This how the Bitcoin regulator comes, not with a bang but with an AMA.
In accordance with the New York State Administrative Procedures Act (SAPA), the proposed DFS rules for virtual currency firms will be published in the New York State Register’s July 23, 2014 edition, which begins a 45-day public comment period. After that public comment period, the rules are subject to additional review and revision based on that public feedback before DFS finalizes them.
Additionally, DFS is today immediately publishing a copy of the regulations on the website Reddit. Earlier this year, Superintendent Lawsky hosted an “Ask Me Anything” forum on Reddit about DFS’ work on virtual currency regulation, which generated more than 1,200 public comments. Links to the proposed rules are also being tweeted out from the DFS Twitter handle (@NYDFS) and Superintendent Lawsky’s Twitter handle (@BenLawsky).
Click to enlarge, via the European Banking Authority’s response to virtual currencies. Do note E31.
Since we just spent a good while arguing against the idea of blockchain society, we thought we’d quickly follow up with a post explaining why that doesn’t necessarily mean we’re against blockchain innovation itself.
It’s very likely that the blockchain might one day be usefully incorporated into existing services to make them better and fairer. We’re just not convinced this will necessarily democratise the world the way Matthew Sparkes at the Telegraph envisions or make it cheaper to process information. If anything, it’s likely to de-risk markets (the sort that feature real goods and services) through improved information gathering, sharing and transparency — something which limits the need for currencies, not increases it. Read more
We’ve been wondering about the consequences of paradoxical markets here at FT Alphaville, especially as financial information systems run into the laws of physics. (How does an HFT trader, for example, gain an advantage when he’s already approaching the speed of light, which presumably counts as the universal circuit breaker?)
Might markets inadvertently replace the Large Hadron Collider as the world’s largest physics experiment? You know, like in Hitchhiker’s Guide to the Galaxy where the greatest computer of all time was in fact a computational matrix designed to calculate the ultimate question to life, the universe, and everything but which happened to incorporate unwitting living beings in the experiment. It was also programmed by mice and better known as the Earth. Read more
Ken Rogoff wades into the negative rate debate this month, in a paper that discusses the costs and benefits of phasing out paper currency — a topic previously explored by Willem Buiter and Miles Kimball (and of course Satoshi Nakamoto).
Among his observations is the somewhat provocative point (at least judging by the replies on Twitter) that…
Paying a negative interest rate on currency, or on electronic reserves at the central bank, may seem barbaric to some. But it is arguably no more barbaric than inflation, which similarly reduces the real purchasing power of currency.
Meaning that a good bout of inflation could be just as good as a negative rate regime. Read more
Everyone has a linguistic signature (apparently).
Luckily for Bitcoin sleuths trying to determine the real identity of Satoshi Nakamoto the existence of *that* Bitcoin white paper provides everyone with some valuable clues. Read more
This guest post is by Tim Karpoff, a partner at Jenner & Block and formerly Director of the Treasury Department’s Office of Financial Institutions Policy and Counsel to CFTC Chairman Gary Gensler, and Israel Klein, a Principal at the Podesta Group and formerly a senior Capitol Hill staffer. The authors do not represent clients with interests related to Bitcoin.
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Tech billionaire and bitcoin investor Marc Andreessen says Mt Gox is to bitcoin what MF Global is to the dollar.
But before we get to that, we’d like to explore revelations that it may not have been a malleability issue, a.k.a. a transaction doppelganging problem, that brought down the world’s premier bitcoin exchange but the much more common problem of “under-capitalisation”. It’s a common problem of banks and ponzi schemes everywhere. Read more
Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading.
Banks or Bitcoin operators? Click here to find out. Read more
Felix Salmon at Reuters sums up the problem with a lot of “disruptive” innovation these days.
It’s not really all that innovative — but rather focused on finding ever cleverer and more subtle ways of dodging established regulations, which, as he also points out, exist for a reason.
Should it therefore be surprising that the likes of Airbnb, Uber and even Bitcoin are more cost effective than established competitors when they’re either cutting out the taxman or costs of compliance altogether? How can regulated industry possibly hope to compete?
Which also confuses, if not exploits, the ethos of the sharing economy in and of itself. Read more
Cartels come in many shapes and sizes.
There are Colombian drug cartels. Mafia protection cartels. Oil producer cartels. Diamond cartels. Commodity cartels. Central banks. Altcoin cartels. All sorts.
All of them, however, extract value from potentially low-value things by means of organised collusion and discipline.
Columbian drug cartels organise to ensure drug markets are not oversupplied by wiping out the competition. The mafia organises to extract rents from those who would otherwise not be inclined to pay them, mostly by imposing an artificial market for protection. Oil producers organise to ensure oil markets are not oversupplied for the best possible return from oil prices. Diamond cartels do the same , but since diamonds are not an essential commodity they also create fanciful myths about diamonds being a girl’s best friend to create continuos demand. Central banks control the money supply, and thanks to that can corner and support any market they wish for as long as their underlying currency is demand. Read more
Now, more than ever, is the time for central banks to launch their own official e-money. We’ve campaigned for this before. But in light of further Bitcoin and altcoin developments, as well as secular stagnation observations by Larry Summers, it’s worth reiterating the argument for an unconventional policy of this sort.
First, it’s important to stress why this wouldn’t in any way be a panicked response to the supposedly destabilising “threat” of Bitcoin.
Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began.
What’s more, the Bitcoin asset bubble is much more likely to be doing the stagnating dollar economy a favour at the moment than a disservice. Read more
Here’s an interesting little side note from Joseph Abate at Barclays’ Global Rates team last week on the subject of rising demand for paper money:
Despite the attention the bitcoin and other electronic payments attract, the demand for old-fashioned paper money is surprisingly robust. Paper money is growing at a 7% annual rate, reflecting non-US demand and the $100 bill’s role as a store of value.
• Growth in currency demand has cooled since early 2012, yet it remains considerably faster than nominal consumption.
• Much of the demand for US currency results from its use as a stable store of value, which is reflected in high per capita holdings and its use abroad.
• Super-low rates on highly liquid assets such as money funds and checking account balances have meant that the opportunity cost of holding currency is low.
• Currency growth will determine how quickly the Fed’s balance sheet normalizes after it stops buying assets and re-investing maturing securities. We expect the precautionary demand and the higher opportunity costs to slow annual growth to 3% or less.
In a previous post we presented research by Willem Buiter, Citi chief economist and former BoE MPC member, which he conducted in the mid 2000s, into whether virtual currencies could be a useful mechanism for breaking through the zero-lower bound.
The idea in many ways represents an evolved form of QE, in which differentiable units from dollars are pumped into the economy, inducing an effective negative interest rate on dollars due to the fact that there is less of the new currency in circulation than the established one. Seen from this light, the recent rise of private virtual currencies could can be seen as amounting to the market’s own endogenous version of QE. Read more
Give unto Caesar what is Caesar’s
Following on from our previous post, there are a number of reasons why banks choose to voluntarily fund and capitalise themselves when — thanks to the power of their own seigniorage — they don’t have to. Read more
In our previous post we argued that one of the reasons QE may have failed to perform as expected, especially when it comes to stimulating price levels and employment, is because the modern monetary system isn’t what many believe it to be. Or at the very least, money doesn’t work exactly the way many economists and analysts believe it does.
As Tyler Cowen noted on Tuesday:
Milton Friedman, some time ago, wrote that money was for the most part neutral, and that the new money rapidly mixes in with the old. That made sense to me at the time, and it nudged me away from Austrian views, yet we have seen decidedly non-neutral effects from the various QEs and the periodic taper talk.
Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina…
– Financial Times, November 22
The People’s Bank of China even did a Q&A on Thursday to explain why it’s more or less forbidden the Chinese financial system from dabbling in Bitcoin… Read more
A common criticism of the secular stagnation and post-scarcity theory is that it is contradicted by the fact that unacceptable levels of poverty exist in many places around the world, and in particular the developing world.
If there’s so much growth potential out there, how is it possible that the economy is in secular stagnation? Or so, at least, the argument goes.
But perhaps the question we should be asking is what continues to frighten investment capital away? Read more
Money markets have a tendency to be misunderstood.
As we’ve mentioned before, this is because most people believe them to represent a market for loanable funds, in which said funds are objectified and thus absolute. Read more
So the Feds have finally busted Silk Road, the digital black-market platform which happily brokered everything from LSD and cannabis to heroin and computer-hacking services online, most frequently in exchange for the crypto-currency Bitcoin.
The value of which did take a beating, but perhaps not as much as might have been expected: Read more
That’s one detail which pops out from an FBI complaint against one Ross William Ulbricht, “a/k/a Dread Pirate Roberts, a/k/a “DPR”, a/k/a “Silk Road”, the defendant”, released on Wednesday… Read more
There’s a post FT Alphaville has been trying to write about the art market for a while now. At least a year. Problem is, nobody will talk honestly about the angle we want to discuss.
That being: how much art is being “mined” purely to satisfy the demand for ‘safe-ish’ assets in a liquidity saturated world. Safe assets, which we should add, are often held in bonded warehouses in places like Geneva, outside of the reach of tax authorities, and which later become a type of bearer security in their own right as the depository receipts which allow redemption of the assets begin to circle amongst the wealthy as their own type of non-taxable currency. Read more
Kate’s already noted some of the oddities in China’s latest GDP data.
But it’s worth re-emphasising the ongoing contribution of investment to the figures. Read more
Hot on the heels of the hilarious Wiklevoss Bitcoin Trust, a satirist over at The Guardian has created an hilarious virtual bitcoin entrepreneur called Kate Craig-Wood.
Kate and her friends discovered they could magic cash out of nearly nothing, simply by building bitcoin mining machines housed in plastic crates and letting them do their money-making stuff. She then learned about the world of virtual stock exchanges…. Read more
That’s a SEC filing for the Winklevoss twins’ brand-new Bitcoin exchange-traded fund. For realz. Read more
If the meteoric rise and fall of the cyber crypto currency Bitcoin this month teaches us anything, it’s the degree to which a market can be influenced by internet hysteria, viral marketing and propaganda.
There is no intrinsic value to a Bitcoin. Read more
In Bitcoinland. Click for interactivity…
A quick update to our latest Bitcoin post, since it seems that some have an issue with the virtual unit being described as a fiat currency.
So here’s our rationale for calling it that.
The term fiat is foremost used in the post to differentiate a faith-based non-collateral-backed currency system from a collateral-backed currency system. Bitcoin, however, is described as the “fiat of all fiats” due to its decentralised fiat nature and because its value lies in the mutual interests of its users rather than a collateral pool. It is, in that sense, a fiat that supersedes all other fiats, because it depends on an algorithmic self-dictated “law” for authority. Read more