Electronic Financial Instruments


Moving Resources

For every dollar that goes into Bitcoin, it is taken away from somewhere else. That is, if an investor is holding $25,000.00 in Apple stock and they sell that to invest in Bitcoin by buying bitcoins or investing in a Bitcoin related company, then the price of Apple stock will go down – this will effect the resources that Apple has. The economy has plenty of room to adjust to Bitcoin – possibly, the government could print more money to expand the economy and make room for Bitcoin?

Bitcoin has a current USD market value of about $3 Billion which is tiny considering the market it is entering. This does not count the USD that is invested in the businesses surrounding Bitcoin. Investors poured about $350 Million into start-ups focusing on Bitcoin in 2014 an that is up from only $100 Million the year before. There has already been over $100 Million invested into Bitcoin in the first month of 2015. These investments are growing exponentially and if it continues at the rate we have seen, then should should be over a billion invested in 2016. This huge amount of funding going into something this early shows that Bitcoin is a serious contender in the international financial market. The money poured into Bitcoin would be in banks or stocks otherwise – Bitcoin is already disrupting the economy by re-allocating funds from banks and certain corporations.

The price of bitcoins will adjust to what the value of Bitcoin is worth. Bitcoin provides extremely useful services and the valuation of Bitcoin related companies and the price of a bitcoin will eventually reflect the services that it provides. If it accounts for just 1% of the economy, then the price of all bitcoins should be worth about 1% of what the economy is worth. That number is huge compared to what they are priced at now! The price of a bitcoin needs to be worth enough to sustain a certain dollar amount of trade and store of wealth. We will watch these extraordinary events unfold over the next few years and it will be an exciting show!

Nations Will Need To Participate

The economies of each of the nations will have to start participating in mining in order to keep the network secure. This is especially true for a particular nation if its’ citizens has assets at stake in the blockchain because it is necessary for nations to protect their citizens’ assets. The IRS already labeled bitcoin as an asset and, therefore, the USA is obligated to protect the Bitcoin network. Nations will be responsible to keep the integrity of the ledger if their citizens’ are vested into Bitcoin. They will need to invest into monitoring the ledger to look for attempted attacks and they will need to retaliate to the attacks. There is already regulation because of the announcements of how bitcoins should be handled – there is proposed official regulation and it will become law in a matter of time.

The nations will have to balance their economies to make room for Bitcoin just like it did for the large technology companies that arouse since 2000. A lot of money was moved from different sectors of the economy into technology and a lot of new money was printed to handle the expansion of the economy. The economies will have to find a new equilibrium with Bitcoin factored into the equation. Bitcoin provides us with a super advanced technology that has never been seen before. The concept of international trade has been around for around 10,000 years or more. Bitcoin is a radical innovation; it is not just a small step! There will probably be more that will happen in international finance in the next 10-20 years with Bitcoin than has happened in all of human history.

Growing Pains

Google had its’ problems with web spam, computer viruses, phishing and other growing pains. These problems still exist even after Google has been around since 1998. Bitcoin has been around since 2009 and it has had problems like Mt. Gox and other illegal activity that happens using Bitcoin. Mt. Gox had nothing to do with the core technology of Bitcoin nor does most of what media reports – they are problems with businesses and individuals that use Bitcoin; they are not problems with Bitcoin itself! It is usually a third party that steals the bitcoins that people have stored on their servers. With Mt. Gox, it is believed to be an inside job. Bitcoin technology does have its’ problems, such as scalability, but the protocol can be updated to handle the problems.

Banks Reserves

The money that you have in your bank is not technically at your bank. The banks lend the money out and are only required to hold 15% of their customers funds. The rest is, of course, covered by the FDIC up to certain limits. If there is a mass adoption of Bitcoin, then all the funds that get converted to bitcoins get diverted away from certain banks. Banks will no longer have that money to lend out and collect interest on. The people that sell their bitcoins and the miners of new bitcoins might just take that money and put it in the same bank, but that money will most likely be diverted away from its’ prior trajectory.

When Bitcoin goes mainstream, there will be an amplified effect on the economies of the world and the economies will have to adapt – the banks will have to compete with Bitcoin for their customers’ money. This competition is a good thing because banks will be coerced to keep you depositing their funds in order to stay in business. This will force the current financial institutions to compete and offer lower prices for their services or it will entice them to take anti-competitive and unethical actions to stay in power.