Banking group sees limited future for Bitcoin

January 9, 2014
A pile of Bitcoin slugs sit in a box ready to be minted on April 26, 2013 in Sandy, Utah

The online currency Bitcoin has shown unexpected success but its future as a broadly accepted exchange medium is limited, according to a report by a global banking group Thursday.

The report by the International Institute of Finance, which represents more than 450 banks and , said more regulation of Bitcoin exchanges and transactions could strengthen its legitimacy among consumers and ease regulators' doubts about it.

But for the moment, the IIF report said, Bitcoin faces significant resistance in countries like China. And because most of the market is dominated by speculators rather than users, Bitcoin's value in other currencies is particularly volatile.

In a market worth around $12 billion, the IIF said, "It is estimated that 50 to upwards of 90 percent of Bitcoin owners are speculators—thereby contributing to the substantial price fluctuations seen recently."

It pointed to the sharp fall of Bitcoin from a high of $1,240 to $576 in just three days in December after China banned its financial institutions from using the currency.

Since then Bitcoin has rebounded, topping $1,000 earlier this week before falling to $915 on Thursday.

"If it persists, this remarkably high volatility will compromise Bitcoin's capacity to function as a medium of exchange, as it deters most large companies from accepting the as a form of payment," the IIF report said.

Unlike other currencies, Bitcoin does not have the backing of a central bank or government. Instead, the units are generated by a complex computer algorithm designed by one or more anonymous people in 2009.

Because of that, said the report, its functionality and ultimate success "is determined by programmers—and their goodwill is taken for granted."

Thus the IIF characterized Bitcoin as effectively a "fiduciary currency" with no intrinsic value of its own and dependent on trust that it can be exchanged for a more common currency like the dollar. That makes it "inherently fragile," the IIF said.

"Despite Bitcoin's 'ingenious features' it cannot provide a of stable value and its use as a broadly accepted medium of exchange appears limited," the report concluded.

Explore further: Zynga adoption pushes Bitcoin back over $1,000

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5 / 5 (2) Jan 09, 2014
Bitcoin is not supposed to have a central bank or authority, that is the point. The initial programmers are irrelevant as it is open source. The current developers have significant influence over the development but the users have ultimate control because anyone can program anything but the issue is getting the users to adopt it by the consensus methods within Bitcoin. The issues with volatility appears to be linked to the lack of liquidity among exchanges.

The report fails to recognize the main invention of Bitcoin which is a decentralized consensus system and fails to understand Bitcoin is in its experimental stages and cannot be compared to established systems.
5 / 5 (2) Jan 09, 2014
So all of the banks are getting together to try to find Bitcoin's weakness. Many countries are so coupled with the banks that there is a blur between official government stances and that of the banks. And when they feel their power growing dim, they will use that government power to their advantage. And the power of the media outlets in their pockets (Bloomberg, Business Insider, etc..).
This is going to get messy. Some people are not ready for progress.
not rated yet Jan 10, 2014
'Thus the IIF characterized Bitcoin as effectively a "fiduciary currency" with no intrinsic value of its own and dependent on trust that it can be exchanged for a more common currency like the dollar. That makes it "inherently fragile," the IIF said.'

In other words 'a pig in a poke'.

not rated yet Jan 10, 2014
Volatility? The Euro lost 25% of it's value in a month and that affected billions of people. Most strangely, why would an industry demand more government regulation? Only when the industry owned the government!

Volatility expresses interest in a commodity. Besides, the trend is up!

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