On the robustness of cryptobonds and crypto settlement

Online retailer Overstock last week became the first company to offer a corporate bond, valued at $25m, in the form of a “crypto security”.

Unsurprisingly, the story was pumped up by the crypto trade press, which has a habit of taking statements from vested interests at face value.

But, as Bloomberg’s Mark Gilbert has hinted indirectly there’s something hypocritical about lauding a bond for its transparent blockchain traceability features while at the same time providing sketchier than sketchy details about all its other aspects. Read more

Bitcoin Opec favours 8MB blocksize increase

Bitcoin wants to grow. Sadly, because the Bitcoin protocol restricts the size of every block mined on the network to 1MB, it can’t scale easily. There’s a limited amount of transactions/data that can be consolidated into every block, which creates something of an artificial scarcity problem.

Some maintain good old fashioned capitalism can resolve the problem. If there’s a limit, people who want to transact quickly should pay to have their transactions/data prioritised in the chain.

Miners, especially those having a tough time covering their costs these days, favour this approach. Their view is that the sooner block size is restricted, the sooner the market will be able to find a true value for bitcoin transactions. Also, it’s not healthy for the miner network to depend on speculative inflows forever. True miner revenue would be like giving bitcoin a proper business model. It might also help eliminate blockchain spamming and free-loading. Read more

Summers and Swiss bitcoin hoards

The FT’s Richard Waters reports that Larry Summers, former US treasury secretary and secular stagnation theorist, is to form part of the advisory board at Xapo, a Silicon Valley Bitcoin start-up specialising in deep cold storage of bitcoins in Swiss vaults and the issuance of bitcoin debit cards.

Worth noting in this context, of course, is that Larry Summers is also the man arguing that bubbles are a bit of an inevitability in a secular stagnated world. Or as he explained in the Financial Times back in December 2014: Read more

21 Inc and the plan to kill the free internet

Details of the hottest, most secretive bitcoin start-up in Silicon Valley have finally been revealed by chairman and soon-to-be CEO Balaji Srinivasan of 21 Inc in a post on Medium. They are, by and large, exactly what FT Alphaville reported them to be. Cold sharp summary: Bitcoin mining devices in toasters.

Calling this a simple internet of things play, however, would be lazy. To really put the audacity of Srinivasan’s vision into perspective one first has to go back in time to the days of the early internet. Read more

Scenes from the 21 Inc pitch book

Some people may have had difficulty understanding what the hell Balaji S. Srinivasan, chairman-cum-ceo of secretive Silicon Valley start-up 21 Inc, is up to after reading his Medium “open for business” post.

The following slides, shared by potential investors in 21 Inc, may or may not help. But they certainly highlight the conceit on show here. Click to enlarge.

 Read more

Exposing the “If we call it a blockchain, perhaps it won’t be deemed a cartel?” tactic

Why are the great and the good of the banking and financial services world suddenly extolling the virtues of blockchain, the technology that underpins the artificial scarcity of bitcoin?

Possibly because they’ve finally figured out that what the technology really facilitates is cartel management for groups that don’t trust each other but which still need to work together if they’re to protect the value and stability of the markets they serve.

Cartel enforcement, in that sense, appeals to all sorts of financial players from bankers and commodity producers to general asset creators. Read more

Bitcoin’s lien problem

At cryptocurrency and fintech conferences, FT Alphaville often hears Bitcoin enthusiasts make the assertion that Bitcoin is superior to fiat currency because it eliminates debt from the monetary system.

But this, of course, is a fallacy.

Bitcoin may have the potential to create a fully-funded reserve system, but it certainly doesn’t eliminate debt from any system.

At best, Bitcoin’s public ledger records a transfer of digital access rights in the eyes of the clearing network. It does not, however, record or see the terms and conditions of that transfer. Read more

Blockchains as a public and private resource

FT Alphaville attended Tomorrow’s Transactions 18th annual forum this week where all facets of blockchain and distributed-ledger systems were explored.

The most interesting ideas (at least to us) were those presented by Vitalik Buterin of Ethereum and Preston Byrne of Eris Industries. Both are focused on moving blockchain beyond bitcoin and towards useful real-world applications.

The former, for example, is focused on creating a so-called “Turing complete” public chain that would — as we understand it — allow anyone with coding capability to tap a globally distributed processing network to run their programmes upon safe in the knowledge that the underlying data can’t be falsified or manipulated. Read more

On the potential of closed-system blockchains

Followers of FT Alphaville’s Bitcoinmania series will be familiar with our generally sceptical position on all things bitcoin.

Indeed, over the course of more than 64 posts, we’ve presented a mostly negative case for bitcoin “the currency”, and remain confident that the open-source “people-cleared” cryptocurrency (which replaces one accountable and identifiable third party with 10,000 anonymous parties of dubious intent) is ill-suited for the job of currency in any stable economic system.

That said, we have reflected tiny bursts of enthusiasm for what blockchain technology, the distributed public ledger underpinning bitcoin, could do for the murky and shadowy world of OTC bilateral clearing. Read more

Bitcoin continues to evolve into a worse version of the current system

A cheaper, faster and more secure way to pay for things on the internet or on your smart phone.

Those are the usual claims you hear about Bitcoin. But on January 12, anyone transacting on the network may have come across an unusual problem: a near two-hour wait for a payment to be processed. Read more

How to corner markets, Bitcoin style

If you think retail FX and spread-betting shops have a problem with one-way client risk, then don’t even dare to look into the Wild West stuff going on in crypto land. It’s the Bank to the Future Biff Tannen version of 1985 in Technicolor (Oculus Rift form naturally).

As we’ve noted before, Bitcoin markets are a hotbed for unscrupulous market practices. Everything from HFT, front-running, rebating, preferential order flow, poor margining, naked shorting, and now the truly popular one — active “collusion” by big players. It’s all there.

What’s really cute is that a lot of the time the cowboys think they’re being truly innovative with these strategies. (Michael Lewis obviously hasn’t penetrated their radar.)

On which note, unconfirmed reports come our way of the latest bearwhale scheme being hatched — this time being organised by a particular bearwhale called Benji — to corner the market with the cunning use of the “shake out the weak shorts and cause a short-squeeze” strategy. Read more

Do you have a finance degree from the university of Bitcoin?

As the Bitcoin price crumbles….


… and the capital hole (economic flaw) at the heart of all cryptocurrency schemes is exposed, we thought we’d uncharacteristically look at what was actually good about the phenomenon of Bitcoin. Read more

Bitcoin’s upcoming capital crisis

A quick update on the scam-ridden world of Bitcoin — not to be confused, of course, with the (sacrosanct) technology of THE BLOCKCHAIN, still dubbed “promising” and “respectable” by VCs in the know — which seems to be fast descending into a blazing fireball of financial chaos, bankruptcy and despair.

On Monday, we had the suspension of Bitstamp, one of Bitcoin’s most reputable and liquid exchanges, founded and operated by two Slovenian kids in their 20s and funded to the tune of $10m by US-based hedge fund Pantera Capital (an arm of Fortress Investments) despite the youngsters’ lack of discernible financial credentials.

As of pixel time, the official line by way of CEO Nejc Kodric was still that a hack had pilfered $5m worth of Bitcoin from the company accounts but that Bitstamp would be back up and running within 24hrs, 48hrs, “soon”, and that customers should not worry because the company had more than enough reserves to cover their customer liabilities.*

*Update: Bitstamp is back up and trading as of Friday evening. No change to the official narrative and no real explanation of who is covering the loss. Read more

Who needs caveat emptor when you’ve got Bitcoin?

What did you miss while you were away eating turkey and whatnot?

Well, there was that one thing about China’s State Administration of Foreign Exchange relaxing the rules on Chinese banks’ foreign-exchange holdings, allowing them to hold fewer dollars — a pretty useful ruling during a dollar shortage issue. Read more

Bitcoin cognitive dissonance of the day, Bill Gates edition

If there’s anyone who knows about the benefits of “early adoption” it’s Bill Gates — the man who built an empire from understanding the value of access rights to software.

Should we really be surprised, then, that he’s also in favour of Bitcoin, a system that helps a whole new generation of software “early adopters” gain vast amounts of wealth through the cunning ability to spot a market that’s fit for monopolisation.

But that’s not even the value of Bitcoin, according to Gates! Here he is on Bloomberg gushing about how the virtual currency’s greatest feature is how cheap it makes payments processing: Read more

BitCon: The book

Jeffrey Robinson is an American author best known in media circles for his work on international financial crime via his 1995 book The Laundrymen.

Suffice to say, when one of the world’s best known financial-crime authors turns his attention to the world of cryptocurrencies, and in particular Bitcoin, it probably makes sense to pay attention. Especially when the book he publishes is called, BitCon: The Naked Truth About Bitcoin.

Sadly, for the Bitcoin faithful — as well as all the other reasonable institutions that seem to have been taken in — the verdict is not good. Robinson reduces the entire phenomenon to a classic swindle. A small cohort of ruthless predators taking advantage, as usual, of the naive and gullible via a carefully constructed and asymmetrical myth, which happens to appeal to those of a certain persuasion, encouraging them to take leave of their senses entirely.

Part of the fervour is driven by classic get-rich-quick sentiment, but the other and the more sinister part is based on the art of indoctrination, no different to that employed by cults focused on getting people to hand over their hard-earned cash for the the sake of reserving themselves a prime slot in heaven and/or the supposed system that comes after this one.

 Read more

Bitcoin business model too good to be true…proves to be too good to be true

After days of speculation, Ars Technica has finally provided confirmation that the business model everyone in the finance world (not suffering from the Dunning Kruger effect) knew to be fantastical was in fact…fantastical.

For more on the greed dynamics that drive perfectly reasonable people to hand over hard-earned fiat cash to strange unregulated companies (with no track record) which promise to use that cash to handcraft depreciating money-printing machines, see our previous post here.

Safe to say, however, that if your business depends on collecting other people’s money to build money-printing devices that depreciate over time, the temptation to use those machines for yourself, rather than to deliver them to customers, may prove rather hard to resist. Read more

Cult Markets: When the bubble bursts

This is Jean-Paul Rodrigue’s stages of a bubble chart:

This is a chart of the price of Bitcoin from the BoE: Read more

BoE on the potential of the blockchain

The key finding of the BoE’s report on cryptocurrencies is that the technology which supports digital currencies, the distributed open ledger — also known as the blockchain — may have a potential and positive use in the wider banking and asset business.

This is contrary, however, to its position on the Bitcoin currency which it says in its current fixed supply form would expose the economy to significant deflationary risk if it was ever to be widely adopted by the public. Or as they put it:

…the inability of the money supply to vary in response to demand would likely cause welfare-destroying volatility in prices and real activity.

 Read more

BoE on the Bitcoin tech arms race

Okay, we know, this is now our fourth post on the BoE’s foray into the world of cryptocurrencies. But we think it may be the most interesting, given that it focuses on the economics at the heart of Bitcoin mining.

For example, who can resist this log scale chart of the computational power per address in the Bitcoin network?:

 Read more

BoE on the moneyness of modern payment innovation

The BoE’s latest quarterly bulletin delves into the choppy waters of cryptocurrency innovation, providing some useful historical context into what’s going on. As we’ve already noted, the house view on Bitcoin “the currency” is sceptical due to its ultimate inflexibility relative to demand. But the BoE is much more open-minded about the potential of the distributed ledger that drives the Bitcoin system, and sees it a true innovation.

Before we get to the latter point, however, it’s worth presenting the Bulletin’s view on how all these new technologies fit into the monetary hierarchy picture.

As the Bulletin makes clear, while new payments “technologies” do have the potential to expand that unsupervised money base and add risk, they don’t always have to. Read more

The BoE opens Pandora’s Bitcoin box

The Bank of England is daring to open Pandora’s Bitcoin box with two major articles on the rise of cryptocurrencies in its latest Quarterly Bulletin, released on Thursday.

The two-minute take-away is that the report’s authors remain sceptical about Bitcoin’s potential as a currency (due to its inability to respond to aggregate demand), but are open minded about the potential of the technology of the distributed open ledger. As we’ll explain later, a lot of that open mindedness is related to the distributed ledger’s potential to bringing transparency to financial transactions outright, and also its potential to limit the system’s dependence on centralised clearers and counterparties.

The best thing about the report, however, is that it brings much needed clarity on the issue (and hierarchy) of the modern money system. Read more

A Bitcoin flash crash

Bitcoin has been on a sharp course downwards for a few weeks now (chart courtesy of Bitstamp).

But on Monday, the unthinkable happened.

Bitcoin prices on the BTC-e exchange suffered a flash crash that took the price as low as $309 per bitcoin from a day high of $497.79.

Here’s the damage:

 Read more

Osborne deals with the pirate threat

Pirates. Can’t live with them. Can’t get rid of them.

And… it has always been so. Read more

Seventy Bitcoin risks

Click to enlarge, via the European Banking Authority’s response to virtual currencies. Do note E31.

 Read more

Bitcoin auction, the aftermath

Bitcoin prices rebounded from recent lows overnight as “results” of the US Marshal Silkroad Bitcoin hoard auction came through: (Chart via Bitstamp)

 Read more

Do private sales affect public prices?

It’s a tricky question for the Bitcoin community this morning, who just can’t decide.

From the Bitcoin reddit: Read more

Newsflash Bitcoin people, we already have a private money system

The following from Paul McCulley, chief economist at Pimco and Zoltan Pozsar, a senior adviser at the US Treasury department, came out earlier this week in the FT, but is worth rehashing in light of this relatively absurd call from the Institute of Economic Affairs for the UK government to privatise the pound and replace it with Bitcoin (capital B).

The central message of the McCulley piece being — one which happens to be echoed by most seasoned central bankers and economists — that we do of course already have a private money system! And that was part of the whole problem!! Read more

Blockchains vs stock exchanges

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

I see blockchains

The Telegraph’s Matthew Sparkes, just like Neo in the Matrix, has fallen down the blockchain rabbit hole. Everywhere he looks he sees blockchains.

Blockchains for automated self-driving car-fleet management. Blockchains for money. Blockchains for stock. Blockchains for votes. It’s cybernetic blockchain utopia!

Or as he puts it: Read more