The development of Bitcoin contributing to the overall progress of cryptographic currencies could not stay unnoticed by world’s leading traders – the Wall Street brokers and other featured specialists. As the price of the coin has had a tremendous growth during the past months, it deserved definitely to be among other valuables appreciated by the global financial market – oil, gas, precious metals, assets and currencies. It is hard to tell whether Satoshi Nakamoto, the initial inventor or group of developers, has foreknown such scenario, but nowadays players are capable to make one’s pile of fiat money from the online coin.
The most recent example is the 25-year old Jonathan Silverman, who has abandoned the job as manager of funds at Morgan Stanley for a place at a company running a Bitcoin exchange service. He is not the only person to make the choice. Mr. Silverman comments his deed as:
“I think Bitcoin will be the first and oldest crypto-currency but not the last. It’ll be a premier safe-haven asset.”
The exposure to risks of the employees of the Wall Street, loosing of jobs and the reduction of overall attractiveness of the facility since 2008 (the Global Financial Crisis) was the impulse to search for alternatives. Many individuals have moved their interest to online markets and environments – independent and libertarian areas, with no jeopardies from higher levels as authorities and laws. However, the most investments, as well as startups are performed by individuals, not companies.
The reason for individual activity is the overall skepticism of society and specialists. The risks of a single person are smaller, have a lesser impact on the whole economic system. Although Hal Ronald Varian from the University of California, Berkeley has determined the reason of popularity of altcoins, the economist David Yermack in his paper for the National Bureau of Economic Research has drawn the conclusion that Bitcoin lacks some important criterion to be considered as a sterling currency. The impermanent nature of the processes around the digital coin prevents it from gaining the long appreciated status. Mr. Yermack calls the currency a speculative investment already seen by the humankind, especially during the bloom of the Internet.
Older and more experienced traders are worried about their younger colleagues, who have switched to the digital coin without gaining the necessary experience and knowledge about trading and economy. Mark Williams is teaching finance at the Boston University now, but is a former risk manager. He agrees on the criticism of Yermack:
“As a former trading-floor executive, hearing this sort of hyperbole from my young traders would concern me. To give you a sense of risk, currently, Bitcoin volatility is eight times higher than that of the S&P 500 making it a trade only for the most aggressive speculators.”
The vulnerable point of the Bitcoin and other cryptocurrencies exists, and has been hit several times. The basic principle of independency from a government, authority or any kind of institutions is impossible in the world featuring the greatest ever level of globalization and penetration. The countries unable to gain control over a particular matter still bear the capability to implement restrictions, terminate crucial links of any chain and even ban an activity. The example of the China’s prohibition to process accounts involved in selling, purchasing and exchanging Bitcoin can be implemented by any country. The transitional drop of the price of BTC might gain a continuous character.
Nicholas Colas, working as the chief market strategist at ConvergEx Group LLC, believes that the reason of interest and enthusiasm is a myth, similar to the story of the creation of the Rolling Stones band. The more and thicker is the mist around a matter – the higher becomes the attractiveness.
David Woo, the head of global rates and currencies at Bank of America Corp.’s Merrill Lynch, sees social reasons behind the success of the Bitcoin:
“Bitcoin rides on the back of unease about unconventional monetary policy and about banks.”
There are no fees, the transactions are performed instantaneous, with no medium between, allowing to keep privacy of the both sides of a deal. These are important advantages in times of global control, leakages of information and governmental databases.
The main aspect of consideration for people and companies engaged in the Bitcoin-related businesses is liquidity. The most participants invest own funds and risk own wealth. There are only some examples, when the capital has a different source – Mr. Silbert, for example, has a venture capital fund SecondMarket and invested in 14 coin startups. The gained capital was 5,5 times more than expected. Still, the market demand for Bitcoin is hard to cover. Some orders of exchange are complicated to be performed as long as there is no huge reserve of coins.
The financial approach of Wall Street differs from the technological point of view of the Silicon Valley. Andrew Chang, who is a partner of Liberty City Ventures, from New York also works for Google Inc. on display advertising, is capable to combine both methods and to draw parallels between them:
“You can’t just whip up a company that provides Bitcoin storage, trading or payment services. When you’re dealing with the transfer of value, you need to think 100 steps ahead to make sure you are aware of compliance, security, privacy and other issues that traditional financial institutions have been perfecting over the last 100 years.”
Bitcoin has also become a point uniting the Wall Street white-collar workers with the Occupy Wall Street activists. The alternative currency has the necessary appeal – independent and futuristic, a real way out of the existing dead-end of capitalism. It is a rare occasion, when same workshops and meetups are joined by representatives from both groups – having a dialog together and sharing some similar opinions.
The luck is in the hands of the humans, personal capabilities, characteristics and knowledge are determining success. The Bitcoin as many other currencies is an instrument in the hands of differently qualified craftsmen. Silverman has lost his job, when all possible banks rejected to cooperate with his company. His mate, Fred Ehrsam, on the contrary succeeded – his company Coinbase is already a household name in the online environment. But it has not changed the approach of Silverman; he has kept the heart of the adventurer:
“I loved bubbles when I was on Wall Street, and I still love them.”
And it is really extraordinary, as I believe that progress and many important steps were performed by really bold people, unafraid to surivive some losses on their way to success and changes. Be courageous – be ready to risk!