What is Bitcoin, exactly?
For many months (that have now dragged into years), the international investing community has grappled with this question to differing degrees. While it is in essence considered by its proponents to be a “cryptocurrency,” or encrypted digital currency, the official status of Bitcoin has been laid out by the government: the Commodity Futures Trading Commission has ruled it to be a commodity.
The new ruling, though unlikely to have a dramatic impact on current practices, does present some changes to the way alternative or digital currencies are viewed—as well as the way their derivatives markets are regulated.
Many adherents to the cryptocurrency revolution have been eagerly awaiting some official word on the status of Bitcoin since the largest Bitcoin exchange, known as Mt. Gox, was shut down about 2 years ago amid a massive disappearance of hundreds of thousands of Bitcoins—at the time amounting to millions of dollars in value. The online exchange was riddled by these sorts of thefts, hacks, and rampant suspicion of money laundering activities since it was first established in 2010.
Since the demise of Mt. Gox, the trading value of BTC has tumbled from roughly $800 per “coin” to just over $200 per coin today. Bear in mind that actual transactions involving Bitcoin can be done for commonplace items by using fractions of 0.1 or 0.01 Bitcoin.
(Interestingly enough, Google still lists Bitcoin as a currency. So does the city of New York, though this will likely default to the CFTC decision in the future.)
Bitcoin Community Divided
Although advocates for encrypted, decentralized currencies share a common economic ideology, they seem to be split on whether or not the CFTC decision is a positive or negative development for BTC.
Some are convinced that any sort of regulation will destroy what Bitcoin is intended to do. After all, it is seen by most of its proponents as an alternative to using traditional banking, almost a peer-to-peer monetary network. This side of the argument claims that users of these kinds of “alt-coins” will simply move their operations offshore to avoid any blowback from the ruling, as the CFTC has no jurisdiction over trades conducted entirely overseas.
On the other end of the spectrum are those who believe the ruling was the most prudent and appropriate course of action, given the circumstances. Labeling Bitcoin as a commodity is essentially the path of least resistance, requiring none of the hoop-jumping and stringent regulation associated with currency trading. As a commodity, simply enough, Bitcoin is “something sold for a certain price,” with no other strings attached or harsh regulation. At minimum, supporters of the CFTC ruling (even if only tacitly so) are thankful for the official status recognition.
It’s true enough that Bitcoin trades like a commodity in some contexts, while it functions as a currency in others.
If nothing else, the CFTC decision should change how the alt-coin market is viewed as a whole. What remains uncertain is how it will affect trading of Bitcoin derivatives, as this is always considered murky territory by the regulatory authorities.