for the last few years under employed Twinkie eating millenials have been convinced that bit coin is the future of the fx market. It is not. It is also not, as somebody tried to tell me, a currency originally invented by the U.S. Government to hide payments to Stanley Kubrick for his help in faking the moon landing.
The very notion that a non fiat currency, largely used by drug lords, assassins, kids party magicians and other selected scum would somehow replace government backed currencies is beyond ludicrous. Who wants to own an asset that can fluctuate 50 plus percent in a given day based on the regulatory whims of any one of a variety of federal banks? Nobody.
This does not make Bitcoin a tottally useless proposition however. What Bitcoin has done is retell the story of efficiency derived for competitive markets. Laughably one can convert USD to bit coin for single digit basis points, but can’t (at a retail level) convert USD to other major currencies for less than triple digit basis points. Bitcoin, by introducing peer to peer trading of ‘fx’ has tottally devastated the market spread to the benifit of crypto currency users.
This is a story told often, but rarely told well. A decade ago UK gambling house bet fair introduced peer to peer sports Betting that resulted in them warehousing less risk, offering a tighter spread, winning market share and ultimately increasing profits. Bitcoin will try to force the real currency market to go the same way. The only problem is distribution. While the sports gaming market was competitive and open, most retail clients are subject to the fx quote of their bank. The captive nature of the client leads to spreads dozens of times what would be required to make a risk adjusted real return for dealers. If some entity can figure out how to create peer to peer trading in real government back money that is accessible from their bank website billions will be made. But of course the banks will never give this access at up, as it would crater their single most profitable business line.
Currently informed retail clients actually do back to back bit coin trades, crossing two spreads, to achieve a rate that is one tenth the typical bank spread. Clients moving between the Canadian dollar and U.S dollar use something called Norbitt’s gambit – simultaneously buying a stock like Royal Bank in one market and selling in the other – to achieve spreads most corporates don’t get.
The lesson from Bitcoin is not that diet mr pib drinking college drop outs were right about the federal reserve conspiracy, but rather that the power of a peer to peer currency trading system would derive billions of dollars in efficiencies for corporations and retail consumers. It’s just a shame that the oligopolistic financial community will never let it happen.