This Whole Bitcoin Thing Could Be Big, Says Bank of America 276
Nerval's Lobster writes "Bank of America has issued a research report suggesting that the crypto-currency Bitcoin could become 'a major means of payment for e-commerce' on its way to emerging as 'a serious competitor to traditional money transfer providers.' The bank attaches a 'maximum market capitalization' of Bitcoin at roughly $1,300, based on its position as a 'major player in both e-commerce and money transfer' as well as 'a significant store of value with a reputation close to silver.' Bitcoin has come close to exceeding that theoretical ceiling in recent weeks, although its valuation dove today after the People's Bank of China decided to declare it a volatile 'currency' without real legal status; that financial institution is also concerned about its use in money laundering and black markets. Bank of America sees Bitcoins' advantages as low transaction costs, its finite supply (which will protect its value), and its increasing attractiveness as an alternative to 'traditional' cash. As with the People's Bank of China, however, the bank sees the currency's extreme volatility and lack of legal backing as a bad thing, and frowns at the possibility that regulators could step in and increase transaction costs. 'A 50 minute wait before payment receipt confirmation is received will prohibit wider use,' the report adds. 'This is less of an issue for two parties that know each other because they trust the other will not double spend, but when dealing with an anonymous counterparty this creates a high level of unhedgeable risk.' Without a 'central counterparty' to verify transactions and thus mitigate that risk, Bitcoin could fail to break into wider use."
Of course it could be big. (Score:5, Informative)
Re: It's official (Score:5, Informative)
Re: People Aren't *That* Irrational (Score:5, Informative)
I wonder if people who make the tulip comparison actually get what happened there. Tulips take years to grow, and can be multiplied. Suddenly a new type of tulip came into existence because of a viral interaction. A handful of rich traders (and some others trying to get in on the action) tried to corner that market, so the initial bulbs were extremely valuable. They took very large future options on them. Then at the height of the bubonic plague, the society temporarily collapsed and tulip prices went along with them. As it was mostly option contracts, they were largely not executed, so it didn't end up being a major issue. There are some lessons to learn there, but even if Bitcoin collapses, it will be completely different.
0.0001 BTC has become real money (Score:4, Informative)
Re:I understand how to value (Score:3, Informative)
Intrinsic value means there's value placed on it other than it's secondary/exchange value. For instance, people buy gold because it's useful for electronics or jewelry. The dollar has no such uses, so it is said to have no intrinsic value.
Re:It's official (Score:5, Informative)
There's no particular reason to assume that bitcoin is the cryptocurrency that will win the future.
There are plenty of contenders and nothing to stop [large financial institution] from latching on to one of those.
Re:I understand how to value (Score:5, Informative)
When you buy a Bitcoin you are not buying equity in the Bitcoin environment. Wonder what model BoA valuers have in mind for this. It weirds me out.
Almost certainly they are using a Commodity Futures Contract model that is used for precious metals, oil/petroleum, wheat and so on, on places like the Chicago Board of Trade or the London Metals Exchange. With those, there is a finite new supply of "product" and for the vast majority of people dealing with them, there is no physical product - the contracts being traded are for future delivery of a specific quantity of a specific product on a specific date. The product will be delivered to a specified place, and it is the responsibility of the person receiving the product (the contract owner as of the contract maturity date/product delivery date) to move it from that delivery point to a storage location of their choice.
As such, the traders who buy and sell these contracts do not want to hold them until maturity, because they have no storage space, so they buy the contracts (for example) 12 months before the delivery date for a specified price, and sell them before maturity, hopefully for a profit.
With bitcoins, there are no physical deliverables, but in every other important sense they resemble these Commodities Futures contracts.
If they became widely accepted and centrally traded, with a central body guaranteeing transaction integrity (basic ESCROW systems would probably be the starting point for that), they would almost certainly be traded as a "standard" currency on FX markets (exchanging Bitcoins for US Dollars, Euros, Japanese Yen, etc.), but without that central body guaranteeing the transactions, they would probably be traded as Commodities Futures.
The "problem" with both of those routes is that there is heavy auditing on every stage of every transaction, so the anonymity aspect of Bitcoin goes right out of the window. The parties involved in any given transaction would be known and recorded, and even if those are brokers acting on behalf of the real Bitcoin owners, the brokers would still need to have records showing who the real owner is.
Re: People Aren't *That* Irrational (Score:4, Informative)
This is a bunch of non-sequitirs. "As it was mostly option contracts, they were largely not executed, so it didn't end up being a major issue." Really? The damage caused by tulipmania and so on has nothing to do with whether or not the options are executed. Even if they aren't, people spent money on those options contracts, and so lost massive amounts of money when the prices collapse. The characterisation of the prices collapsing due to 'the height of the bubonic plague' is also incorrect. The height of the bubonic plague was 200 years earlier in the 15th century, and plague outbreaks occurred before, during and after tulipmania.