The rise and rise of Bitcoin and the crypto currencies

On Friday the news in the UK was grabbed by the ransom wear attack called Wanna Cry. At first the media concentrated on the impact on the National Health Service but soon news that attacks were happening around the world filtered in as well. It was hard not to think of the large amount of funds that have been poured into NHS IT infrastructure which seemed somewhat at odds with the fact that it was still running Windows XP! Mind you as a person who was sold the Vista system by Microsoft I am someone who still thinks fondly of XP and think it was a better system.

However an intriguing part of the attack was the request to be paid in Bitcoin. Also I have to confess I was curious as to why the individual claims were small. From Wall Street Wires.

For instance, the ransomware is asking for $300 in Bitcoin.

Not much is it? Perhaps they hoped that it would be small enough that people would pay it discreetly and they would avoid publicity. Also if everyone paid up not doubt it would amount to a tidy sum indeed. It did bring Bitcoin back into mainstream news albeit in rather a seedy way. Although for our would be criminals there was something of a draw back which is that it turned out the world could watch them being paid. Indeed @actual_ransom is on the case.

Note: This bot is watching the 3 wallets hard-coded into ransomware. It tweets new payments as they occur, totals every two hours.

In some detail as this from a few minutes ago indicates.

Someone just paid 0.0045 BTC ($7.61 USD) to a bitcoin wallet tied to ransomware.

As of the time I am typing this the total paid is apparently as shown below.

The three bitcoin wallets tied to ransomware have received 151 payments totaling 24.75899797 BTC ($42,640.91 USD).

Of course the real boom will be in online security consultants who seem so far to be selected from a group who wear sunglasses indoors if the output of BBC News is any guide.

An Asset Bubble?

The Financial Times has been on the Bitcoin case.

Sky-high valuations for bitcoin have helped the value of crypto currencies burst through $50bn, raising fears of an asset bubble in the unregulated market.

A sky high valuation?

A sharp spike in the price of bitcoin, which has risen 55 per cent this month and is worth more than gold, pushed it past $1,900 on the Bitfinex exchange on Friday.

So the price has been very strong although I have to say that the idea that it “is worth more than gold” has a few issues with it. What is the unit of comparison for a start? After all gold is a physical commodity whereas Bitcoin is a virtual one. If we move to the aggregate level then if Only Gold is correct then all the gold so far mined is worth some US $7.4 trillion which rather dwarfs the US $50 billion value of the crypt currencies. Presumably they are comparing a singe Bitcoin with a troy ounce of gold. Also it is unusual for the FT to fear an asset bubble is it not?

A lot has been going on in this space including the fact that whilst Bitcoin is the most famous of the crypto currencies it is far from alone.

A growing number of alternative digital currencies — or “alt-coins” — is feeding the speculative frenzy with values in some rocketing as much as 500 per cent in the past week………Aside from bitcoin, there are more than 830 alt-coins ranging from Litecoin, a challenger to bitcoin, to MiketheMug, a coin that promises to make weekly payouts to holders.

There have been quite a few developments along the way.

An increase in initial coin offerings (ICOs) — unregulated issuances of crypto coins where investors can raise money in bitcoin or other crypto currencies — is fuelling the market and drawing attention from lawyers and financial professionals. Many fear ICOs, which are trying to market themselves as an alternative to venture capitalists as a way of raising cash for businesses, breach existing securities law.

Of course quite a lot of ordinary conventional offerings fail which poses quite a few questions for how you regulate such markets. Some seem to be the preserve of city professionals.

Observers say many individuals are trading alt-coins from corporate IT departments, concentrated in the financial sector and falling under the radar of senior executives. Many are sitting on virtual fortunes, but are unable to liquidate their cash as banks clamp down on measures to avoid money laundering.

There is an obvious problem with the phrase “virtual fortune” is there not? If they are legitimate it seems very odd that they are caught up in money laundering regulations so I suspect that there is more to this than meets to eye. After all the financial sector is ridden with financial crime of many sorts. Also I have seen plenty of supposedly bona fide markets where investors have been unable to realise the money they thought they had made. The case a couple of decades ago when investors put money into Italian shares is something of which I am reminded of by this. It was oh so easy to put money but, ahem, considerably more difficult to ever take it out.

Comment

If we step back for a moment we can compare Bitcoin with fiat money. On such a road we can see that the ground for Bitcoin has been fertilised by the way that central banks have been so keen on asset price rises. Compared to these assets which in concrete terms people face with the cost of housing but otherwise in bond and equity markets cash has depreciated in value. On that subject the UK FTSE 100 index has risen to an all time high of 7454 today again depreciating the value of cash money compared to it. Of course consumer inflation numbers look the other way from this.

There are obvious problems with the Bitcoin and crypto currency world. Firstly its role as a medium of exchange is limited as many places will still not accept it as a means of payment. That is why the recent news from Japan was welcomed by price rises. Also in an irony the recent price surge poses a question for its use as a store of value. It is not just the concept of “what goes up must come down” sung about by Blood Sweat & Tears in the song Spinning Wheel but also the issue that the price volatility means that the value is swinging wildly as Bloomberg point out.

Even during the huge run up this year, it has moved more than five percent on 21 different days, with nine of those being moves lower.

In the end it comes to the fact that Bitcoin fans have more faith in blockchain mathematics than central bankers. Of course some prefer the anonymity it provides and some just like the technological aspect. The main danger from authority must be from the likes of Kenneth Rogoff who must be very disappointed that the latest outbreak of financial crime is not being driven by high denomination bank notes. Of course there are other dangers which include it falling out of fashion and being replaced by other alternatives. Whilst there are obvious differences between this and the growth if the railroads back in the day there are similariites and how many succeeded again? Oh and as we stand it poses an increasing challenge to measures of money supply especially in areas where it is widely used.

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13 thoughts on “The rise and rise of Bitcoin and the crypto currencies

  1. Crypto currencies seem to me as being pyramid schemes for people who are too clever to invest in pyramid schemes.

  2. I have been following the saga of Bitcoin since I discovered Max Keiser during the financial crisis. As a result I own 5 BTC, please don’t send me begging letters. I think they cost just under $70. On a recent blog of yours I posed the question what will replace cash if they abolish it? That dangerous maniac Rogoff has the ears of those in high places so I predict that war will be waged on Bitcoin and it’s ilk prior to scrapping cash.

    I was expecting that war to commence after the NHS cyber attacks, a ready made excuse to go for alt currencies. This hasn’t happened yet but will be a template for those to use when the inevitable clampdown occurs.

    Think about it, what would happen if enough people said to the state, stuff your currency we’re not using it anymore? I think the banks would get quite cross.

  3. I think that QE has a lot to answer for in the creation of the alternative currencies, for two reasons:
    1. Bitcoin etc can advertise themselves as being based on sound, non-expansionist money supply;
    2. It removes even the slightest moral superiority from governments in discussing these currencies, given that these governments are creating trillions of dollars/pounds/Euros out of thin air via QE.

    • yes but they “saved” the Banks……..

      Bitcoin is a threat – expect more on that from the GOP , can’t have people running off with “their” business , can we ?

      Forbin

  4. Gold and Silver should be much higher than they are,we have political instability globally and record amounts of unrepayable debt.
    Yet the metals which should be rocketing but the reason they are not is because the price is dictated in paper markets it is a regular feature that several months mining supply is sold in a few minutes on the come,naked shots price fixing ,plain as day yet nothing is done about it.
    It is because everything is rigged..the late George Carlin who sums it up perfectly in “it’s a big club and you ain’t in it” available on you tube (strong language)
    Then we have bitcoin I admit I almost bought a couple at $400 but it is nothing more than machine code,tulip mania,yet its value inexplicably in my view continues to rise,what if you get hacked or the internet ceases to exist or is shut down by war.?

    • At ease Private Fraser, the debt isn’t unrepayable because it can’t be repaid. It can be retired or rolled over but not repaid. We could retire it all tomorrow, but pray they don’t or we’ll have no money.
      We need more debt not less.

  5. You are correct because a fiat based money system is a debt based money system requiring more and more debt to be created.
    Unfortunately it doesn’t mater whether you are a household,a business,a football club or a Government there is a point at which the debt will overwhelm you.

    • Hi Private Fraser

      Sadly we saw another example of that today from Greece. Whilst the interest-rate on the debt goes ever lower the capital burden continues to rise.

      “The available seasonally adjusted data indicate that in the 1
      st quarter of 2017 the Gross Domestic Product (GDP) in volume terms decreased by 0.1% in comparison with the 4 th quarter of 2016,
      while it decreased by 0.5% in comparison with the 1 st quarter of 2016.” ( Greece Statistics).

      So it enters yet another recession in spite of the claims by Pierre Moscovici that the economy was surging a few months ago.

  6. “Mind you as a person who was sold the Vista system by Microsoft I am someone who still thinks fondly of XP and think it was a better system.” – Try any of the flavours of Linux compatible with and using a Mate desktop.

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