The Advanced Bitcoin Market

Apr 8th 2015

Thesis: With new technology and investments, the bitcoin market will expand soon, replacing major part of the current monetary system.

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(http://www.wsj.com/articles/big-investor-involvement-could-boost-bitcoin-1428259814)

I first heard about the concept of bitcoin when I took the money and banking class, comparing the current money system and a possible alternative, bitcoin. Wikipedia defines Bitcoin a payment system invented by Satoshi Nakamoto, which can be transacted directly to sellers by consumers without a central repository or single administrator like the US Treasury. One of the earlier blog posts I wrote is about some advantages of bitcoin and its prospect as a future currency system. However, many people doubt about its realization, pointing out that the new system may not secure and could be hardly accepted by the public already used to the existing structure.

Wall Street Journal, however, contends that bitcoin can be more prospective because some of the U.S.’s proprietary traders and investors are interested in that. Their attentions provide a potential boost to the virtual-currency industry. “They see potential for big profits in trading bitcoin as more investors enter the market and financial-services firms use the currency to streamline transactions (Wall Street Journal).” The involvement is significant for bitcoin because it can also help reduce volatility in the bitcoin market, one of the main problems it has.

Although bitcoin is attractive for many investors who are seeking higher interests (in other words, who believe that bitcoin market will expand), there are numerous challenges that the bitcoin market should overcome to attract more investors and participants. Security is one of the biggest barriers preventing people to invest in or involve in bitcoin. However, according to Wall Street Journal, Noble (New York based startup) provides its platform which will use Nasdaq’s X-stream trading system, a high-tech system for matching market participants’ orders that is used by more than 30 exchanges and marketplaces worldwide. The agreement will pave the way for many firms to hold and trade digital currencies because bitcoin can make the financial system more efficient (more details in my blog post), eliminating transaction fees. Also, “Noble Chief Executive John Betts said he believes Nasdaq’s involvement will help dispel investors’ concerns about the risks of trading in digital currencies (Wall Street Journal).”

With introduction of new technology, bitcoin becomes more attractive to investors who eventually drag more and more actors in the market. It is a synergy effect that investments and actors make in the bitcoin market. But, the market still needs more actors including investors, traders and participants who are hesitating to be involved in bitcoin. In other words, bitcoin should mitigate concerns related to its abuse in illegal activity and volatility. However, I think bitcoin will soon substitute major parts of the current monetary system. Already, investors and firms with technology prove its potential.

4 thoughts on “The Advanced Bitcoin Market

  1. KT Lee

    Do you think that Bitcoin or any alternative monetary form would replace bills and coins completely??
    You know that some rich men always prefer a certain amount of cash for secret fund so that it cannot be tracked by the Financial Supervisory Service. And Bitcoin may not be favorable for them. So I wonder what opponents of Bitcoin would say.

    1. Guyeon Kim Post author

      Well, think about credit card and other cyber-form of money (although the system is totally different from what bitcoin is). I think bitcoin can replace the normal currency system but it doesn’t mean that precious materials such as gold and silver are gone in the future system. I guess those people who want to keep their wealth secretly will use other materials instead of cash.

  2. Hojoon Kim

    Although bitcoin is one of the most innovative technology that has impacted the financial sector, I still have a doubt that bitcoin will be a dominant mean of payment in the future. One of the major problem with bitcoin is its unpredictable price fluctuations since bitcoin is not controlled by any central institution.
    Satoshi Nakamoto,inventor of bitcoin, should solve this problem in order to convince people that investing their actual money on bitcoin market is safe.

    1. Guyeon Kim Post author

      I agree. The uncertainty of bitcoin (in terms of its fluctuation) is one of the serious problems. However, the current monetary system is not stable, either. In other words, many people complain about the “dollar standard system,” arguing that the U.S. is not trustful enough. In that sense, bitcoin can be a alternative for the current monetary system. I believe those fluctuations will be mitigated when more and more people use the system.

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