Editor-in-Chief, Modern Trader
@moderntradered

 

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.