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Jan Bauer

Jan Bauer

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Jan is a writer for Safehaven.com She has 15+ years experience in FX trading and focuses on crypto currencies, FX, gold and silver investments

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The Three Biggest Threats To Bitcoin

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Many hold that Bitcoin is simply the gateway token to a much different digital currency future, but until now, no one’s laid out the assassins and the potential means of death so succinctly as MIT.  

It’s not Bitcoin that’s important; rather, it’s the underlying blockchain technology that makes it possible—but it also makes possible a lot of bigger and potentially better things.

If governments decide to fully develop digital version of fiat currencies, it could outshine Bitcoin. Part of the allure would be faster transactions, which is currently the bane of crypto existence. With a central bank supporting what has already been dubbed a “Fedcoin”, things would run more smoothly.

Efficiency means money. In fact, according to MIT’s Technology Review, the Bank of England claims that “even partial adoption of a central-bank-issued digital currency would result in a 3 percent increase in GDP as the cost of taxes and transactions fees went down”. 

How would it work on a bigger scale? MIT Technology Review describes it as each bank holding power over a “chunk” of addresses on the blockchain, which the bank then validates and sends on to the Fed, which is the final arbiter over a “master” blockchain that is made public.

While many have argued that Bitcoin is the end of cash; it may instead be that Bitcoin is the precursor to the end of cash via the federal government.  Related: Iran Bans Crypto Amid Currency Crisis

Another Bitcoin assassin could be corporate in nature—perhaps a social media giant like Facebook or any network powerful enough to down Bitcoin with negative messaging. After all, there’s not much these days that can’t be taken down (or pumped up) by a concerted social media campaign. Social media giants could devise their own cryptocurrencies to sideline Bitcoin, or they could usurp the original crypto entirely.

MIT Technology Review even tells Facebook how to do it, in case Zuckerberg’s too busy with the current scandal to put much thought into it: “First, spend a month building a user-friendly, secure, Facebook-hosted Bitcoin wallet […] Then, overnight, integrate it into every single Facebook account—all 2.2 billion of them. The next morning, Facebook users wake up to find a new goodie tucked into their profiles: a little button that says ‘Send Bitcoin’.”

Thus, would be born the Facebook wallet, and the rest is crypto history, with addiction setting in in record speed. In other words, Facebook could fairly easily give itself powers similar to those the Fed Reserve would have in the first scenario: minting, blocking and reassigning coins at will.

The only thing Bitcoin would have going for it under these scenarios is its relative anonymity, but we’re not sure that will be enough, and it’s not all it’s cracked up to be, anyway. 

In the meantime, of course, Bitcoin is looking particularly good right now, but it still doesn’t get much coverage at all by the ‘experts’. Only RBC Capital Markets' Mitch Steves covers Bitcoin regularly (pioneer Nick Colas seems to have taken a hiatus).

Maybe the MiFID II changes that upended the research pricing model for Wall Street analysts is partly to blame for poor coverage. Analysts are now required to charge separate for research products and services instead of offering free reports as add-ons for trading business. 

Banks such as Morgan Stanley and JPMorgan Chase now charge thousands of dollars for an hour of phone calls or meetings and hundreds of thousands of dollars a year for basic research.

Meanwhile, investment banks have slashed their equity research budgets by 50 percent from $8.2 billion in 2008 to just $3.4 billion currently, thus putting talented analysts under a lot of pressure.

Still, it appears a bit counterintuitive that cut-throat traders have been shying away from the easy pickings that can be had in the Bitcoin market. Glaring exchange arbitrage opportunities of as much as 10 percent sometimes exist because digital coins can trade at wildly different prices on different exchanges. Related: Crypto Stocks Poised To Bounce Back

That may be changing a bit, with the gradual acceptance of Bitcoin by Wall Street, which is an important step in the digital coin going mainstream. It's quite likely that these traders will prefer trading in Bitcoin futures instead of trading the coins through exchanges. After all, Wall Street is more acquainted with futures than digital coins. Additionally, futures are run by market experts and are more secure than exchanges. But they will eventually have to settle their futures contracts using Bitcoin.

Still, it will take more than Wall Street's participation to make Bitcoin a mainstream currency. Corporate cheerleaders such as Starbucks and Dunkin Donuts have been trying to appear cool by hyping up Bitcoin—but they won't accept it as payment for a cup of joe due to high commissions and too much volatility.

Unfortunately, this is a vicious cycle because the commissions probably won't come down appreciably until a large enough pool of people is using Bitcoin for everyday transactions.

Once Bitcoin finally gets where it needs to be in the mainstream, it might already be half dead.

By Jan Bauer for Safehaven.com

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