There’s been lots of speculations in bitcoin community regarding the recent decreases in bitcoin rate and the reasons for such kind of price drops.Some analysts believe that marginal trade is the main issue, others blame mining challenges or the fact that big trading organisations accept digit currency only to immediately exchange bitcoins to usd or euro.
Since bitcoin has all the traits relevant to money or other commodities, CoinTelegraph reporters have decided to interview an expert in the field of money, Edmund Moy. Edmund Moy used to head the USA mint for several years during Bush administration. He is now the leader of Fortress Gold Group.
CoinTelegraph: In spite of the fact that Bitcoin has been doing relatively well recently and the number of traders has increased, its rate is being on the constant decline. Does it mean that the bitcoin price drop would be even more dramatic, should there be any alarming news regarding digital currencies? In your opinion, why positive news haven’t averted the recent rate drop?
Edmund Moy: Without more detailed data, it’s hard to name the reason for the drop in bitcoin price. Basic economic analysis would demonstrate that prices drop when supply exceeds demand. But we are also aware of the fact that Bitcoin has low transaction volumes comparing to the U.S. dollar transaction volumes, and that impacts the volatility of the rate. Only after bitcoin transaction volumes increase significantly and the data/analysis segment of the Bitcoin ecosystem matures, we’ll be able to figure out the causes with more or less precision.
CT:Some analysts believe that the drop is being caused by margin trading. Do you see any connection here and, if so, to what extent can such kind of practice influence the rate?
EM: Bitcoin can be regarded as a speculative investment because of its early stages of development, when prices can be highly volatile. Speculative investments, especially in the situation of high volatility, are prime opportunities for margin trading. However, as far as I know, the situation has been relatively quiet with the bitcoin traders lately.
CT: Should we demand from bitcoin exchange services to install safeguards that halt trading in potential “crash” situations? And if so, how should these be best implemented?
EM: Conservative traders in my place would say “caveat emptor” ( latin “customer, beware” - editor’s note). But to fight problems such as “fat finger” or algorithmic automated trading, we need safeguard mechanisms which would help build up the confidence of both professional investors and the general public. It also makes sense to have bitcoin trading comply with similar regulatory safeguards that forex complies with, with the caveat of using only those regulations that can correspond the bitcoin uniqueness.
СТ:To what extent, do you believe, the fact that big companies and payment processors immediately exchange bitcoins to dollars or euros impacts the rate of this digital currency?
EM: It would have the net effect: the supply of available bitcoin in the marketplace will increase.
CT: Rumor has it that BitStamp service has been forced to change its bank after the EU issued their warning. Could this fact somehow scare away the anti-regulation community?
EM: We have insufficient information on the reasons for BitStamp to change its bank. The European Banking Authority (EBA) has issued a warning which has no regulatory authority. Basically speaking, this is not a warning per se, rather a recommendation which demonstrates the attitude of EBA towards crypto-currencies.
To be able to take enforcement actions, EBA would have to promulgate regulations, which they have not done yet and which will take time. The European bitcoin community has an opportunity to help European regulators get a better understanding of digital currencies and, as a result, to mitigate the control and to make regulations better thought-through.
Insecurity in any trading situation will have a large impact on rates. Inspite of the fact that bitcoin has had quite a few glorious successes already, the fact is that it has also suffered really tough times as coins have been stolen by criminals. The few regulations that have been introduced, came as a burden on the shoulders of bitcoin exchanges . The fact is that although a tiny minority of the crypto-currency market traders welcome the present regulations, everybody realises the necessity of certain safeguards to ensure a safe a prosperous future for bitcoin.