The world of Bitcoin is ever-changing at least in price terms. As I type this then one Bitcoin would cost some US $6720 as opposed to the peak of US $19187 in October of last year. So quite a drop but we also need to note that if we go back to this time last year it was just below US $2000 albeit the rocket engines to take it higher were firing up. So in terms of it being a replacement for money the price moves over the past year make it almost impossible to think of it as a store of value although if we look further back it remains party-time for longer-term investors.
This is that Bitcoin continues to come under verbal and written attack. From Financial News this morning.
Three of the world’s most respected economists have led a joint attack on bitcoin, claiming the digital currency will be “regulated into oblivion” as governments globally move to clamp down on money laundering.
So the heat is on in terms of threats.
Joseph Stiglitz, Nouriel Roubini and Kenneth Rogoff have renewed their assault on the cryptocurrency believing it will be subject to further sharp and damaging falls as authorities crack down on criminals using Bitcoin to launder money and to avoid paying taxes.
These are familiar lines especially from Kenneth Rogoff who infamously does not like cash either. As to the title I think there are more than a few grounds to challenge this hype.
The three respected economists have renewed their assault on the cryptocurrency
Bank for International Settlements
Towards the end of June the General Manager of the BIS Augustin Carstens weighed in heavily on this issue. One particular section was breathtaking in its cheek and apparent avoidance of reality. The emphasis is mine.
Cryptocurrencies promise to replace trust in long-standing institutions, such as commercial and central banks, with trust in a new, fully decentralised system.
The trust issue is one that those in Denmark will be mulling right now. From the Financial Times last week.
The Kremlin critic investigating an alleged $230m Russian fraud is set to file a criminal complaint against Danske Bank in its home country of Denmark, accusing it of being a central player in a vast money laundering scheme.
As you can see we are shooting two birds with one stone as we note the “trust” in Danske and the fact that yet again it is a bank accused of money laundering on a grand scale or the exact opposite of the claims of Kenneth Rogoff.
Danske is under mounting pressure over the alleged money laundering. Mr Browder and local media claimed this week that the amount of transactions that flowed through the Estonian branch of Denmark’s biggest lender may have been as much as DKr53bn ($8.3bn), more than double previous estimates.
As the total market capitalisation of Bitcoin is US $141 billion it seems to lack the ability to match the banks in this area even if every Bitcoin is used for money laundering. After all Danske is only one bank and even if we just remain in the relatively small geographic area of the Baltics there seems to be a lot of money laundering going on. Here is the Baltic Times on the IMF visit to Latvia which ended at the weekend.
strong measures are necessary to restore the system’s reputation following the halt to ABLV Bank’s operations, the IMF points out. Effective implementation of anti money laundering and combating the financing of terrorism (AML/CFT) recommendations has to focus on reducing the proportion of questionable foreign deposits and the risks they pose to Latvia’s financial system.
For those wondering about ABLV I analysed its fall on the 19th of February. As to the ramifications this emerged at the end of last month according to Reuters.
Ilmars Rimsevics, a member of the European Central Bank’s policy-making governing council, was charged with soliciting and accepting a bribe, the Latvian Prosecutor General’s office said on Thursday.
This has posed two legal moral and ethical issues. Firstly there is the issue of financial crime in the Baltic based banks which presumably is why the head of ECB banking supervision Ms Nuoy has just visited Lithuania as according to domino theories it is the only one currently standing. Also it has raised the issue of how and if the law applies to central bank governors in the Euro area.
Oh and Mr.Carstens has thoughts in this area as well.
The goal should be to ensure that cryptocurrencies cannot undermine the role of central banks as trusted stewards of monetary and financial stability.
Hyun Song Shin has been the go to man for this sort of thing at the BIS for a while now although he does start by posing an issue for the BIS itself.
Much has already been said about how impractical cryptocurrencies are as a means of payment,
as well as the scope for fraud and other illicit activities they open up. The line from Agustín Carstens’
speech that they are a combination of a bubble, a Ponzi scheme and an environmental disaster has been
I thought that central banks liked bubbles! Is he really trying to tell us that they do not? The issue of the “precious” returns yet again as in spite of all the fraud issues people like this always highlight problems which are usually much smaller elsewhere.
Returning to his main points they are as follows.
One is the lack of scalability, which is about providing flexibility and capacity to function as a payment system regardless of the number of transactions.
The second problem is the lack of finality of payments. A payment being recorded in the ledger
does not guarantee that it is final and irrevocable. For cryptocurrencies, what counts as the truth is a matter
of agreement among the bookkeepers.
This bit also caught my eye.
At one point last December, the voluntary user fee
reached $57 dollars per transaction. So, if you insisted on buying a coffee for $2 with bitcoin, you would
have had to pay $57 to process the payment.
As someone who lives in central London I would like to know where you can get a coffee for US $2? More seriously Bitcoin needs to up its transactions game although if this was a bank no doubt the message would be that it is a result of its success.
This is a hotly debated topic as this from Crypto briefing highlights.
Published by the research team at CoinShares, a London-based cryptocurrency investment firm, the report argues that significant Bitcoin mining operations are principally powered by cheap renewable energy, and use roughly half the amount of energy that has been previously suggested.
According to the report, published today, the Bitcoin mining industry consumes approximately 35 TWh every year; 50% less than the 70TWh currently claimed by the Bitcoin Energy Consumption Index, which also argues that BTC mining has a carbon footprint that exceeds 32m tonnes annually. ( TWh =Terawatt Hours)
Best of luck with the idea that renewable energy is cheap! There are of course some examples but in general it is raising energy costs.
There is much to consider as we mull whether these are just birthing pains or crippling ones? On the side of the former is the way that the establishment continues to spend so much time trying to rubbish Bitcoin. If it is so bad why bother as it will collapse of its own accord if they are right? We get nearer the truth as we note that the accusation of promoting financial crime is beyond laughable from people who promote the “precious” with their next breath. As to technology I am also reminded that the UK banks are often accused of having systems still based in the 1970s. That may or may not be true but it is true that the Bank of England did not lower Bank Rate beyond 0.5% because it was afraid of the impact on the banks. Even now according to Governor Carney it thinks they cannot take them below 0% a consequence which I think is much for the best albeit it does highlight quite a weakness in IT.
Looking ahead this is so reminiscent of the development of the railways if we look at the broader picture. They are of course still with us although there are more than a few commuters who wish that they were not if their social media output is any guide.
Money, get away
Get a good job with more pay and you’re O.K.
Money, it’s a gas
Grab that cash with both hands and make a stash
New car, caviar, four star daydream,
Think I’ll buy me a football team ( Pink Floyd )