This week the Tusk Media panel brings you part two of their “Bitcoin 101” special. In the first episode we spoke about the fundamentals of bitcoin (OTCQX:OTCQX:GBTC) how transactions are made, and how they are verified. In the video below, the panel discusses whether or not bitcoin can really be used as a currency. In addition, the panel touched on bitcoin futures contracts and how they work.
So, is it possible that we see bitcoin scale up to be more widely used? One potential factor in the ramp up of bitcoin as a usable currency is the transaction speed. As Ben Nye states:
“The whole bitcoin network can process 5 transactions per second. For context, Visa alone processes 25,000 per second.”
This may foreshadow some difficulty for the cryptocurrency in gaining popularity for transactions. In some cases, it can take hours to process transactions for larger sums.
“How eager am I to jump in on bitcoin as a form of payment if I know, at the end of the day, it could take me 8 hours to process something that previously I could process instantly?”
-Andrew Hall
Panelist Jonathan Hicks also offers his concerns on the scalability:
“…and the problem with physical stores. When are they going to adapt, if ever? That’s an issue.”
Bitcoin made headlines earlier this month for something other than its record highs – futures contracts. CBOE and CME started offering bitcoin futures in early December. So, what does this mean for bitcoin’s success? In addition to betting on the price of bitcoin rising, now you can bet against it. In the investing world, this is called a “short”. There is potential for huge futures contracts based on the volatility we have seen so far with bitcoin.
Ben Nye offers his thoughts on the risks of shorting bitcoin futures:
“It allows people to short bitcoin. It becomes very costly and expensive to bet against, you almost have to do that through private transactions. If the price of the underlying commodity, in this case bitcoin, exceeds a certain threshold level then you end up having to post margin…which means you have to take money out of your own personal account and give it to the CME as collateral.”
If the price drives up, you would be on the hook for a “margin call” each time a new threshold is passed. Ultimately, if you can’t post that margin – you have to buy the underlying commodity.
Analysts argue whether futures contracts will continue to drive the price up and increase liquidity, or if it will kill bitcoin altogether. Keep an eye out for part three of “Bitcoin 101” to hear our thoughts and predictions on where bitcoin will end up.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: We DO NOT own any bitcoin for clients. Two of our employees own bitcoin in their personal investments outside of Narwhal Capital. This is not a recommendation to buy or sell bitcoin. Please see full disclosure at the end of the video.
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