Will bitcoin trading be the next big thing in the crypto-currency world?

17 December, 2014

The ways in which you can use your bitcoins are continually increasing. Along with being able to spend them online, you can now make purchases with them at many brick and mortar retail locations. Bitcoin ATMs are also popping up all over the place.

During the last election cycle, many candidates made it possible for donors to make donations in bitcoins. Some colleges are now allowing students to pay their tuition using bitcoins. It only seems to make sense that you should also be able to use them for trading purposes.

Earlier this year, SecondMarket announced plans to launch a regulated exchange that would facilitate the bitcoin trading process. The New York based firm stated they planned to provide investors with an online venue for buying and selling securities that were somewhat less well known. This is certainly an area where SecondMarket has a bit of experience. They are the same firm that once facilitated the trading for shares of then little-known companies Facebook and Twitter. 1

Institutional Investor reports that several entrepreneurs in the United States, largely backed by venture capital are competing to create a bitcoin-based exchange. Among them is Patrick Bryne, Chief Executive Officer of Overstock.com, who recently announced that he would be exploring the possibility of launching a bitcoin stock exchange. Bryne later created an entire division within his company for that sole purpose. Named after the renowned Italian banking family, Medici, the department is charged with the creation of a stock trading system that will be built on the bitcoin public transaction ledger, known as the blockchain, in order to get around the institutions on Wall Street.

Echoing the digital currency itself, the new exchange would allow stock trades to be controlled by the cryptographic algorithms. This means that the general public would control all stock trades as opposed to a traditional stock exchange, such as the New York Stock Exchange or NASDAQ. Each trade on the system would be verified mathematically and then recorded in a ledger online. Anyone would be able to view the ledger at any time. Byrne has stated that he believes this aspect to be critical for eliminating many of the flaws he has cited in Wall Street.

Bryne has been a long-time critic of Wall Street. Shortly after Overstock's IPO, Bryne out and out accused Wall Street of what he referred to as naked short selling, a practice in which traders sell shares that they do not actually possess. Since then, Bryne has continued to launch accusations at Wall Street, including claims of corruptions and ties to organized crime.

Using bitcoin for buying and selling stock has not been without its ups and downs. Most recently, Reuters announced that a computer programmer was sanctioned by the Securities and Exchange Commission for operating two security trading venues online using bitcoin. The programmer was sanctioned for failing to register the venues as stock exchanges or broker-dealers and was ordered to pay $68,000. 2

Wired recently reported that the SEC is cracking down significantly on bitcoin stocks, citing the case of Garrett Keirns, who made a public offering for his startup Bitcoin Emerging Market Fund back when he was still a college student in 2012. It took time, but he eventually sold 150,000 shares in his market fund. Now, the SEC is investigating him because he failed to file any paperwork with regulators when he made the IPO. Keirns is complying with investigators but has stated that he doesn't believe the SEC should have jurisdiction when it comes to Bitcoin. Clearly, the SEC does not agree. While the SEC may be fighting back against bitcoin, for the moment it seems that bitcoin trading is unstoppable.


1) USAToday. SecondMarket jumps to give legitimacy to Bitcoin

1) Reuters. Operator of bitcoin stock exchange penalized by U.S. SEC