There has been a great deal of speculation in the Bitcoin community about the sinking prices of Bitcoin and what its causes. There are people saying that margin trading is the culprit while others are putting the blame on mining difficulty or large corporations accepting Bitcoin and then converting it immediately for fiat currency.
Because Bitcoin has the same traits as both money and commodities, Cointelegraph decided to ask an expert on the subject of money, Edmund Moy, former Director of the United States Mint. Moy was in charge of the Mint for several years during the Bush administration and currently spearheads Fortress Gold Group.
Cointelegraph: While the news has been relatively good for Bitcoin over the last several months, with more and more merchants signing on, the price continues to drop. Can we speculate that the drop could worsen if significant bad news were to be announced? Why do you think the good news has had little effect on the recent losses?
Edmund Moy: Without more data, it is hard to tell what is putting downward pressure on Bitcoin prices. Basic economic analysis would say that prices drop when supply exceeds demand. But we also do know that Bitcoin has low transaction volumes relative to the U.S. dollar and that has an impact on the volatility of prices. When transaction volumes significantly increase and the data/analysis segment of the Bitcoin ecosystem matures, we’ll be able to figure out the causes with less speculation.
CT: There has been some speculation that the drop is being caused by margin trading. Do you think there is any merit to this and, if so, how much of an effect does this practice have?
EM: Bitcoin can be viewed as a speculative investment because it in its early stages of development and as a result, its prices can be very volatile. Speculative investments, especially with volatility, are prime opportunities for margin trading. However, I have heard that it has been pretty calm among the Bitcoin traders lately.
CT: Should cryptocurrency exchanges be required to install safeguards that halt trading in potential “crash” situations and if so how would these be best implemented?
EM: The purist free traders would say caveat emptor. But to counter problems from “fat finger” and algorithmic automated trading, having safeguards help increase the confidence of investors and the general public. It also makes sense that Bitcoin trading should comply with similar regulatory safeguards that forex complies with, with the caveat of using only those regulations that can apply the uniqueness of Bitcoin.
- Edmund Moy
CT: How much of an effect does it have when big companies and payment processors immediately trade their Bitcoin for Fiat currencies?
EM: It would have the net effect of increasing the supply of available Bitcoin in the marketplace.
CT: There are rumors circulating that BitStamp was forced to change its bank when the EU issued its warning. Could this have had the effect of scaring the anti-regulation community?
EM: There is little information about why BitStamp changed its banking relationship. The European Banking Authority issued a warning, which has no regulatory authority.
It is basically an advisory but gives an indication of where the EBA thinking is. They would have to promulgate regulations to be able to take enforcement actions, which they have not done yet and will take time. The European Bitcoin community has an opportunity to help educate, and thus influence, European regulators either to have fewer regulations or have better/smarter regulations.
Insecurity in any trading situation will have a large effect on prices. While Bitcoin has had a large number of rather spectacular successes, the fact is that it has also suffered huge losses as well as coins are stolen by criminals and the few regulations that have come out have seemed to put burdens on Bitcoin merchants that do not exist in other venues. The fact is that while few in the cryptocurrency like regulation, if Bitcoin and others are to be successful, some regulation will be necessary.