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Author Topic: Bitcoin as a Currency Overlay  (Read 1893 times)
benjamindees
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March 15, 2012, 04:52:41 PM
 #1

from here: https://bitcointalk.org/index.php?topic=41155

This is an old topic, but I don't think it has received much attention.

http://en.wikipedia.org/wiki/Currency_overlay

The idea is that firms like Bitcoin Consultancy can offer Bitcoin to their clients as a currency overlay strategy.  This is entirely within the scope of existing financial regulations, as the consultancy takes on the role of financial adviser and offers Bitcoin as an investment strategy to hedge currency risk.  Bitcoins are then bought and sold like any other commodity or currency.  All of the legal paperwork and interfacing with authorities is handled by the firm offering this service.  Neither the client nor other Bitcoin users end up with any exposure to any legal peculiarities of the particular jurisdiction in which the firm operates.  In short,

End-User -> Currency Overlay (provided by Financial Consultant) -> Bitcoin

Overall, this seems like a fairly sane first step in integrating Bitcoin services into the existing financial system.  Bitcoin is not just a currency-hedging strategy, of course.  It is a unique commodity currency in and of itself.  But, for jurisdictions that do not yet recognize it as such, this method can be used to abstract away the uniqueness of Bitcoin and help it to fit into the existing regulatory framework.


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NASDAQEnema
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March 15, 2012, 06:57:59 PM
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The problem is timing.

I can think of several good reasons why bitcoin will reach a choke point.
It only solves policy problems.
Those who control most of the trade could care less about its potential to solve fundamental and structural problems.
Those who wish to solve such problems have no hope of acquiring the capital to implement.
This attitude won't change soon.

Conclusion: Demand exists among aspiring game changers for competitors to bitcoin not because of technical superiority but because of lock out. Bitcoin was produced at a time when people still thought the economy could be redeemed. That biased bitcoin toward value stability. The prevailing attitude will cause that function to break down.

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Boussac
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March 17, 2012, 06:50:35 AM
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Overall, this seems like a fairly sane first step in integrating Bitcoin services into the existing financial system.  Bitcoin is not just a currency-hedging strategy, of course.  It is a unique commodity currency in and of itself.  But, for jurisdictions that do not yet recognize it as such, this method can be used to abstract away the uniqueness of Bitcoin and help it to fit into the existing regulatory framework.



What's so different form classifying bitcoins as digital commodity (ie trying to have it fit in the same category as gold for tax purposes)?
 Isn't gold used as currency overlay?

benjamindees
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March 17, 2012, 07:53:40 AM
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What's so different form classifying bitcoins as digital commodity (ie trying to have it fit in the same category as gold for tax purposes)?
 Isn't gold used as currency overlay?

It's possible, likely even, that Bitcoin would not be recognized as such, especially not immediately.  This is an easier argument to justify, and an easier first step.

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