Friday, September 18, 2015
EU Refugee Crisis: ‘A Big Chance for the German Economy and Society’
Regulators Should 'Not Stand in the Way of Innovation,' says Australia's Financial Watchdog
Bitnation Registers First Refugees on the Blockchain
Bitcoin is Officially a Commodity in the U.S.
First ETF to Invest in Bitcoin ‘Impressed’ by Price Stability
Thursday, September 17, 2015
Closing the Loop: Australian Organic Farm Creates a Local Bitcoin Economy Among Farmers
Budafoods, a certified organic farm and food supplier located in the Sunshine Coast Hinterland, Queensland, Australia, is attempting to create a closed bitcoin economy among farmers and to encourage its partners, supporting businesses and community to accept bitcoin.
Over the past few years, online payment services and platforms such as PayPal and banking systems have negatively affected businesses in the area, including Budafoods and the local businesses the farm supplies. Apart from the substantial fee for transactions and payments, PayPal and the bank transfers have been extremely inefficient, freezing funds for weeks at their will.
In search for a cheaper, yet quicker, payment method, Budafoods founder Mark Burgunder came across bitcoin, a decentralized currency which enables instantaneous and cheap transactions for merchants and small businesses.
“My main reason for attempting to get others to accept bitcoins is that I love the speed and ease of bitcoin payments and have a distrust of most central banking methods,” Burgunder told Bitcoin Magazine.
“On a deep emotional level, fractional reserve banking feels like cheating to me and has only been successful because it benefited the already rich,” he said. “Additionally through experience with credit card processing and using PayPal I have realized that not only are merchants/sellers charged a substantial fee for accepting money, but we also need permission from the banks, credit card companies and/or PayPal to accept payments.”
Unlike most companies that claim to accept bitcoin, Budafoods is not converting the bitcoin it accepts to fiat money.
“In Australia, a surplus of bitcoins wouldn’t be an issue as we currently have a great service available here called Living Room of Satoshi that allows us to make bill payments and electronic transfers to almost any bank account in Australia using bitcoins. We’ve been using this service on a number of occasions already with the largest purchases so far having been for chicken feed and for mobile electric fencing,” Burgunder told Bitcoin Magazine.
Closed Bitcoin Economy Among Farmers
As computer scientist and cryptographer Nick Szabo stated before, suppliers, businesses and customers must all accept and use bitcoin for it to be effective in an economy. Szabo calls this concept a complete closed cycle: store => supplier = workers => store.
Burgunder attempts to implement this concept into the local farm and business networks in Queensland. Currently, Budafoods is trying to convince local businesses in its community to accept and pay them in bitcoin, as it is faster and cheaper than other online payment methods available in Australia.
“We are supplying one of the local restaurants and would be more than happy to accept payment in bitcoins from this restaurant. We feel this should make it easier to allow the restaurant to accept bitcoins from tourists and, in turn, pay us for supplies with the bitcoins they’ve accepted,” said Burgunder.
The Use of Multi-Sig Wallets between a Supplier and a Business
Burgunder further explained that the use of multi-signature wallets between a supplier and a business will be far more efficient than any other payment method/systems available today.
“I’d envisage in an escrow scenario we’d pay for the purchase into a multi-sig wallet with one of the signatures being ours, with us signing a transaction to release the funds to the supplier once we’ve received the shipment,” explained Burgunder. “With the supplier also having one of the multi-sig keys it wouldn’t be possible for us to just withdraw the funds, giving the supplier certainty that the funds will not disappear on them. I feel this would help incentivize the supplier to assist in speedy and hassle-free delivery as in this scenario it would be in their interest to have the shipment arrive with us in a timely manner.”
Head of Russia’s Largest Bank Admits to Own Bitcoin as ‘BitRuble’ Sparks Controversy
Wall Steet Interest in Bitcoin Grows with ARK Fund Investing in Silbert’s Bitcoin Investment Trust
ARK Investment Management LLC (ARK), an active manager of thematic Exchange Traded Funds (ETFs), announced that the ARK Web x.0 ETF has become the first ETF to invest in bitcoin. ARK has made its investment for ARK Web x.0 ETF through the purchase of publicly traded shares of Grayscale’s Bitcoin Investment Trust.
The ARK Web x.0 ETF trades on the NYSE Arca exchange with the symbol ARKW. Securities within ARKW are related to cloud computing, Big Data, sharing services and social media, digital education, wearable technology, data mining, Internet of Things (IoT) and now cryptocurrencies. Like the other ARK ETFs, ARKW can be purchased by investors through various trading platforms, including Fidelity, Schwab and E-Trade.
“We’re believers in bitcoin, the currency, and Bitcoin, the technology platform. We also believe that current prices present an attractive entry point for our investors,” said ARK’s Founder and Chief Investment Officer Cathie Wood. “Bitcoin is a disruptive innovation, and, while still in its infancy, interest has been growing rapidly in Silicon Valley, Wall Street and Washington, D.C.”
Wood founded ARK Investment Management in 2014. In 2013, she completed 12 years at Alliance Bernstein as chief investment officer of Global Thematic Strategies with nearly $5 billion in assets under management and superior long-term investment returns. New York Business Journal notes that ARK has holdings in LinkedIn, Amazon, Facebook and Netflix, which says much about Wood’s ability to pick stocks of disruptive technology companies with high potential for growth.
“We’ve been watching [Bitcoin] for a long time, not long after Satoshi Nakamoto, whoever he or she is, designed it,” Wood said to New York Business Journal. “We’re looking at something now that’s stabilized.” Grayscale’s director of sales Michael Sonnenshein added that ARK can’t hold bitcoin directly – because bitcoin is considered as property by the IRS in the United States – but can hold Bitcoin Investment Trust shares. “Rather than them purchase bitcoin directly, the way they can purchase shares of Apple and Tesla, they can buy shares in the Bitcoin Investment Trust,” he said.
In March, Bitcoin Magazine reported that Grayscale’s Bitcoin Investment Trust received formal approval for listing on the OTC Markets Group’s OTCQX exchange, with the symbol GBTC. Trading started in the following week.
“We’re excited to receive an investment into the Bitcoin Investment Trust from an innovative firm like ARK,” said Grayscale Founder Barry Silbert. “ARK, a pioneer in the investment community, is in good company. Recent news has highlighted Goldman Sachs, UBS and Citi for their initiatives in the digital currency space.”
“Grayscale is a leader in the bitcoin ecosystem, bridging the gap between digital currency and the broader investment community,” added ARK’s Chief Operations Officer Jane Kanter. “Our investment philosophy is to invest in innovative companies, and we’re glad to be making our own innovative mark within the ETF community.”
Another ETF focused on Bitcoin, the Winklevoss Bitcoin Trust ETF (COIN) to be launched by the Winklevoss twins, is still going through the regulatory approval process.
The ARK investment signals that Wall Street is ready to accept bitcoin as an investment that, as noted by Wood, is now stabilized. Now, ARKW offers investors – including small investors – who are bullish about bitcoin, but prefer not to hold it directly, the possibility to bet on bitcoin with a traditional investment vehicle that anyone can buy.
It’s worth noting, however, that the considerable increase in Bitcoin adoption and Wall Street incestments in Bitcoin (the technology) in this and last year hasn’t increased the value of bitcoin (the currency). In fact, the price of bitcoin doesn’t grow with adoption – if anything, it goes down. A reason is that bitcoin is not only a speculative investment, but also a currency that is increasingly used to pay for goods and services – you can’t buy a beer with Facebook’s stock, but you can buy a beer with bitcoin. Usually, merchants that accept bitcoin sell it for fiat immediately, which brings the bitcoin price down.
Therefore, investors should bear in mind that the growing adoption of bitcoin by consumers and merchants, and the growing Wall Street investments in the Bitcoin system, don’t necessarily result in an increase in the price of bitcoin and the value of investment vehicles tied to the price of bitcoin, such as GBTC and ARKW.
Alt-Options Launches Bitcoin Derivative Market
A group of students from Boston University has set out to build a commodity derivative exchange for digital currencies, allowing those who hold large amounts of bitcoin to hedge against market volatility.
Alt-Options, co-founded in June 2014 by Joe Zhou, Kevin Foo and Marco Cuesta, aims to act as the Chicago Mercantile Exchange for bitcoin, allowing digital currency derivatives to be publicly bought and sold instantly on its platform. The new platform launches in this month with a competition in collaboration with the College Cryptocurrency Network.
For the uninitiated, financial derivatives are simply contracts agreed upon between two parties: whoever holds the asset, in this case, bitcoin, and whoever wants to speculate on the future price of the asset. One of the most popular types of derivatives, a call, is defined as the right to purchase an asset at a preset price, called a strike price, before some date in the future. Should the market price increase above the strike price, the option owner purchases and immediately sells the asset, pocketing the difference.
In exchange for signing the contract, the option purchaser pays whoever owns the asset a small fee. Asset owners enter into these types of contracts for the guaranteed income, and the option purchasers are incentivized with the large upsides associated with this type of trading. Other popular financial derivatives include puts, where the option owner reserves the right to purchase an asset at a specific price up until a period of time, and futures, where the owner must purchase the asset at a specific price on a specific day in the future.
Users can purchase financial derivatives offered by Alt-Options in order to both speculate on large bitcoin price movements and decrease volatility. For instance, if a user believed the price of bitcoin was going to increase above $300 sometime in the next six months, he or she could purchase a call at $300 for a small fee. If the price were to reach $350 before six months passed, the user would exercise his option, the bitcoin would be sold on the open market, and the user would pocket $50. If the user’s prediction proved incorrect, the asset owner who sold him the option would simply keep the small fee.
However, if a user wanted to protect herself from a price drop below $250 in the next six months, she would purchase a put at $250 on her personal balance of bitcoin on the Alt-Options platform, again paying a small fee. Should the price fall below $250, she would exercise her right to sell her bitcoin for the strike price of $250, protecting her from volatility in the bitcoin market. And while this arrangement may not seem revolutionary, calls and puts play an important role in the world market today by allowing large players to hedge against large swings in the market.
Financial derivative exchanges have been lucrative for years. Founded in 1898, the Chicago Mercantile Exchange took in $3 billion in 2010. At the end of March 2008, the notional amount of all outstanding positions stood at $81 trillion, according to the Bank for International Settlements.
While Alt-Options is currently regulated by Financial Crimes Enforcement Network (FinCEN) regulations, it has been able to bypass stricter guidelines by using “strong partnerships with regulated (bitcoin) exchanges,” said Alt-Options co-founder Joe Zhou in a recent interview. “There are no specific guidelines regarding digital assets, but we foresee some sort of regulation or set of guidelines from the U.S. Commodity Futures Trading Commission in the future.”
Alt-Options aims to find the same volume that allowed Chicago Mercantile Exchange to prosper with bitcoin trading. With tools typically found on pro-trading platforms and American-style options for retail clients, a team of students is hoping to revolutionize the way mining firms liquidate assets, hedge risk and manage the incredible amounts of bitcoin they generate every day while allowing casual and professional traders to experiment with bitcoin.
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