I'll be speaking at the MarketWatch Bitcoin Panel this evening, nestled between one of the biggest bulls on the Street, Barry Silbert, founder and CEO of SecondMarket and founder of Bitcoin Investment Trust, and one of the biggest bears around, Mark T. Williams, a banking and risk management expert and a professor at Boston University School of Management. The panel will be moderated by MarketWatch Senior Columnist Robert Powell.
While preparing for the panel, I couldn't seem to shake a quote by Bob Proctor: "I don't know how electricity works, but I do know this: that you can cook a man's dinner with electricity, and you can also cook the man."
I will admit that my guttural reaction -- and perhaps my intuitive bias -- was that Bitcoins were "digital tulips." When they emerged in 2009, there was widespread fear in the marketplace and an emerging frustration with central bank policies; people were scared and innovators were searching for alternative pathways.
Be that as it may, a digital currency that nobody understood, that had no fail-safes, and in many cases, was being used for illegal means, while novel, didn't strike me as viable. I thought it was a flash in the pan that would fizzle out in time.
One of my fallback arguments against Bitcoin was that if push came to shove, the creation and distribution of another currency was deemed treasonous by the US Constitution, which is punishable by death. That felt like a pretty solid backstop for any argument claiming Bitcoin was a currency, and it still is -- if we view it as a currency.
There are other concerns: There is no cross-platform arbitrage, which is necessary for efficient markets.
There is no government regulation, although the feds can confiscate Bitcoins if they were involved in illegal activity.
There are no fundamental valuation metrics.
There is the potential for hacking, as we saw in Mt. Gox.
There is an abundance of competing cryptocurrencies.
There is the need for security, regulation, and insurance that would paradoxically chip away at the value proposition that attracted Bitcoin loyalists in the first place.
While all of these are true, it would be a mistake to dismiss this advancement of innovation by getting caught up in vernacular.
Maybe it's not a currency; currencies have elastic supply to reflect changes in market demand. Perhaps it's a commodity; commodities have fixed supply and a market-based demand to influence their prices. Or maybe it's something different altogether.
What if it's a payment system that operates in a pre-determined group that "opts in" to the means of exchange?
There is solid growth and merchant adoption (more than 25,000 locations including Overstock (NASDAQ:OSTK) and Zynga (NASDAQ:ZNGA)) as well as platform and wallet evolution (almost $100 million in venture funds; more than $200 million in mining equipment).
And there is smart money behind this; folks like Marc Andreessen and Chris Dixon. This isn't some high school science project.
I'm not as bullish as Mr. Silbert or as bearish as Professor Williams; I find myself more moderate than that, although not yet confident enough to personally invest in Bitcoin.
I don't profess to know if Bitcoin will thrive as an ecosystem or play Friendster to another effort's Facebook (NASDAQ:FB). And I'm aware that the catch-22 for Bitcoin will be to adopt the very protocols that it has tried so very hard to avoid, and in an effort to adapt, it may conform.
I also believe that the frustrations with central banks and fiat currencies will not be going away -- if anything, the heavy lifting remains in front of us. If necessity is the mother of invention, we should continue to see new technologies and applications. That, in my view, is both healthy for our society and risky -- and potentially rewarding -- for those on the cutting edge.
As it stands, color me an interested observer who remains open-minded as I stand on the sidelines.
We've been mapping the correlation between gold and stocks since the great experiment lifted off in March 2009. As we approach the five-year anniversary of the rally, I wanted to revisit that chart. Hands over ears, it would appear that either gold will rally, equities will fall, or there will be some combination thereof.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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