For genuine innovators in the FX industry, Bitcoin is a pragmatic commodity – eToro speaks out

Indeed, an unbacked, peer to peer currency whose value for one unit is at a massively inflated $10,000 is enough to strike fear and concern into the heart and mind of any sensible analyst, chartered accountant or risk manager.

Justifiably so, too.

Bitcoin, the darling of rebels, mavericks and anarchists since its introduction by its masked developer Satoshi Nakamoto almost a decade ago, has rocketed in price and is now commanding a five figure dollar sum for just one unit, this representing a great risk to any participant wishing to trade it.

Whilst Bitcoin has been in peer to peer circulation for a long period of time, and has been the subject of several high profile exchange demises, lawsuits, arrests of some of the aforementioned mavericks and a method by which to lose capital with absolutely no recourse by investing in something with no intrinsic value which operates outside of the established electronic financial markets framework, only recently has a dramatic and almost obsessive interest in it come to fruition.

This can be placed in two camps.

The first camp is the overtly noise generating, marketing-led deluge of fly by night petty fraudsters who view cryptocurrency as an ideal vehicle for relieving unsuspecting ‘investors’ of their capital by way of offering token sales in the form of Initial Coin Offerings (ICO) of non-existent and pie-in-the-sky entities that will likely never bear fruit, in order to steal money and make for the hills.

In this category lie the binary options fraudsters whose false investment platforms have now come to the end of their life, and can be easily adapted to solicit for ICOs, as many of the back street offices of former binary options brands and their equally sordid platform developers and market makers use the exact same platform, affiliate networks and pressure sales to shape shift from false financial markets product to false venture capital crowdsourcing vehicle.

The second category is the common viewpoint between experienced innovators and regulatory authorities in established jurisdictions.

Whilst North America’s Securities and Exchange Commission (SEC) has absolutely no jurisdiction over cryptocurrency, it does consider Bitcoin to be a commodity, largely due to its tradeable value as an asset class that has to be ‘mined’, albeit electronically using ASIC circuit boards rather than physically as per other listed raw materials that are governed by exchange-traded futures laws.

Some of the world’s most widely respected electronic trading industry innovators share this view, one particular example being Iqbal Gandham, Managing Director of eToro’s UK division.

Mr Gandham this morning spoke to FinanceFeeds to explain his position on the astronomical current valuations that surround Bitcoin. “This new Bitcoin milestone is driven by increasing confidence that the cryptocurrency will, in time, become a commonly used exchange of value. But here’s the thing, when we reach the point of using Bitcoin in an everyday way, the price of an individual Bitcoin will be significantly higher than $10,000” he said.

 

“We’ll be spending and saving small fractions of a single Bitcoin. So this really is just the beginning. Everyone from central banks, hedge funds, governments, big incumbent financial institutions and retailers are looking at use cases for cryptocurrencies. This trend isn’t going to slow down any time soon” continued Mr Gandham.

 “Yet investors should be mindful that the Bitcoin market is still going through its volatile teenage years. The total number of Bitcoins in circulation is only valued at around 2% of the total amount of gold in the world.” he explained.

“While the price volatility in Bitcoin leads some commentators to assume we’re in a Bitcoin bubble, the reality is that emerging technologies carrying radically new ideas will always see swings in their value before their potential is fully realised and the price stabilises. The difference here is that the technology in question – the blockchain – means all this volatility happens in public” – Iqbal Gandham, Managing Director, eToro UK

eToro’s perspective is an interesting one, especially given the company’s ability to have outlived the entirety of its competitors, with pretty much every single third party and proprietary (brokerage offered) social trading platform having gone to the wall, the entire phenomenon having been displayed by market forces to be exactly what FinanceFeeds considered it for many years – a fad, and an insidious one representing a huge conflict of interest.

 eToro does things differently, having approached the entire aspect from a technological and distribution channel perspective.

The company’s investment from Ping An bank which joined Russia’s Sberbank as a shareholding entity two years ago has empowered eToro in taking its entire solution across China, thus placing all of Ping An’s customers within the realms of the bank’s single application from which they can access and control their entire portfolio including investment products, bank accounts and savings.

In some respects, it is a sort of Chinese Hargreaves Lansdown.

For this reason, eToro should certainly be recognized as a company which not only turned its fortunes round completely, FinanceFeeds discussion in China recently with APAC CEO Jasper Lee providing a full account of that, and also its executives to be noted as those who rather than resort to buzzword bandwagonism, are actually experts in taking new and risky phenomena with a cloudy track record and making good of it.

Similarly, at the FinanceFeeds Sydney Cup FX industry networking event last month, Gold-i CEO Tom Higgins explained the history of money, and alluded to an ancient method of payment which involved the ownership by investors as part of a commodity, rather than all of it, and being able to sell that part of it on – rather like the current market for Bitcoin.

Mr Higgins, an expert in exchange technology and electronic trading industry infrastructure, addressed Australia’s senior electronic trading executives, explaining that  cryptocurrency is a natural progression and gives a comprehensive view of the future.

With an audience encompassing over 60 of Australia and the Asia Pacific region’s senior level industry figures, Mr Higgins explained “Materials that were used in ancient civilization have been developed in a similar way to how Bitcoin and other cryptocurrency is developed today.”

“Rai stones were one example, and they had monetary value but you couldn’t transport them around because they were too big. There were smaller ones but as they got bigger in value, they got bigger in size” said Mr Higgins.

Rai stones are large, circular stone disks carved out of limestone formed from aragonite and calcite crystals, and were quarried on several of the Micronesian islands, mainly Palau, but briefly on Guam as well, and transported for use as money to the island of Yap.

They have been used over a period of many years in trade by the Yapese as a form of currency. The monetary system of Yap relies on an oral history of ownership. Because these stones are too large to move, buying an item with one simply involves agreeing that the ownership has changed. As long as the transaction is recorded in the oral history, it will now be owned by the person it is passed on to and no physical movement of the stone is required.

“These were then divided into smaller segments virtually” explained Mr Higgins. “This way, you could have bit of paper to say that you own this part of Rai stone, which would then have a sign on it to show which part you own.”

“There is a story that one Rai stone fell off a ship, and ended up at the bottom of the sea. This gave rise to a discussion with regard to whether it was still valid currency, after which it was decided that it was still valid currency because it still existed, and because you didn’t actually need the Rai stone itself, but instead needed the fact that you owned a bit of it” said Mr Higgins.

These were highly valuable, hence when viewed from this perspective, Bitcoin is a modern day emulation.

Trepidation is indeed wise, however when approached properly and viewed as an electronic commodity, it is possible to see which companies will embrace this and use it correctly as a tradeable instrument, and which will tout their bogus ICO schemes.

FinanceFeeds is absolutely in favor of those companies, like the two mentioned here, that approach Bitcoin trading pragmatically, as this is the way that future commodities markets and the technology that powers them are forged, whilst we show equal disdain for those who misuse the cryptocurrency phenomenon to sell snake oil to the uninitiated.

$10,000, however is steep. FinanceFeeds has spoken to several institutional FX industry figures in London, all of whom have stated that when a collapse occurs, losses will be tremendous and there will be zero recourse.

Correct.