Everyone has a linguistic signature (apparently).
© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
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.
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?
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
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
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
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
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 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
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
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
Requests have been made, so here is a quick “story so far” on Bitcoin. Consider this a perfect dinner party cheat.
First off, Bitcoin is best described as a virtual crypto/digital parallel currency that is completely decentralised and unregulated (for now) by the current powers that be. It is understood to be the brainchild of one Satoshi Nakamoto, whose identity is alleged to be an alias in its own right. Many people believe the paper behind the Bitcoin system to be some anarchic manifesto purposefully designed to disrupt and destabilise the current economic status quo. Read more
Here’s something to ponder.
Which of the following do you think is the latest Bitcoin price chart and which is the latest Google Trend indicator of Bitcoin Google Search interest? Read more
In our previous post we explained why Jean-François Groff, CEO of Mobino, believes mobile payments systems could be a lot more honest and more money-like.
The mobile money/virtual currency arena is getting more and more crowded. And the question remains: will the concept ever gain the critical mass needed to become the next big thing in finance?
From Bitcoin to M-pesa, Square, Paypal, Dwolla and Ven (to name just a few) … the number of new concepts is piling up. Read more