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Germany's recognition of bitcoin use and the economy change

Germany's recognition of bitcoin use

In international publications it is argued that Bitcoins can be regarded as currency or as commodity kind goods. Incidentally, one concept excludes the other. If the Bitcoin is a commodity, it can not be a currency and vice versa. We will hereafter mention a few publications as inspiration for possible further research.

According to the Bitcoin website Bitcoin is money, which indicates that it would be currency. By contrast, the Finnish central bank categorizes Bitcoin as a commodity rather than a currency. The Japanese government is also tending to that. In Germany, the Bitcoin has now obtained an official status.

In response to questions from parliamentarian Frank Schaeffler, the Ministry of Finance replied that Bitcoin is a financial instrument, more specifically as currency units to be equated with currencies as referred to in the Credit Scheme Act.

This makes Germany the first country to recognize the digital currency as a financial instrument. This does not mean that payment can be made anywhere with Bitcoins, but that assets are recognized in the digital currency and that private parties are free to agree on it as the current payment method.

In the United States, Bitcoin has already been classified as a regulatable currency by a judge, but the American government has not yet commented on the currency. The state of New York intends to regulate the Bitcoin in the second half of this year. It is still unclear how this will look like.

The Bitcoin insurance

Although the Bitcoin creates many opportunities, such as fast and cheap settlement of transactions, there are also a number of drawbacks to acquisitions.These disadvantages apply to consumers, but also to Bitcoin entrepreneurs and bitcoin or crypto insurance.

Bitcoin exchange platforms can go bankrupt faster due to the absence of supervision than exchanges that are supervised. They can also be closed for money laundering if there is criminal involvement whether or not in connection with the anonymity of the Bitcoin. The position of the Bitcoin in the various worldwide jurisdictions is also unclear, which causes major price fluctuations when a government or regulator in a relevant jurisdiction turns over the Bitcoin.

It has also happened several times that wallets, the digital Bitcoin wallet, are being cracked due to inadequate IT security. And last but not least, there is no financial protection under the Deposit Guarantee Scheme or Investor Guarantee Scheme. This clearly made itself felt in the bankruptcy of Mt. Gox in early 2014.

By increasing the use of Bitcoins in the real white economy, the legitimate need for users to hedge 'price risk' of the Bitcoin is growing. In 'customer centric terms' you could speak of an emerging new customer need. For Dutch banks and insurers this is an opportunity to be socially useful and to connect with the customer's experience of the future. Bitcoin can be a harbinger of what is of lasting value in the future, just like the computer and the internet.

Assuming that this customer need is increasingly manifested, product development departments of banks and insurers will be stimulated more to investigate whether they can meet these needs through a thorough product development process.

As we wrote before, we are inclined to consider the digital coins as foreign-rights property which have the nature of commodities. Based on this, it is legally possible to enter into derivative transactions with regard to Bitcoins, as well as with respect to other currencies or commodities.

These transactions can be used to hedge risks, for example by taking an option on the purchase or sale of Bitcoins at a predetermined price, in which any price increase or price decrease is discounted. Or by exchanging Bitcoins against euro or US Dollar and the like.

There are in particular several parties active in the United States that already offer such derivatives. Initially, this was only done by niche players who were specifically targeting Bitcoins, such as the derivatives trader ICBIT. For example, ICBIT offers all sorts of futures whereby Bitcoins are traded against Dollars Euro Yuan or oil. Recently more traditional derivatives parties have also started using derivatives in Bitcoins.

For example, at the end of March TeraExchange announced that it would offer Bitcoin swaps. TeraExchange is supervised by the US Commodities Futures Trading Commission.

In addition to derivatives in which Bitcoins are directly involved, it is also possible to trade in derivatives in which only the price of the Bitcoin is used. That price is then determined on the basis of a few Bitcoin exchanges.

The advantage of this type of derivatives is that they can be used without the parties having to transfer to the Bitcoins.