Posts Tagged ‘Bitcoin’

No cryptocurrency has any purpose other than to hide or launder dirty money

May 26, 2021

I am not sure how I got onto their lists but I have lately been getting many calls from telephone-marketeers trying to get me to invest in cryptocurrencies. I had rejected investing in these a few years ago but thought I would revisit the scene. It worries me that so many “financial journalists” put out stories in praise of cryptocurrencies which defy common sense. They often use jargon to try and hide the lack of substance in their stories. I would not be at all surprised to find that they are being paid for their advertising efforts. 

No matter. My conclusion remains the same now as then. Don’t bother to buy into cryptocurrencies.

Economics 101 (another label for common sense) tells us that money is an intangible representation of wealth while a currency is a quantifiable manifestation of money. It used to be that currency was always some physical thing. Any thing – with the emphasis on thing – could be used as a currency. It could be gold or cigarettes or bits of metal or pieces of specially printed paper. Nowadays, the thing can even be abstract as a record in an accounting book or a computer. The purpose of any currency is only as a medium of trade. It’s stability as a medium of trade depends upon the stability of the issuing authority. When that authority is a state or government, the stability then depends upon the strength of the economy propping up that state or government. Here in Sweden, which has almost become cashless, my money is held as electronic records at a number of banks and financial institutions. It is already almost entirely digital and in the last 12 months (albeit corona restricted) I have used cash on just two occasions (once for ice cream and once for private parking in a field). My digital monies are fairly transparent to the institutions holding the records and to the state authorities (tax authority) who have legal access to certain information. The security of my wealth, and my ownership of that wealth, are entirely dependent upon the stability of the government and the legal system in place. 

Now consider cryptocurrencies. Bear in mind that almost every currency today is already essentially digital. There are many financial journalists and other shady characters who write about the advantages of such and they fantasise about the high purposes of these schemes. But every cryptocurrency is fundamentally designed to hide wealth, hide transactions and to provide a channel for laundering dirty money. The value of any such currency is not grounded on anything more than supply and availability of itself. There is no legally accountable body or institution responsible for holding deposits of the currency. It is claimed that cryptocurrencies have many advantages over regular currencies, such as:

  • Freedom and autonomy for the user
  • Complete confidentiality
  • No or low banking fees
  • accessibility
  • decentralised….

The “freedom and autonomy” they offer is to make clandestine payments (usually for prohibited goods or services) without regulation. For regular, lawful payments they provide no advantage whatsoever, and add a great deal of risk. For clandestine payments they reduce the risk of disclosure even if the currency-value risk remains high. The “confidentiality” claimed is a euphemism for “hidden from regulatory scrutiny”. The advantage is of value only for illegal transactions. There are always fees involved though nominally they are low. However the exposure to value fluctuations is total and cannot be hedged. The touted accessibility is no different to that in any regular, on-line banking system. Claiming “decentralised” as an advantage is entirely a PR invention. What is truly decentralised (and therefore absent) is any kind of accountability.

A cryptocurrency is not real money. It is, to be precise, a virtual, on-line claim to be money. The amount of the currency held is represented by an encrypted token. In theory the amount represented by the token can be used for a transaction with a new token representing the new value of the holding. The token can be “sold” at whatever value a buyer is prepared to pay in some other regular currency for that token. It has no other inherent value than what a buyer is prepared to pay. The value is open to heavy manipulation. There is no guarantee of convertibility. 

Cryptocurrencies do not provide a more convenient medium for trade than conventional currencies, except for those wishing primarily to trade dirty money for dirty goods and services. They are not more digital than regular currencies. Drugs, stolen goods and hit contracts are obvious examples of trade facilitated by a cryptocurrency. Certainly they provide a means of hiding wealth away from prying regulatory eyes but at the cost of an increased risk on the value of that wealth. They provide a channel for secret transactions, without any regulatory oversight, across country boundaries. Of course, they are not without the risk of that wealth not being convertible to anything. 

In my layman’s view, cryptocurrencies are designed primarily for hiding money and to facilitate unlawful transactions in secret. In fact, I would suggest that all cryptocurrency transactions be treated as suspect. Naturally all those holding cryptocurrencies should be tagged as potential law-breakers!

I will not be buying any Bitcoins anytime soon.

An existentialist problem for virtual Bitcoins

February 26, 2014

“Virtual” has no connotations of having any virtues. As long as things “virtual” remain in the abstract world they work.

Virtual books can be read. Virtual commerce is fine for recording transactions. But virtual foods are indigestible and unsatisfying. A virtual house doesn’t keep out the rain. And virtual currencies are useless if they cannot be translated into the real world.

I am not convinced that virtual currency offers me anything more than I get with electronic transactions with real money. At least the real currency has a value which is somewhat connected to things happening on the ground (even if speculation does occur). The Bitcoin however has an exchange value solely dependent upon somebody’s imagination.

(Reuters)Mt. Gox, once the world’s biggest bitcoin exchange, abruptly stopped trading on Tuesday and its chief executive said the business was at “a turning point,” sparking concerns about the future of the unregulated virtual currency. ……. The website of Mt. Gox suddenly went dark on Tuesday with no explanation, and the company’s Tokyo office was empty – the only activity was outside, where a handful of protesters said they had lost money investing in the virtual currency. …

…. Investors deposit their bitcoins in digital wallets at specific exchanges, so the Mt. Gox shutdown is similar to a bank closing its doors – people cannot retrieve their funds.

A document circulating on the Internet purporting to be a crisis plan for Mt. Gox, said more than 744,000 bitcoins were “missing due to malleability-related theft”, and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets. It was not possible to verify the document or the exchange’s financial situation. If accurate, that would mean approximately 6 percent of the 12.4 million bitcoins minted would be considered missing. ……. The digital currency has caught the eye of regulators concerned with consumer protections and bitcoin’s use in money laundering. ….

…… Mt. Gox halted withdrawals earlier this month after it said it detected “unusual activity on its bitcoin wallets and performed investigations during the past weeks.” The move pushed bitcoin prices down to their lowest level in nearly two months.

Even with the halt on February 7, Mt. Gox still handled more transactions than any other in the past month. Over the last 30 days, Mt. Gox has handled more than one million bitcoin transactions denominated in dollars, or about 34 percent of activity, according to Bitcoincharts, which provides data and charts for the bitcoin network.

Critics of the exchange, from rivals to burned investors, said the digital marketplace operator had long been lax over its security. Investors in bitcoin, who have endured a volatile ride in the value of the unregulated cyber-tender, said they still had faith in the currency despite the problems at Mt. Gox.

“Mt. Gox is one of several exchanges, and their exit, while unfortunate, opens a door of opportunity,” The Bitcoin Foundation, the digital currency’s trade group, said in a statement. “This incident demonstrates the need for responsible individuals and members of the bitcoin community to lead in providing reliable services.” …….

Bitcoin value Feb 2014

Bitcoin value Feb 2014

The exchange rate applying is entirely speculative and – it seems to me – purely a result of manipulation. It is not anchored to anything real  – but why would it be?

After all it is only virtual.

Wild ride for the Bitcoin as its value crashes

April 12, 2013

I wonder whether the real reasons for the Bitcoin gyrations ( see previous posts here and here) will ever be fully known. From $9 to about $240 and now back to $69!

But this kind of behaviour does not manifest itself without someone, somewhere pulling some strings. I am inclined to think that some very “hot” money was involved in the boom and that it has “moved on”  to create the bust – but has almost certainly not moved back to where it started from.

bitcoin turbulence april 2013

bitcoin turbulence april 2013 (Mt. Gox)

There is some discussion that this has been a concerted effort from within the world-wide-web to manipulate the price but I think the coincidences with the goings-on in Cyprus are connected. And that probably means the movement of Russian money.

Bitcoin still soaring

April 9, 2013

Updating my previous post, the Bitcoin value  continues to soar and had reached about $240 today. The Bitcoin hoard of 21 million is now worth about $5 billion.

Three months ago the value of a Bitcoin was less than $10. Simple arithmetic tells us that around an additional $4.8 billion has come into this market and  is now locked up as Bitcoins. Some of this enhanced value may be due to intentional circular trading but if that is the case this bubble will burst and some will make a killing and others are going to take a big hit. Anybody who has entered recently without a well thought out exit strategy is taking a big risk.

Last price:$235.70000, 

High:$240.11100, Low:$180.00000, 

Volume:108657 BTC 

bitcoin value 9th april 2013 in USD

bitcoin value 9th april 2013 in USD

Bitcoin value in US Dollars

Bitcoin value in US Dollars last 6 months to 7th April

Could Russian money from Cyprus be fuelling the Bitcoin?

April 7, 2013

In the last 6 months the value of the “virtual” currency the Bitcoin has jumped from $9.7 to $149. It started increasing significantly in February and really  took off in the middle of March this year. It seems too much of a coincidence that the worries (and the rumours) about the Cyprus banks followed the same time-table.

Bitcoin value in US Dollars

Bitcoin value in US Dollars

It is thought that much of the Russian money stashed away in Cyprus – especially the “black” money – left Cyprus before all the restrictions came into effect. That money must have gone somewhere and that somewhere would need not only to be “remote” but which also could provide the possibility of some “laundering” when the money was moved again. The Bitcoin perhaps could provide such a haven. If the bubble bursts in the next few months it could well indicate that the Russian money has moved again, well “laundered” and probably at a profit.

The bitcoin logo

At current values the Bitcoin “hoard” – restricted to be 21 million Bitcoins – represents a little over $3 billion.

The Telegraph reports that

Russia is the country most interested in Bitcoin, internet searches show, after a week in which the controversial electronic currency reached a record high and led to talk of a bubble.

The virtual currency, which allows users to circumvent the banks, burst into the mainstream as the price of a Bitcoin rose to $147 (£96) against the dollar, from under $20 at the start of this year.

Russia is the country now performing the most internet searches for the term “Bitcoin”, according to Google figures, followed by Estonia, the United States and Finland. The UK is not in the top 10.

The data gave weight to the belief that the recent price spike was driven by the crisis in Cyprus, as cuts to depositors’ savings planned under its bail-out further undermined faith in the global banking system.

Russian businesses were thought to account for €19bn of deposits held in Cypriot banks as of September last year, due to tax advantages, cultural links and, in some cases, for reasons of tax evasion. …….

……….. Created by a developer using a psuedonym in 2009, Bitcoin was intended to offer a means of payment that cuts out the banks through a “purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”.

The coins are “mined” by computer processing, with the system capping the number that can be produced at 21m. The process is technically difficult, meaning it has a cost in terms of equipment and electricity.

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