Cointelegraph reached out to First Global Credit CEO, Gavin Smith, who recently contributed his own Op-Ed piece about Anonymity vs. Privacy, to get his thoughts on the advantages of trading with bitcoins, the future of the stock market in the age of the blockchain and the looming BTC regulations.
Cointelegraph: What do you see as the major advantages to investors being able trade global financial products using Bitcoin?
Gavin Smith: Many holders of bitcoins believe that the currency will appreciate significantly over time and they don’t want to lose out on that growth. If you make it possible for people to hold their bitcoin position but also use them as margin to trade global financial products, they can look for opportunities in the stock market without losing out on the growth potential in the value of Bitcoin.
Here’s an example that illustrates the benefits:
A Bitcoin miner believes that the bitcoins he has mined are going to increase in value so he plans to hang onto them for at least 3 years. He also has strong opinions about certain stocks and really wants to exercise his opinions so he can benefit from their potential. Our miner has 3 options.
Option 1 – Stay invested in Bitcoin and leave them in an offline wallet.
Option 2 – Exchange the Bitcoin for the fiat currency needed to invest in his stock ideas.
Option 3 – Find a way to use his Bitcoins as margin so that he can invest in his ideas AND keep his BTC.
Over the coming year, our miner gets both markets right – bitcoins are up 30% and his market picks are up 25%.
If he takes Option 1 – Our miner makes 30% in dollar terms because BTC are up, but in bitcoin terms, he has the same number of bitcoins – no growth
If he takes Option 2 – Our miner makes 25% on his market picks so he is up 25% in dollar terms, but because he sold his bitcoins, he lost that 30% growth in Bitcoin value. This translates to a 5% loss in Bitcoin terms.
If he takes Option 3 – (In this example I am going to give all the charges, so the result reflected is actual) Our miner makes 25% on his stock picks, less 3% finance fees* (which is what is charged on the First Global Credit Investment Service). In addition, the bitcoins that have been sitting there as margin (which he still owns) have increased in value by 30%, so in dollar terms, he makes a total of +52%.
The +22% stock pick profit gets swept back into his account as bitcoins when the position is closed. However, since bitcoins have gone up in value since the original investment, the return in bitcoin terms when the trade is closed is +17%.
The ultimate goal is to give bitcoins the same power as any other currency. If you have dollars or yen or euros, you don’t leave them sitting in an account unutilized, do you? No, you invest them to maximize the potential of your holdings.
*A note on Finance Fees. The actual mechanism to put the trade on is that we loan the client the fiat currency needed to put the trade on. Since the position is being held for a full year that cost is around 3%. It depends on the fiat currency the trade is in since different countries have different base rates.
CT: Do you think that the Bitcoin Blockchain Technology can one day completely eliminate the entire stock market? We can use the concept of Colored Coins as an example to start this process but other tools may come along including what Counterparty is putting together with Patrick M. Byrne of Overstock.
GS: There is a lot of discussion about the blockchain being used to replace the stock market – I believe this is best framed differently. The blockchain has the potential to improve the functioning of the stock market, not replace it. The mechanism of trading stocks (the stock market) has evolved over the years from the original, where people made deals in an informal setting to the establishment of structured Exchanges to the current electronic environment.
Each improvement has made the market more open to outsiders, disintermediated vested interests and lowered transaction fees. The blockchain has the potential to take the stock exchange to the next level creating an environment of still greater openness and disintermediation. I believe this represents the next logical step in the evolution of the stock market, not a “replacement.”
CT: Where do you see the future of regulation within this from a Global perspective and from the US perspective with the CFTC's latest comments hinting that Bitcoin should be regulated like a commodity?
GS: The current regulatory background is rapidly changing. Most jurisdictions, as you indicated, are looking at Bitcoin as an asset rather than as a currency. The logical conclusion to this is that it should be regulated as a commodity. While many people in the Bitcoin community have an aversion to the regulators becoming involved, we think there are benefits as well, providing this regulation is light touch.
Our views at First Global Credit have been to set up a structure where regulators, if they become involved, cannot create problems for our clients, but this is done in a way that tries to be sensitive to the wishes of those clients. So we focus on privacy, not anonymity.
Therefore while all our customers are KYC checked, we carry out that process and hold the information in jurisdictions where the authorities cannot make a blanket request for all customer account details. Any request that the authorities may raise needs to be for a particular account and to get that information, they will need to go through a regimented and documented court process.
This will have the net effect of forcing requests to be made in a reasonable and ordered manner and not as a fishing expedition. Providing regulations are placed on the companies holding client assets, not the end-customer, then light regulation has the potential to be a positive force, making customer assets more secure and cutting down the potential for theft by unscrupulous ‘investment companies’ or by governments looking for an excuse to seize assets.
Ticket to Prosperity
Meanwhile, First Global Credit has announced a promotion known as Ticket to Prosperity where it seeks to find the best traditional trader in the Bitcoin space.
The competition begins on December 1, but users can register now for the Active Trader Paper account and start entering positions using fake bitcoins to get used to the platform.
The platform of First Global Credit allows user to purchase traditional financial products using bitcoins as collateral.
A trader can go long or short on a variety of products including precious metal ETF’s, Indices like S&P500 or Nasdaq, and even individual stocks like Apple, IBM and Amazon. This is a good way for someone that has been successful at trading bitcoins or does not want to have any exposure to fiat currencies to try and make profits though investments in traditional financial instruments.
As for the competition, the winner would be the one with the biggest profit when converted to bitcoins after a 6-week trading period. The winner gets access to a fully funded level 1 First Global Credit trading account with up to 10 bitcoins worth of collateral, which can be used to generate profits in stocks, indices or ETFs.
- The Digital Currency Dilemma: Anonymity vs. Privacy (Op-Ed)
- Overstock.com Plans New Bitcoin-Blockchain Based Stock Market