• 5 hours UK On Track To Approve Construction of “Mini” Nuclear Reactors
  • 9 hours LNG Glut To Continue Into 2020s, IEA Says
  • 11 hours Oil Nears $52 With Record OPEC Deal Compliance
  • 14 hours Saudi Aramco CEO Affirms IPO On Track For H2 2018
  • 16 hours Canadia Ltd. Returns To Sudan For First Time Since Oil Price Crash
  • 17 hours Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 4 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 4 days New Video Game Targets Oil Infrastructure
  • 4 days Shell Restarts Bonny Light Exports
  • 4 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 4 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 5 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 5 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 5 days Rosneft Signs $400M Deal With Kurdistan
  • 5 days Kinder Morgan Warns About Trans Mountain Delays
  • 5 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 6 days Conflicting News Spurs Doubt On Aramco IPO
  • 6 days Exxon Starts Production At New Refinery In Texas
  • 6 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 7 days China To Take 5% Of Rosneft’s Output In New Deal
  • 7 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 7 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 7 days VW Fails To Secure Critical Commodity For EVs
  • 7 days Enbridge Pipeline Expansion Finally Approved
  • 7 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 7 days OPEC Oil Deal Compliance Falls To 86%
Oil Fundamentals Overturn Geopolitical Risk

Oil Fundamentals Overturn Geopolitical Risk

Geopolitical risk from Iraq and…

Energy Giant Bets On Battery Breakthrough Within 5 Years

Energy Giant Bets On Battery Breakthrough Within 5 Years

Utility giant Duke Energy expects…

Bitcoin Goes Mainstream as an Investment Vehicle

Bitcoin Goes Mainstream as an Investment Vehicle

The commodities markets are some of the oldest trading markets in the world. The basic idea of trading wholesale goods between parties is as old as commerce itself. Recently though, the commodities markets did something very unusual – they added a new commodity; Bitcoin.

Bitcoin is an electronic pseudo-currency that is independent of any state or country. The currency is created by computers solving complex math problems with currency released slowly over time. The basic idea behind Bitcoin is that the currency is free from the interference of any government or central bank. Because the amount of the currency in circulation cannot be controlled by central banks, its value is independent of inflation. One might suppose that would make Bitcoin more stable as a form of money. In fact the opposite is true.

Because Bitcoin is not really used in any meaningful way for commerce, but instead exists mainly as a speculation instrument, its price has been extremely volatile. In the last year, a single Bitcoin has been worth anywhere from less than $200 per coin to more than $400 per coin. If U.S. dollars fluctuated in relative value in that way, no one could use the currency for trade. Fortunately, Bitcoin does not have that issue, and trading volumes have largely held steady in the currency despite its volatility over the last year.

Related: VW Scandal Bad News For Diesel

Bitcoin’s appeal for many early adopters was based on the lack of regulation around the currency. That is now changing as the Commodity Futures Trading Commission (CFTC) moves to regulate the currency as a commodity. This move should change both the commodities markets and the Bitcoin markets. Evidence of the latter has already started as the CFTC moves to clamp down on unregulated trading of the currency. Bitcoin will never again be the freewheeling libertarian ideal that it once was. Instead, it is moving to a different phase of its lifecycle – as a monetary hedge against inflation.

As the CFTC continues to crack down on the unregistered trading in the Bitcoin markets, the investor base of the asset should start to change. Institutional investors who need to follow laws and regulations consistent with fiduciary duties could never have invested in Bitcoin before. Now that the CFTC is regulating the currency, it is much more defensible as an investment. Over time that will lead to a change in the investor base holding Bitcoin and likely a change in the character and volatility of the market for Bitcoin.

Related: Canadian Oil Trapped Without More Pipeline Capacity

Bitcoin as a currency will likely also change the commodities markets too. Commodities trading has traditionally been a market of hedgers and speculators dealing in very traditional products from lumber to cattle. Bitcoin is the opposite. Where oil drilling and cattle production involve the use of real assets and traditional production processes, Bitcoin is the epitome of a 21st century product.

Now of course, most commodities contracts are never completed and instead are simply traded between speculators, but even so, Bitcoin trading represents a new era of purely electronic commerce. Trading in the commodity itself will require new teams of traders and supporting personnel who understand the currency and can make an intelligent forecast about supply and demand going forward. Banks and trading firms will also need to find potential end users who are interested in hedging some sort of risk using Bitcoin. Without such hedgers, speculation in the commodity is moot since there is no ultimate demand for the product.

Related: Is This The Bottom For Oil Prices?

All of these changes will take time to implement and Bitcoin for now will continue to be outside the mainstream of investment assets. But over time, Bitcoin could become an alternative investment choice for those who want to store value in an asset that is independent of the value of the U.S. dollar. That could include many foreign nationals who do not understand the U.S. economy, yet do not trust the currency of their own government. That level of global acceptance could take decades to build, but for the first time, with the implicit backing of the CFTC, Bitcoin may actually have a viable future as a true investment product.

By Michael McDonald of Oilprice.com

More Top Reads From Oilprice.com:

Join the discussion | Back to homepage

Leave a comment
  • abinico warez on September 27 2015 said:
    I went to the auto dealer to buy a new car - asked if I could pay in bitcoin - the laughter was thunderous; wanted to pay my rent with bitcoin - landlord said he would start eviction action; tried pay for groceries - cashier called security; tried to but postage stamps with bitcoin - another no go; finally in exasperation I offered the bitcoin to an indigent street person - he refused it and asked for dollars U.S. - so yeah, even on the streets it's common knowledge that bitcoin is a fake, a fraud, and a scam.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News