One of the latest skeptics-turned-believers is Ty Danco, a respected
market veteran who has worked up one side of Wall Street and down the
other. Danco once oversaw more than $60 billion of assets and now is the
CEO at a trading firm called BuysideFX.
“The media thoroughly covered its meteoric rise in market value as a
currency, but the bigger story is that high-profile investors have
placed significant bets on Bitcoin-related businesses this year,
including Li-Ka Shing, Union Square Ventures, and Andreessen-Horowitz,”
Danco wrote. “Given their involvement, bitcoin demands a serious look.”
(Read more: Do you really know bitcoin? Here are 11 myths )
It seems bitcoin’s path to legitimacy runs straight through government
and regulatory agencies, quite likely the Commodity Futures Trading
Commission. Says Danco:
Early signs from regulators are more promising than I initially
expected, but we still have a long way to go. CFTC: Bitcoin most likely
falls in your lap, whether as a commodity, currency, or derivative. Take
a stand!
Bitcoin indeed needs to shed its image as a toy created by hobbyists
and nerds. After all the leading bitcoin exchange is Mt.Gox, which is
not an abbreviation for “Mount Gox” but rather an acronym for Magic The
Game: Online Exchange, where folks used to trade cards for a Dungeons
& Dragons-esque game.
I can’t see Prudential Insurance, Vanguard or the Monetary Authority of
Singapore trusting their assets with these kids. Those of you running
Bitcoin exchanges, dump the rhetoric, go hire some pros from SWIFT, the
major credit card companies, central banks, the FSA, etc.
On 2B, bitcoin already has gotten some pretty weighty
endorsements-hedge fund titan Mike Novogratz, for instance-but could
use a little more heft, Danco said.
To get broad buy-in of its legitimacy, Bitcoin needs some sponsorship
by big players. Some well-known VCs have jumped in, but we need one or
two mammoth banks like JPMorgan (JPM) or Deutsche Bank (XETRA:DBK-DE) to come onboard; not shady entities based out of the Caymans
3. Establishing two-way transactions and delivery vs. payment (DVP).
DVP is another byway on the way to legitimacy. It ensures that users of
bitcoin aren’t going to get ripped off on the other end as it requires
payment at the time of delivery for the goods in question.
When a DVP and security registration can be automated via a
decentralized P2P process, Bitcoin takes the banking world by storm.
Finally, to become institutional, Bitcoin requires optional and
verifiable identity opt-ins. Identity for securities settlement
instructions is going to be known in advance before diving into
anonymous-looking alphanumeric strings of private and public keys. (An
exception may be made for dark pool transactions.) My guess is that
institutional “wallets” (read:custody accounts for bitcoin) may have
some identifiable and consistent beginning, then unique and
cryptographic back ends.
While achieving the
four steps will be difficult, it also is very doable, rendering bitcoin
skeptics increasingly into the shadows.
It’s hard
to go against 30 years of habit, but this old dog has converted from
Krugmanesque bitcoin hating to being optimistic about virtual
currencies. It will be time for new tricks soon, but bitcoin needs to
check a few boxes before it’s ready for primetime.
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Tomohiro Ohsumi | Bloomberg | Getty Images
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