Why Virgin Bitcoins Are More Expensive?
After FATF had uncovered their new AML/CFT recommendations that would become fully enforceable in June 2020, investors started getting interested in virgin Bitcoins, i.e. freshly minted coins that were not involved in any operations aside from mining.
First and foremost, that happens due to new technologies for blockchain analysis that untie the hands of regulators. Coins that have been a part of some shady schemes can be frozen.
This somewhat reasonable precaution has produced a slightly unexpected effect: even though Bitcoins are fungible by design, freshly minted coins are now more expensive than their older peers. And there are several reasons for that.
Bitcoin Is Not Anonymous
Contrary to the popular myth, Bitcoin is anything but anonymous. Its network is transparent and transactions are traceable. Plus there is no chance to remove or rewrite the history of operations. Theoretically, Bitcoin could be anonymous yet the current version of the system is very far from it. Each transaction has to be publicly registered, which means that anyone can see monetary flows in real-time.
On the one hand, users cannot identify transaction data because any transaction number is just a string of random numbers. On the other hand, if at least one transaction and the sender is identified, it means that all other participants can be traced as well. There is a chance, therefore, that law enforcement or financial regulators can do that, too, and arrest the involved persons for, let’s say, tax evasion. But it also means that even if you have never evaded taxes, your Bitcoins could be used for that by somebody else a few years ago. Or they could be used for money laundering. Or even financing terrorism, which are the things the FATF was worried about in the first place.
Meanwhile, blockchain analysis is so advanced now that tracing is possible even for multiple operations between different people and trading platforms. As a result, every Bitcoin holder is theoretically at risk of owning dirty money and facing consequences for someone else’s misdemeanor.
“This a big concern for hedge funds that are concerned that their entire fund could be tainted by a few bad tokens. While this is less likely to affect those holding small amounts, larger traders could potentially, and unwittingly, hold larger amounts of stolen assets, lowering the value of their investment pool through association,” CipherTrace CEO Dave Jevans told Cointelegraph.
Virgin Bitcoins in a Nutshell
Virgin bitcoins are basically freshly minted Bitcoins that nobody has sent to anyone else. Dovey Wan, the founding partner at Primitive Ventures, also calls them coinbase Bitcoins while stressing that this has nothing to do with the well-known U.S. company.
if anybody wants to buy coinbase $BTC (virgin Bitcoin, freshly mined) feel free to DM me
— Dovey 以德服人 Wan 🗝 🦖 (@DoveyWan) August 5, 2019
When a minter starts mining a block, it adds a coinbase transaction. This is a specific kind of transaction that does not require earlier inputs but creates outputs. Miners get coinbase Bitcoins as rewards for mining new blocks.
also guys, virgin always has premium (even if you buy from OTC for Bitcoin in circulation, you have to pay premium too), and it's higher than what you pay for OTC desk.
PLEASE DONT ASK FOR DISCOUNT …
— Dovey 以德服人 Wan 🗝 🦖 (@DoveyWan) August 5, 2019
As for the premium in question, the blog of the OTC platform Vertex suggests that such Bitcoins are 10 to 30 percent more expensive. That is the price for feeling more safe and secure. Or, as Vertex put it, the reason is their status of “no history” which makes such coins the safest kind to hold.
The FATF Effect
Identifying Bitcoins is not very widespread now. Still, keeping in mind the recent initiatives from the FATF, there is a high chance regulators will step up their game in the nearest future.
CEO of Hong Kong-based Babel Finance Flex Yang believes that institutional players are interested in Bitcoin investment. However, they usually have the low risk appetite, which results in the demand for safe Bitcoins.
“Bitcoin has, in a sense, become the new trust fund. Buyers have entered the market for virgin Bitcoin, in large part, due to their novelty. With such coins, there persists a notion of rarity and exclusivity, prompting buyers to pay as much as a 20 percent markup on coins with no transaction history. Adding additional value is the fact that the virgin coins are believed to comply with the recent FATF recommendations,” he wrote in an op-ed for Bitcoin Magazine.
Yang added that new Bitcoins may not bring about additional profits to anyone but major players feel more secure with them so they are willing to pay more. He added that the growing demand for such coins is further promoted by the Chinese mining industry.
Bitcointalk users also actively discuss virgin Bitcoins. Lots of people seem to be puzzled about the fact that coins having similar face value are traded at different prices. One of the users hatshepsut93 explained this phenomenon obviously using Сarl Menger’s concept of subjective value:
“Things are only worth as much as other people are willing to pay for them. You might not see any reasons to pay a premium for freshly minted coins, but there are people out there who do, and it seems like there’s enough of them to create a steady demand for these virgin Bitcoins. Prices are always subjective, some people wouldn’t buy any Bitcoins if they were worth a few dollars, while others are buying them right now and think it’s a good deal.”
Crypto industry regulation has become a global process but the essence of regulations seems to contradict the very nature of cryptocurrencies.
The Nobel Prize winner Friedrich Hayek believed that economic control is inseparable from the control over human lives because it is impossible not to control the ends if you control the means. Still, it seems that modern-day governments and central banks aspire to control everything using AML and CFT as an excuse to maintain their monetary monopoly.
Most market players will hardly embrace the idea of clean Bitcoins. Moreover, Bitcoin was created for the sake of free exchange, among other things, which seems difficult in the circumstances of total control.
Those circumstances may cause developers to step up their efforts to create solutions that ensure high grade anonymity of transactions. Otherwise, extensive regulation may kill business activity across the whole crypto industry. After all, people tend to create something beautiful and useful thanks to freedom, not regulatory obstacles.
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