Bitcoin

Bitcoin Tracker: Crypto-Catch-22

In the last few weeks, three separate bitcoin exchanges have reported a halt on processing transactions in dollars — the result of global banks pulling out of high-risk areas.

Banks are still exploring blockchain technology in various capacities — as a consortium in Japan recently announced a move to test a fund transfer system with Ripple and are considering creating their own virtual currency — but bitcoin proper has become a bit of a pariah.

Global banks have long been wary of even indirect interactions with bitcoin exchanges — particularly in the case they could be held liable if something goes wrong. J.P. Morgan Chase & Co. prohibits banks it transacts with from dealing with virtual currency exchanges, for example.

Taiwanese banks are blocking all requests to Bitfinex, while OKCoin International and now BTC-e have now also warned users of disruptions in U.S. dollar transactions.

But with the service disruptions and these exchanges has come a meteoric rise in bitcoin’s trading value. In the past week, bitcoin hit a new all-time high above $1,340 — albeit for a brief moment.

At the time of writing, bitcoin was valued at $1,313.03 — down for the day, but well up for the week. Since the beginning of the month, bitcoin has increased in value by some 20 percent.

On Friday morning, Bitcoin’s market cap was up over $21.3 billion, while the supply had fallen somewhat to just under 16.3 million.

Concern over a widening exchange spread remains as BTC:USD trades on Bitfinex were above $1,400:1 on Friday morning, still about 5.4 percent higher than trades on exchanges not reporting wire transfer disruptions.

But again, Mt. Gox traded between 10 to 26 percent higher than its competitors in its final days — which should work to quell at least some fears of an impending crypto-catastrophe for now, though the health of bitcoin’s global infrastructure is still a bit hazy.

Still, traders are likely watching the ongoing regulatory action in the U.S. and China closely.

The recent boost in bitcoin’s value comes as the SEC announced plans to review last month’s decision on the Winklevoss Bitcoin ETF.

At the time, the SEC nixed listing the twin’s ETF on the Bats BZX Exchange due to lack of oversight, regulation and the potential for fraud in the broader bitcoin space. The regulatory body noted that bitcoin must first have surveillance sharing agreements with significant markets and that those markets must be regulated.

It was a hard pill for some to swallow; many saw SEC approval as a major milestone on the journey toward bitcoin legitimacy.

Jerry Brito, executive director of cryptocurrency advocacy group Coin Center, notably queried, “How do we develop well-capitalized and regulated markets in the U.S. and Europe if financial innovators aren’t allowed to bring products to market that grow domestic demand for digital currencies like bitcoin?”

It’s a crypto-Catch-22.

Fast forward to today: the SEC looks to address the Bats petition for review and has opened up for comment for or against before May 15.

So will the SEC renege on its denial? To us, it doesn’t seem likely. The concerns the SEC noted in the past still hold true (as do Brito’s comments, no doubt). If anything, the SEC is going through the review motions.

But hey, we’ve been surprised before.

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