Why Bitcoin might not be the money of the future
06 Dec 2014 12:00 am by Mark Dunn
The Global Advisors Bitcoin Investment Fund (GABI) was certified to run from the 1st August and while not being open to the general public, allowed major investors, such as pension and insurance companies, to officially invest in Bitcoin for the first time.
GABI, the Jersey-based hedge fund that usually trades in commodities such as metals and oil, has become the forerunner in Jersey's focus on digital currencies. When the government announced its approval for the hedge fund to move into Bitcoin, Jersey's Assistant Chief Minister, Senator Philip Ozouf, who is responsible for financial services, said that he believes Bitcoin "holds significant opportunities for Jersey" and that Jersey is "pleased to be paving the way" for the innovation 'Fintech,' or financial services technology, will bring to Jersey's future prosperity.
The bank's decision not to continue its business with GABI could potentially have a significant effect on Jersey, which has been promoting the use of digital currencies on the island. bit.coin.je, Jersey's 'Bitcoin portal' and industry body, has been campaigning and promoting the digital currency's use in the country. Proponents argue that Jersey's existing financial services infrastructure and digital expertise puts it in an ideal place to be the leader in this field.
Although an increasing number of businesses are now accepting Bitcoin, (see our earlier blog) due to the centralised nature of virtual currencies, their lack of regulation and high potential for illegal activity like money laundering (see our earlier blog), many institutions are still hesitant to get involved.
A Nexis search for Bitcoin in UK publications over 2014 shows that the media's interest in the digital currency has waned in the second half of the year. There was a great deal of media interest at the beginning of the year when Bitcoin rose past the $1000 mark, and it is at this point a wider cohort of businesses began to look to Bitcoin's potential.
There have been massive fluctuations in the price of Bitcoin that has meant many institutions remain unsure as to Bitcoin's place in the financial services industry. These fluctuations have been triggered by events such as the shut-down of MTGOX, the Tokyo-based Bitcoin exchange once processing more than 70% of global Bitcoin transactions and the Chinese government's ban on financial institutions from dealing with Bitcoin exchanges.
GABI has been very clear from the beginning that despite the anonymity associated with virtual currencies, investors would need to go through the same know your customer (KYC) and security screening processes as other institutions offering mainstream financial services.
With a fragile global economy hinting at a sluggish recovery, it is more important than ever that organisations, particularly financial services institutions, can be confident they know who they are doing business with.Persistent money laundering and other organised criminal enterprises means that appropriate vetting and third party monitoring is paramount for businesses. While the popularity of Bitcoin has undoubtedly skyrocketed in the past few years, withmany believing it to be the future of the internet
, the lack of regulation and high potential for money laundering means that the majority of businesses, particularly in the financial services sector, remain unsure.