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Summary:

Bitcoin has had a rough few months. But three news items in the last week bode well for the currency’s liquidity — and its legitimacy.

Bitcoin screenshot

Bitcoin is in a slump. In recent months, the crypto-currency has been in the news for all the wrong reasons: the Department of Homeland Security shut down its primary exchange, the State of California is gunning for the Bitcoin Foundation and, meanwhile, the mainstream press still regards it as an exotic financial hobby rather than a serious currency.

Bitcoin, however, has weathered similar dark periods and still has the potential to shake up the world’s financial architecture. And, in the last week, three news stories brought hope for Bitcoin believers that the currency can overcome its twin weaknesses: illiquidity and lack of legitimacy. Here’s a summary of the news and a quick comment on what it means:

The return of a major Bitcoin broker? Mt. Gox says it will play by the rules

Recall that it’s easy to swap Bitcoins with other users — but that it’s hard to trade them for conventional currencies like dollars and euros. Until May, the main way around this bottleneck was Mt. Gox, a Japan-based currency exchange that allowed speculators to use Dwolla (a Pay-Pal like network) to change Bitcoins into dollars.

Homeland Security, however, put the beat down on Mt. Gox for operating as an unlicensed money transmitter, and Dwolla suspended the exchange’s account in May.

Now, though, Mt. Gox wants to come in from the regulatory cold. The company quietly filed for permission last week to be a licensed entity with FinCen, a division of the Treasury Department that deals with financial crimes; if FinCen gives the green light, a major source of liquidity will return to the Bitcoin market.

A chance to trade Bitcoin on the stock market

The Winklevoss twins this week filed to go public with a trust whose shares will track the value of Bitcoin. Similar financial products exist for investors who want to bet on the overall performance of the stock market or a real estate portfolio — in this case, investors will be able to bet on Bitcoin without having to directly buy the stuff.

The Winklevii, best known as wannabe Facebook owners turned pistachio pitchmen, control 1 percent of the world’s Bitcoin supply, and project a mainstream business presence that many other Bitcoin investors do not. If their IPO succeeds, the value of the currency could shoot up on interest from the general market — and enjoy a degree of legitimacy that Bitcoin has never had before. (For the flip side, see one Bloomberg’s writer’s view that investors will still need a strong stomach).

A new decentralized bridge for Bitcoin

My colleague, David Meyer reported from London this morning that Ripple — a platform that offers peer-to-peer banking and credit — is introducing Bitcoin Bridge, which will result in “money going in as traditional currency and coming out as Bitcoin.” If the new Ripple service catches on, it will create a network of decentralized nodes that will make Bitcoin less reliant on exchanges like Mt. Gox, which are exposed to hackers or regulatory seizure — and which threaten the entire Bitcoin eco-system when they fail.

The Ripple-based payments are significant not just because it promises more liquidity, but also because it reinforces Bitcoin’s place in an emerging new era of money transfers.

The bottom line

It’s been a rough few months for Bitcoin but the emergence (and re-emergence) of other platforms and services to support it bodes well for the future of the crypto-currency. Widespread adoption, however, will require more members of the Bitcoin community to emerge from the shadows and engage with a regulatory system that many distrust.

  1. The real “bottom line” is that right now, USD can account for anything I need to buy and so there is no true value to Bitcoin. Bitcoin’s value is SOLELY driven by the fact that I can gamble with it easily and buy drugs with it online… anything more than that is speculation.

    Once the “get rich quick”ers GTFO, Bitcoin should settle back down to a few dollars each, there is no need for it to be more.

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    1. Thanks for your comment, Mike.. I agree that, for now, most people are just fine using dollars so there isn’t a need for Bitcoin.. But I think you’re overlooking Bitcoin’s potential for the remittance economy — allowing immigrants in the US to transfer money to relatives in other countries. Also, countries with unstable currencies are also treating it as a source of stored, transferrable value

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    2. Danny Ashman Friday, July 5, 2013

      bitcoins are good to own as a hedge against dollars and euros which can crash

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  2. For my money, you forgot two more points:

    1) The German Parliament has officially made any Bitcoin owned for more than a year tax-free, and

    2) The response by the Bitcoin Foundation to the State of California’s cease and desist letter is spectacularly well-worded, and has essentially snookered the state government into either admitting defeat or spelling out exactly the manner in which Bitcoin is, in fact, a perfectly legal form of money.

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  3. @Mike: Well you are lucky enough to live in the US. A lot of US retailers don’t ship outside of the US. BTC is about a global currency for a global economy, opening doors to litteraly Billions of new consumers and markets.

    Smart online retailers would be embracing BTC.

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  4. @Mike,
    USD is only paper, the same as toilet paper

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    1. @Joep,
      Not exactly. USD is high quality linen infused paper, more similar to 3 or 4 ply toilet paper. See Wikipedia for more info. Unless it is the magical virtual currency used to crash the world financial systems before letting the workers pay for the fix.

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  5. Ripple is NOT in any way similar to Bitcoin. This is just another proprietary centralized pseudo-money system 100% controlled by for-profit Opencoin with the sole goal to enrich its founders and investors. It is just pretending to be “like Bitcoin” in order to parasitize and suck value from organic Bitcoin ecosystem. If you care to educate yourself, you’ll understand that Ripple is just perverting and undermining everything Bitcoin stands for: http://ripplescam.org

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  6. Mike you are wrong, their are many stores around the world now taking payment by Bitcoin check out http://bitcoin.travel/ for one.

    http://bitmit.net
    https://www.bitcoinstore.com/
    are two online ones I like.

    Bitcoin news???

    http://www.bbc.co.uk/news/technology-22817522

    http://thebitcoinnews.co.uk/2013/07/04/the-new-app-bitcoins-with-friends-connects-cryptocurrency-users/

    http://motherboard.vice.com/blog/one-third-of-kenyans-now-have-a-bitcoin-wallet

    New companies are springing up all over the world it’s a good time to be in crypto currency.

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  7. I think Bitcoin will never become of common usage, too long to explain in a comment, I’ve written a few lines on this page: http://www.comingdays.com/2013/07/26/why-bitcoin-cannot-succeed/

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