Bitcoin bubble bursts, Bitcoin prices crash back to earth

Bit4X on MetaTrader; Coinsetter raises $500K; but when will the Bitcoin hit the “mainstream” retail FX world?

The online virtual currency Bitcoin went on a wild roller coaster ride the past 24 hours, rising to hit a value of $266 then falling to a low of $105, before settling (at the time of this writing) at around $160 — see chart below. (Now THAT’S volatility!!). And that after beginning a trek upward from under $25 at the beginning of February, just two months ago.

Bitcoin price chart in USD$, past 24 hours to 10:00 GMT 11/04/13. Source: Mt. Gox.

In theory, it seems as if the online virtual currency Bitcoin is tailor-made for the online trading world of Retail Forex — it is used by “online” types, it is not regulated by any government and — most importantly — as we demonstrated above it enjoys a lot of volatility in value against the world’s “real’ currencies.

We have seen the beginnings of it being offered as a trading product to retail traders, but only on the “fringes” on Retail FX:

  • New Retail FX brokerage Bit4X, as its name implies, has launched retail trading in forex pairs denominated in Bitcoins with leverage up to 1000x, all on the MetaTrader platform.
  • New York-based Coinsetter has raised $500,000 from investors including SecondMarket founder Barry Silbert, and Microsoft head of corporate strategy Charles Songhurst. Coinsetter will soon be launching a levered forex trading platform for Bitcoin, enabling leveraged trading in Bitcoins, shorting Bitcoins, etc.

So when will Bitcoins hit the “mainstream” Retail Forex market? Probably, fairly soon. Retail Forex brokerages are always on the lookout for new, interesting products to add to their arsenal. We know that several of the larger Retail Forex firms are studying the issue closely. And there is certainly a lot of increasing interest in Bitcoins n the online world.

However a few problems and serious issues remain before FX brokers can add a “USDBTC” pair to their list of products. The main issues remain volatility — the kind of volatility mentioned above is way too much to enable proper risk management, and liquidity — if all clients wake up one morning and short the Bitcoin, where can a Retail Forex dealer or market maker go to hedge?

As the market matures somewhat, and more serious players (including big banks) begin to take the Bitcoin more seriously, we do expect to see the USDBTC pair hit the airwaves. Perhaps as soon as the end of the year.

Stay tuned to LeapRate — based on our discussions with FX brokers and others it seems that we’ll have a lot to write about on the Bitcoin market in the coming weeks and months.

For more reading on the Bitcoin bubble burst and price crash click here.

And for more reading on what Bitcoins are, how they are created, how they work, etc. we recommend:

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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