Category: zerohedge

It did not happen. The bitcoin hard fork scheduled for block number 494,784 that was agreed to at the Consensus meeting in May that was to be enacted in mid-November has been cancelled.  Mike Belshe, CEO of BitGo, stated, “we have not built sufficient consensus for a clean block size upgrade at this time.” SegWit2X, as the upgrade was to be known, would have doubled the bitcoin block size from one megabyte to two and removed the signature data now processed with each transaction. With the greater capacity and decreased amount of necessary data, SegWit2X intended to multiply the speed at which transactions can be processed. Visa’s global network (known as VisaNet) processes about 1700 transactions per second. In its current form, Bitcoin technology can process seven. Faster transactional speed would make bitcoin into a more attractive alternative to fiat currency.

Demand has always existed for a way to exchange money and property securely and anonymously. In the United States, cash is handy for purchases of less than ten thousand dollars, but red flags appear on bank statements, deposits or withdrawals, for more than that amount. With gold, to which Satoshi Nakamoto compared bitcoin, an anonymous transaction can take place, but for larger transactions, transport and storage becomes a problem.

 

Bearer bonds—municipal and corporate bonds without a registered owner—were once exchanged like $5000 bills until issuance was suspended in 1982 and the outstanding bonds were called or matured. Bitcoin has no upper limit as to size of transaction, can be stored on a memory stick, transferred with the click of a mouse, and is constantly increasing in supply although at a decelerating rate. All one needs to believe is that this is the future of currency on the planet.

Uncertainty is the enemy of any market. Bitcoin is dominant in crypto-currency because it has come to be accepted as the standard for security from digital theft, and anonymity of transactions. It has been eight years since Satoshi Nakamoto mined the first bitcoin, and in that time hundreds of thousands of “blocks” of transactions have been mined and digitally archived on the network of bitcoin miners, owners, and developers. Each of those recorded transactions lengthens the “block-chain” and makes it harder to hack. As Nakamoto said in his October 2008 whitepaper, “If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins.”

 

Each bitcoin is identified by its unique code, but not by owner, thereby allowing transactions between anonymous buyers and sellers. As a decentralized currency, bitcoin may be exchanged instantly for real-world goods or fiat currency, without possibility of reversal, and with only the updated block-chain as permanent record of the transaction.

Uncertainty as to outcome of the SegWit2X hard fork was implicit in Mr. Belshe’s statement of cancellation. This type of restart had been accomplished before, that by Ethereum when the Decentralized Autonomous Organization (DAO) was hacked and $50 million dollars of Ethereum went missing. Their workaround involved starting a new block chain at a point in time and calculation previous to the insecure event. Very much like using the “restore” function to rebuild a Windows hard-drive, Ethereum began again without the egregious corrupted code. However, the original Ethereum digital currency continued to trade as Ethereum Classic ($18) and the new forked version now trades as Ethereum ($314).

Pete Rizzo writing for Coindesk suggested that because success or failure of the proposed SegWit2X hard fork depended upon adoption by potential users, three outcomes were possible. Miners might upgrade their software and bitcoin would continue but with blocks doubled in size. Miners might not download and run the new software and bitcoin would continue as before. But the worst answer is never yes or no, it is “maybe”, and maybe in this case would have created another coin, just as did Ethereum. There could have been a Bitcoin2X and a Bitcoin Classic competing for the title of ultimate standard of digital currency. Uncertainty would not have been good for either coin, as owners of one or both coins may have come to doubt the certainty of its value.

As it turned out, Bitcoin hit an all time high of $7879 on the Wednesday of the cancellation announcement and has fallen since to an intraday low of near $6200 on Saturday. That is more than a 20% loss. On two of the three trading days since the cancellation, bitcoin futures would have triggered the “limit-up” and “limit-down” restrictions the Chicago Mercantile Exchange (CME) plans for its proposed bitcoin futures. With drops of 7% and 13%, the CME would pause trading. A 20% drop would be a “hard” cap and would end trading for the day. Bitcoin rose 8% on Wednesday and fell 9% on Friday.

 

So far this year, bitcoin has swung more than 20% in price on two separate days. Eleven times bitcoin has moved at least 13% up or down, and 69 times has moved at least 7%. Once a volatile futures contract goes limit up or limit down and closes trading, that same contract will often open at the limit in the same direction as the preceding day. The CME may have a tiger by the tail with bitcoin futures, especially if it uses the same limits for price movement of bitcoin contracts as it does for the Standard and Poor’s 500 contracts.

Benoit Mandelbrot, sometimes referred to as “the father of long-tails”, warned that a market must be taken as it comes, without presupposition as to its expected behavior. Only after observing prices over time can one model a curve that limits the probabilities of market action. According to Mandelbrot, modern portfolio theory continues to make the same two errors. It assumes each time period, whether hour or year, is independent of the previous period. Modern portfolio theory also imposes the same “bell-curve” of standard normal distribution upon all markets from tulips and soybeans to computer chips and crypto-currencies.

Mandelbrot, among mathematicians, is also considered the “father of fractal geometry.” He invented a geometric function that approaches a description of shapes found in nature like the edge of a leaf or the coastline of England. His claim is that an individual market, when compared to itself over different timeframes, presents an identical picture. A market, measured by price over a day, presents the same curve as when it is measured over a year or a decade. If an accurate curve can be discovered, the probabilities of market action can be limited.

Source:bigtrends.com

But establishment of bitcoin futures trading is necessary for the eventual securitization of the coin and for access by more conservative investors. The CME plans to launch a bitcoin futures contract by the end of 2017, while the Chicago Board Options Exchange (CBOE) plans a launch by early 2018. Futures would not only allow traders to bet on the direction of the bitcoin market; futures would also allow an individual or institution “insure” his portfolio against outsized losses. If one wishes to take part in the bitcoin parade, one might buy the actual coins and sell the futures.

Once bitcoin futures trade, exchange traded funds (ETFs) may also be granted approval. The United States Oil Fund is an ETF that invests in crude oil futures, not barrels of oil. Securitization of bitcoin would allow for a greater flow of funds into what Jamie Diamond of J. P. Morgan has called a “fraud”, and which Warren Buffet would warn against investing in what one does not understand. But money flows where it will, and for the last year especially, it has been flowing into bitcoin. If an ETF can own bitcoin, maybe banks and mutual funds will collect some coins as well. The Vanguard Group of funds alone has $4.5 trillion in assets. The total market cap of bitcoin is around $100 billion.

The potential for a new influx of funds into bitcoin over the coming years brings up the question of valuation. What is bitcoin really worth? What should it be worth? Shall it be compared to a hard asset like gold, as did Satoshi Nakamoto in his original whitepaper? Shall it be compared to currency like the US dollar as a means of completing transactions? Or does the fact that it really does not exist in any traditional sense make it more comparable to web-based firms that disappeared after the “dot com” crash of 2000?

If there are 6 billion ounces of gold in circulation worth about $7 trillion, does that mean that bitcoin’s approximate 16 million coins could be worth $437,500 each? If the M2 money supply is $14 trillion, should a bitcoin be valued at $875,000? If by vote, a small group of core developers can alter the algorithm that originally created bitcoin and spin off an unlimited number of variations, does the price of bitcoin have a bottom?

“Still, the idea of chance in markets is difficult to grasp, perhaps because, unlike the anonymous particles in a magnet or molecules in a gas, the millions of people who buy and sell securities are real individuals, complex and familiar. But to say the record of their transactions, the price chart, can be described by random processes is not to say the chart is irrational or haphazard; rather, it is to say it is unpredictable. ? Benoît B. Mandelbrot, The (Mis)Behavior of Markets

When observed through the Mandelbrot lens, the idea of the CME using the same limits for price movement of bitcoin futures as those it uses for those of the S&P 500 seems ridiculous. In popular culture, the definition of insanity “is doing the same thing over and over and expecting different results.” Try to put a tiger into the same cage one uses for a housecat and see what happens.

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Authored by Federico Pieraccini via The Strategic Culture Foundation,

The Silk Road, renamed the Belt and Road Initiative (BRI), is developing infrastructure along land and sea trade routes. However, little is known about China’s initiative in the Arctic Circle, which represents a new route that Beijing is now able to develop thanks to technology together with the strategic partnership with Russia.

Involving about 65 countries and affecting 4.4 billion people, constituting thirty percent of the world's GDP, together with a total investment from Beijing that could surpass a trillion dollars, this is an immense project that requires a lot of imagination to grasp the intentions of the Chinese leadership. With a host of projects already in progress, and some almost completed (the Sino-Pakistan Corridor known as CPEC is archetypical), the overland and maritime routes are developing side by side. Plenty of ink has been used detailing Beijing's intentions regarding the East-West connections of the super Eurasian continent. Pipelines, railway lines, fiber-optic cables, telecommunications infrastructure and highways dominate discussions, together with talks about costs, feasibility studies, the question of security, and the return on investment. The land Silk Road is certainly an imposing challenge that is not just commercial in nature but sets the foundation for greater cultural and social integration between neighbouring countries. It is a project that in the long term aims to blend together the Eurasian continent and overcome the contradictions contained therein through win-win cooperation and economic development.

The maritime route is a more structured project, tied mainly to two intrinsic needs of the People's Republic of China. The first is commercial and concerns the need for Beijing to ship its goods along established routes, creating ports and supply facilities along the way. The objective is to increase profits from cargo ships, especially when they return to China filled with goods, as well as to create new global sorting centers at ports set up along the maritime silk road. Important examples can be found in Pakistan with the development of the Gwadar port. The first phase was completed in 2006, and the second has been in progress since 2007, though the port was inaugurated in November 2016 and has been operational since. The project should be completed in the coming decades, with potentially 45 anchorage points, drainage of the approaching canal to about 20 meters, and a total trade turnover of over 400 million tonnes. The major benefit of this arrangement is to divide goods according to necessity, value and supply, choosing between an overland or maritime route. The port of Gwadar is connected principally through pipelines to the Chinese city of Kashi. This is a great example of how diversification can be achieved with the maritime route, used mainly for transportable goods, while the Gwadar port becomes an important hub in the oil and gas trade, especially thanks to progress in methane and regasification technology.

Other major maritime silk-route destinations include Venice and Athens, with the port of Piraeus already owned by COSCO of China for many years, a company that specializes in port activities and the integration of harbours along the maritime silk road based on the model of the Gwadar port. Venice is currently only a reminder of the ancient Silk Road, but if its past role is to be reprised, where in its modern garb it would today be the final landing point of the South Sea BRI, it would certainly require large investments to feed a network of dense exchanges. China would then have a maritime route in Southern Europe that is linked mainly overland to its northern corridor.

The other reason (that are less well known) pushing the People's Republic of China to invest in such extensive maritime routes concerns the naval doctrine adopted by the Chinese navy. The United States maintains a remarkable ability to project power across all five continents thanks to the size of its navy, which has grown quite steadily over the last century. Beijing realized that possessing such power projection would undergird the viability of its maritime routes, guarding against pirates as well as as obviating the possibility of a naval blockade in time of war, something always on the back of the minds of Chinese strategists.

A parallel in terms of security is easily observed when analysing the overland route of the Silk Road and the security that necessarily accompanies such an extensive infrastructure network. In this sense, the Shanghai Cooperation Organization, and the accession of both Pakistan and India into the Organization, aims to create the conditions for peaceful development while avoiding tensions between neighbouring countries and different ethnic groups. Beijing is well aware that there is no prosperity without security, especially in the context of underdevelopment and in such a diverse continent with respect to human geography.

In military and naval terms, Beijing's budget has reached significant levels, rising from about 10 billion dollars in 1989 to about 110 billion in 2017. With such investment, Beijing has been able to launch three new submarine models (Type 93, Type 94, and Type 95) as well as a refurbished aircraft carrier (Type 001) together with the construction of China’s first fully equipped homemade aircraft carrier (Type 001A). The main focus for the People’s Liberation Army Navy (PLAN) is a strategic investment in amphibious and small vessels that provide the means to project power in order to influence the power dynamics of the South China Sea, this in the context of American harassment to dominate the Sea. In this sense, the strategy of denying America a presence in the South China sea is also accompanied by the construction of artificial islands and the development of new anti-ship missiles with supersonic capabilities.

Security and investment seem to be the engine of the Chinese BRI project, and connectivity appears to be the transmission chain.

Maximum attention is also being given to the creation of seaports for the PLAN, as seen with China's first foreign base in Djibouti, a particularly strategic location due to the strait of Bab-el-Mandeb.

An aspect of the Chinese BRI that is less well known, and about which we still have few details, is the Arctic route. The Arctic is formally shared between the United States, Northern Canada, Finland, Greenland (Denmark), Iceland, Norway, Russia, and Sweden and is administered by the Arctic Council. Non-member countries include France, Germany, India, Italy, Japan, South, Korea, the Netherlands, Poland, Singapore, Spain, the United Kingdom, and the People's Republic of China.

Recently, Russia and China begun a fruitful discussion on the exploitation of the Arctic routes. The July 2017 meeting between Xi Jinping and Medvedev confirmed Moscow and Beijing’s intention is to jointly develop the Chinese maritime Silk Road though the Arctic, serving to diversify trade routes and involving neighbouring states in port projects and scientific research. Beijing has every intention in the future of moving its goods through the Arctic from China to Europe, thereby reducing the distances involved by up to 20-30%, saving time, fuel and human resources in the process. Considering that 90% of Chinese goods are transported by sea, even a small change would generate savings and bigger profits. In the face of such an irresistible opportunity, China is not wasting any time. A few days ago, the Xuelong icebreaker (the Russian Federation is the only country possessing two nuclear icebreakers) sailed through the Northwest Passage in the Arctic, reaching North America from Asia in virtually no time, constituting an event of historic importance, this being the first time a Chinese ship has completed this route. Equally important for business, COSCO, the Chinese giant, completed in 2013 the Northeast Passage in the Arctic, starting from the Chinese port of Dalian and arriving in Rotterdam, shaving the duration of the journey by a third, down from 45 days to 30.

There are some considerations regarding the Arctic region to be made, both from a practical and realistic point of view. There are currently three usable routes, namely the northeast, northwest and “north-north” (crossing the North Pole). The first is the one through which Russia and China intend to shorten shipping times, in spite of the difficulties faced by the current lack of infrastructure as well as an unwelcome environment, complicating things and making the whole endeavour extremely expensive to develop. In this sense, cooperation between Russia and China is highly profitable for both countries, who are interested in proposing this route to other countries as well, resulting in increased transit volumes. Currently the route can be used for about four months of the year. The northwest route has problems with deep ice that prevents icebreakers from clearing a passage for a sufficient duration to allow for a commercial route. The “north-north” passage, cutting straight through the North Pole, is inaccessible until all ice is melted, something scientists predict will occur by 2050, with all the related consequences.

Inevitably, Arctic routes represent the future in terms of opportunities and savings in cost. In comparison to the Suez Canal, which is the current route through which China reaches Europe, entailing a journey of nearly 12,000 nautical miles, a route through the Northwest Passage in comparison cuts to journey to under 7,000 nautical miles.

Beijing is investing in infrastructure to reduce time and increase profit. The Arctic route has all the indications of becoming a central node of the BRI initiative. China’s commitment to development of the Arctic route is comparable to another titanic project that is also central to the strategy of the maritime Silk Road and is occurring in Nicaragua, namely the construction of an alternative to the Panama Canal. How viable these gigantic projects are remains a matter of time, resting mainly on the acquisition of new technologies that transform the impossible into the possible, whereby the accessibility of new technology allow for a reduction in research and developmental costs.

In the not-too-distant future, transit routes through the Arctic will assume a certain level of importance vis-à-vis the global geopolitics of Russia and China. Beijing and Moscow seem to have every intention of developing this innovative route with every means at their disposal, adding to the maritime silk road an unanticipated but highly beneficial route. Creating a partnership with Russia in the Arctic will enable Beijing to set foot in the area, as well as allowing it to be involved in the exploitation of hydrocarbons and other natural resources. Combined with the Russian Federation's increasing ability to penetrate the Arctic and thereby create the necessary infrastructure, the Arctic route is something that can increasingly be offered as a proposition to partner nations.

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Now they tell us…

The imminent prospect – January 2018 – of Mifid II, with the unbundling of research costs, was bad enough in terms of complexity and lower profitability for both the buy and sell sides…never mind disastrous for the analysts who are likely lose their jobs. Now the regulatory powers that be in London are ensuring that collective hatred of them is about to reach a new all-time high. The definition of “research” is to be expanded from the tsunami of analyst reports to the even bigger tsunami of email and Bloomberg messages swapped between sellside salesmen and sales traders and buyside portfolio managers and dealers. According to the FT.

The UK financial watchdog has alarmed some City brokers by saying new rules on payment for investment research could extend to wider sales and trading roles. From January – under European legislation known as Mifid II – asset managers will have to pay financial institutions directly for research instead of combining the cost with trading commissions. To date, the debate has focused on price negotiations for research between banks and asset managers, with the former offering packages that include written reports and direct access to analysts. But some brokers have been caught off guard after the Financial Conduct Authority (FCA) said that content produced by sales traders who take orders on trades and typically advise clients by highlighting trends and “market colour” — would also count as research.

 

“Whilst this is logically consistent with everything the FCA has said on (research) unbundling, it will still come as a bombshell,” said Richard Balarkas, director of Quendon Consulting and former chief executive of Instinet, an agency broker.

 

“Most firms will have hoped to sidestep the question of how to charge for all those client-facing employees whose role is neither research nor pure trading.”

With most firms acknowledging that they are less than fully prepared for Mifid II, it’s likely that the FCA’s latest “gem” has led to a widespread muttering of expletives in scores of offices, including in “execution only” firms who thought they had no explicit research relationship with their clients. However, presumably wise to regulatory incompetence, some firms had already assumed the widest possible assumption of “research”, where the key term is “substantive”. The FT continues.

An FCA official told an industry conference this month that if a sales trader provided an idea with “substantive” analysis or insight, that would need to be paid for by an asset manager to avoid being classed as an inducement, according to multiple sources who attended the event.

 

“Research departments give a structured output that you can price, but this will be extremely hard to monitor and police,” said the chief executive of one City broking house, who did not wish to be named.

 

The rules could make it more difficult for a broker to interact with an institution with which it traded but had no research deal, he added. Nevertheless, some larger banks and brokers said they had already interpreted the rules in this way and were taking precautions to ensure staff would not breach them. One said that in drawing up Mifid II agreements with asset managers, it was pricing “research and sales” as a combined package.

Some firms are pursuing an alternative solution…if saying something “substantive” is going to attract more regulatory scrutiny, don’t say anything “substantive”. What this means the FT doesn’t explain. Our suspicion is that saying nothing substantive means not giving a recommendation in terms of Buy, Sell or Hold. Having said that there is a hundred ways of getting across your view on a security without specifically characterising it in terms of a recommendation. However, the FCA is already trying to head this off.

By contrast, another bulge bracket bank said that it was reviewing its sales communication policies and had given training to traders to ensure they would not write or say anything that could be deemed “substantive”. Neil Robson, a regulatory law partner at Katten Muchin Rosenman in London, said the FCA had likely spoken out as a warning to any investment banks who planned to blanket label certain content as “non-substantive” or “not research material’ — where it might not always be the case.

 

“Simply because it’s coming out of the front office doesn’t mean it’s immediately out of scope,” he said. “Asset managers will have to look at everything in context, on a case-by-case basis, to determine if something is research covered by Mifid II rules or not.”

If the Mifid ii implementation has led to the “discovery” that formal research has, in many cases, little or no value, it’s amusing to speculate on the likely value of much of the gossip, hunches and “guestimates” peddled by salesmen and sales traders when they (frequently) diverge from marketing their firms published research. The FT speculates in catastrophic terms that it could signal the beginning of the end for salesmen and their service.

Others have raised concerns about what the changes might mean for the future of sales traders, whose numbers have already fallen with the move towards automated trading. “It makes the job of the salesman ever more redundant because he’s not allowed to have a view on anything,” said a senior executive at a London stockbroker.

 

Mr Balarkas said: “Brokers will either have to cease supplying some services, or price them on a discrete basis — or ensure that the service has little or no value, which rather defeats the point of supplying it.”

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Authored by Jeff Thomas via InternationalMan.com,

Recently, the people of two of Italy’s most prosperous regions voted in a referendum, on whether they wished to have greater autonomy from Rome.

The referendum is non-binding, but that’s not what’s most significant in the results.

What is significant is that over 95% of those who voted in Lombardy did so in favour of greater autonomy. In Veneto, the number in favour of greater autonomy was even higher, at 98%.

Roberto Maroni, president of Lombardy, said, “I now have a commitment… to go to Rome and give concrete actualization to the mandate that millions of Lombards have given me.”

It may appear on the surface that Mister Maroni intends to make an appeal for independence, but this is not what will occur. He’s a politician and won’t invite Rome to jail him for sedition. His goal will instead be to demand that a greater amount of the national income that’s generated by Lombardy and Veneto (about 20% of the total) remains within those regions.

This will not mean that he wants his people to be taxed less; his goal will be to retain a larger portion to be absorbed by the regional governments—to be in his own hands.

So much for the politicians’ agenda. But what does the referendum say about the people of the regions? Well, the extraordinarily high numbers in favour of greater self-determination demonstrate that virtually all the people in the regions have figured out that Rome is bilking them of their earnings and they’re getting pretty cheesed off.

In prosperous times, a population tends not to complain too much about being robbed through taxation. They grumble a bit, but tolerate it. However, in more stringent times, when people are finding it more difficult to make ends meet, they become more resentful of governments that are chronically both overreaching and wasteful.

Since 2008, we’ve been living in such a time, and the longer people go on without a true recovery, the more resentful they’re going to be.

Independence movements have been afoot in many countries in Europe, every state in the USA, and elsewhere on the globe, but, until recently, they’ve been minor issues, attracting primarily fringe support.

Brexit changed all that, as the people of one of the illustrious G7 countries voted to remove themselves from the parasitical EU.

This, of course, inspired the voters of “lesser” countries to consider the possibility of independence more seriously.

Some of these movements have been efforts by largely dependent entities such as Scotland to express the resentment of being the poor step-sister to a more prosperous central government, but others have been the result of the growing resentment that the province or region that’s producing the lion’s share of the national revenue is routinely having it siphoned off by the central government.

It’s predictable that any regional political leader will like the idea of independence, so that he can create his own country and become its president. However, in the present environment, we’re seeing the people of Lombardy, Veneto, Kurdish Iraq, and Catalonia voting overwhelmingly in favour of either full separation, or at least, greater autonomy.

Of course, this can’t be tolerated by the central governments, as it means that they’ll be losing all that revenue and, in many cases, this would collapse their economy.

But, at present, we’re looking at only the thin end of the wedge. There are countless other provinces and regions out there that have a similar desire to secede, and justifiably so.

After all, much of Europe, until the last century or so, was not made up of large countries. It was made up of lots of little tribal areas that sometimes worked collectively. Even the Roman Empire began as a collection of provinces.

Whilst we, today, are accustomed to a world map that’s remained largely the same throughout our lifetimes, there’s actually nothing sacred in the borders that were drawn on maps decades ago, often by people who had never been to those locales (in the case of former colonies and conquered areas). The smaller, tribal areas made more sense and actually worked more in favour of the inhabitants.

But, since World War II, the world has been headed in the direction of über states. The Unites States had already led the way in the late 18th century, but in recent times, the EU was formed and repeatedly expanded. In addition, many organisations have joined groups of countries together (ASEAN, Mercosur, Caricom, etc.).

In each case, the über states were created without the expressed majority interest of the voters. (In EU countries, referenda were sometimes held, but, in no case did a majority of voters vote in favour of joining the EU. The leaders did it in spite of the lack of support.)

Invariably, the über states were created by the political leaders and for the political leaders.

Not surprisingly, in each case in which the people of a province, state, or region have expressed a desire to secede, the central government has forcefully opposed secession. (The Americans fought their civil war, not over slavery, but over secession.)

Today, states such as Texas, which have repeatedly stated both their right and interest in possible secession, have been advised that, if they make such an attempt, they’ll be met with whatever force is required to stop it.

In Catalonia, we’re watching a standoff build between the leaders in Barcelona and Madrid, as each event unfolds.

And Catalonia is a good example of a further reason for a central government to resist the departure of a province: Should Catalonia succeed, there’s the likelihood that the adjoining regions of Valencia and the Balearic Islands might also be inspired to make an exit from Spain, and for the very same reason—because they’re the revenue producers and are having Madrid siphon off their earnings, to be spent on less-productive regions.

Governments have had a long history of claiming, “If we don’t all stick together, we’ll be doomed.” However, historically, the aggressors, more often than not, have been the empires. The smaller a country, the more likely it is to mind its own business.

In addition, the smaller a country, the more closely its leaders are to their people and, correspondingly, the more responsive they are to the people’s needs and goals.

The great majority of the armed conflict that exists today exists either in the larger countries, or, more often, due to the aggression of larger countries.

Brexit has most certainly been the cause of a trend for smaller entities to get up the courage to back away from the parasitical central governments. The hope would be that this trend will expand dramatically.

There can be no doubt that there are those who believe in and are doing their utmost to create a New World Order (they’ve been stating their intent for over a hundred years). Yet, just as we seem to be moving headlong in this direction, a reversal has begun to take place at the same time.

There can be no doubt that the reversal will be resisted strenuously; however, as the voting described above attests, this is a ground-up trend, not a government-generated trend, and, historically, strong ground-up trends have had a healthy track record of success.

*  *  *

Even “successful” independence movements never go smoothly. Extreme economic turmoil is simply built into the game. However, some people always manage to come out the other side much wealthier. We’re sharing how in our Guide to Surviving and Thriving During an Economic Collapse. Click here to download your free PDF copy now.

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Last month, S&P warned that UK lenders could incur £30 billion of losses on their consumer lending portfolios consisting of credit cards, personal and auto loans if interest rates and unemployment rose sharply.  Much like in the U.S., S&P warned that "loose monetary policy, cheap central bank term funding schemes and benign economic conditions" had fueled an "unsustainable" yet massive expansion of consumer credit that will inevitably end badly.  Per The Guardian:

The rapid rise in UK consumer debt to £200bn from car finance, personal loans and credit cards is unsustainable at current growth rates and should raise “red flags” for the major lenders, ratings agency Standard & Poor’s has warned.

 

In detailed analysis of the sector, S&P warned that losses from this form of lending suffered by banks and other financial institutions could be “sharp and very sudden” in an economic downturn and may be exacerbated if the Bank of England increased interest rates.

 

It also warned that it could downgrade banks’ credit ratings if the high growth rate persisted or banks took on too much risk in this sector. But it did not fear any system-wide impact from consumer credit.

 

“Loose monetary policy, cheap central bank term funding schemes and benign economic conditions have supported consumer credit supply and demand,” S&P said.

 

Annual growth rates in UK consumer credit of 10% a year have outpaced household income growth, which is closer to 2%, and become a focus for the Bank which is scrutinising lenders’ approach to the sector.

 

“We believe the double-digit annual growth rate in UK consumer credit would be unsustainable if it continued at the same pace,” S&P said.

Now, new data surrounding the growing number of court filings related to the recovery of consumer debts highlights just how serious the personal leverage problem has become in the UK.  As the FT points out this morning, there have been over 900,000 court judgements on consumer debts in just the first 9 months of 2017, up 34% compared to the same period in 2016, compared to only 827,000 at  the height of the great recession in 2008.

Consumers who refuse to repay their debts are increasingly being taken to court, with litigation at levels last seen in the run-up to the 2007-08 financial crisis.

 

New figures show there were 910,345 county court judgments in the nine months to the end of September. This is an increase of 34 per cent per on the same period in 2016, and compares with 827,000 in the whole of 2008, at the onset of the financial crisis.

 

The rise in court judgments is another indication of the high levels of unsecured debt weighing on British consumers, with Bank of England data showing that borrowing through credit cards, overdrafts and car loans has topped £200bn for the first time since the global crisis.

 

Although UK unemployment is at all-time lows, growth in real incomes and the savings rate have both deteriorated in recent months, suggesting household finances are worsening. Many economists are predicting a slowdown in what has been robust consumer spending.

This should come as little surprise to our readers as we pointed out earlier this summer that the U.K. auto market had seemingly taken a page from U.S. subprime lenders by offering a brand new car, with no money down, to anyone who walks into a dealership with a pulse (see: Undercover Investigation Exposes Deteriorating Auto Lending Standards In Europe; No Job, No Problem) . As the Daily Mail pointed out, their undercover reporters visited a total of 22 dealerships and were repeatedly offered cars of various values with no money down and despite reporters admitting that they had no job and no source of income.

Reporters visited 22 dealerships in England and Scotland, saying they were in their early twenties and either unemployed, on low incomes or trying to buy a car despite having poor credit ratings. Half of the dealerships – including ones selling Audis, Mazdas, Suzukis, Fords, Vauxhalls and Seats – told them they could have a brand new car without paying a penny up front.

 

In each case they were offered Personal Contract Purchase (PCP) deals – a type of car loan that now makes up nine out of ten car sales bought on finance in Britain.

 

These deals offer smaller monthly payments than traditional car loans.

 

A reporter who said he was working part-time on the minimum wage was offered a £15,000 Seat Ibiza without a deposit at a Seat dealership in Manchester.  Another reporter suggested that he had bad credit, but he was offered an £8,600 Vauxhall Corsa in Birmingham.

 

Kevin Barker, 71, found himself £3,500 in debt when he suffered a heart attack six months into a PCP deal. He said a ‘pushy’ Toyota salesman ‘pressured’ him into taking out a 36-month agreement in November 2014 and he was not told of the repercussions if he fell ill or lost his job.

Of course, excessively levered household balance sheets work wonders for gaming GDP growth…that is, right up until the point that interest rates start to rise and those households realize their ability to "afford" their spending binge was nothing more than a temporary blip courtesy of accomodative interest rate policies…the reversal of which will now render many of them bankrupt.

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Authored by Daniel McAdams via The Ron Paul Institute for Peace & Prosperity,

Hypocrisy may be the only consistent guiding principle of US foreign policy.

Here's a prime example of the "do as we say, not as we do" that is the core of how Washington does business overseas: In the same week that the the US Justice Department demanded that the Russian-backed RT America network register as a foreign propaganda entity or face arrest, the US State Department's Bureau of Democracy, Human Rights and Labor (DNL) has announced that it is launching a program to massively interfere in NATO-partner Hungary's internal media.

So the US Justice Department is cracking down on RT America for what it says is manipulation of US domestic affairs while the US State Department announces a new program to manipulate Hungary's domestic affairs.

The State Department's new program would send three-quarters of a million dollars to Washington-selected Hungarian media outlets to "increase citizens’ access to objective information about domestic and global issues in Hungary." On what authority does the United States pick winners and losers in Hungary's diverse media environment? Since when does one government have the right to determine what news is "objective" in another country? Hungary is not a country to be "regime-changed" — it is a full democracy where the will of the people is regularly expressed at the ballot box and where the media competes freely in the marketplace of ideas.

Washington's Hungarian media project is clearly meant to interfere in that country's domestic political environment. Here are the stated objectives of the US government's Hungary program:

The program should improve the quality of local traditional and online media and increase the public’s access to reliable and unbiased information.

 

…

 

Projects should aim to have impact that leads to democratic reforms, and should have the potential for sustainability beyond DRL resources. (emphasis added)

The State Department's Bureau of Democracy, Human Rights, and Labor identifies its mission in this call for grantees as "promoting democracy and protecting human rights globally." So what is it doing in Hungary? Hungary has had nearly three decades of democracy since 1989 and hardly needs the United States to tell it what kind of media is allowed (subsidized) and which kind should be suppressed.

In reality this is a US government program to ensure that the Hungarian media follows Washington's policy line. Hungarians are all too familiar with this kind of toxic interference from an outside superpower: it was called the Soviet Union. Does Washington really seek to take on that role?

Stab in the back

This US government intervention in Hungary's internal affairs must feel like a stab in the back to Orban and his government. Orban was an early — and rare — supporter of candidate Donald Trump among his European colleagues. Indeed, where Brusssels saw Trump as a gauche loudmouth, Orban openly admired the soon-to-be-president's position on immigration and particularly on the mass immigration of mostly Muslim "refugees" that has proven to be disastrous for so many European countries. Likewise, Viktor Orban's Fidesz party has managed to retain a high level of popularity through two election cycles by embracing and promoting the kind of nationalism that characterized Trump's successful campaign.

Orban's early support for Trump appeared to have paid off. Where Fidesz had struggled to make any headway at all under GW Bush or Obama's State Departments, both of which were openly hostile, one of President-elect Trump's first moves was to invite Orban to the White House. Orban, for his part, hailed Trump on inauguration day, welcoming in an era where national interest takes precedent over multilateralism.

As recently as last month, President Trump praised Viktor Orban, saying that the "strong and brave" Hungarian Prime Minister is "on my guest list.”

Then Trump's State Department launched a program to undermine Hungary's national sovereignty by interfering in the Hungarian media market. It seems national sovereignty is a one-way street for Washington no matter who occupies the Oval Office.

Hypocrisy…or policy consistency?

But perhaps it's inaccurate to accuse the US government of hypocrisy in this case. After all, pressuring RT America with the intent of silencing the news network and spending our tax dollars propping up US-friendly media outlets in the Hungarian countryside are actually two sides of the same coin: the US government will tell you what kind of media you are allowed to consume.

If you are a media network in the United States that allows voices who oppose Washington's neocon-dominated foreign policy they will shut you down. If you are a news outlet in the Hungarian countryside that spews the US party line, they will prop you up. Both cases are the same: your media will toe the US government official line or else.

*  *  *

Note to Washington: This is not 1950. Hungary has been a fully free and democratic country with plenty of free elections under its belt. It does not need you to come in and attempt to manipulate its newspapers and broadcast media. What would you do if China sent in a few million dollars to prop up US publications who agreed to push the Beijing line? What about if Tehran sent some money to publications pushing the Ayatollah party line? You cannot even tolerate RT America — which is largely staffed by Americans but dares to feature prominent Americans who challenge the neocon foreign policy line. Hands off Hungary!

Note to Viktor Orban: You risked arrest — and worse — in June, 1989 when you directly confronted the communists who were occupying your country. Now that Hungary's freedom has been won — in no small way due to your efforts — do not allow Washington's neocons to take it away from you! If you do not confront this violation of Hungarian sovereignty, the neocons will continue to increase the pressure. The neocons want you out! Just this week, neocon commentator Anne Applebaum wrote that you are a "neo-Bolshevik" who has "little to do with the right that has been part of Western politics since World War II, and…no connection to existing conservative parties." Do a little research and you will notice that Applebaum is a member of the International Advisory Council of the Center for European Policy Analysis — the organization your own government funded for a big conference this summer! Neocon knives are out for you. You'd be smart to make a better assessment of who are your friends and enemies in the United States…before it's too late.

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ICO Investors are about to experience something that’s almost never happened in the brief history of the $3 billion market: An offering by a company with an actual product.

Bloomberg Businessweek has managed to find the one ICO being launched to solve the rare problem that could actually benefit from decentralized, monetized tokens. The company is called OPSkins, and it’s the largest skins site in the $50 billion market. The company has raised $41 million in an ICO it launched last month, and hopes to raise another $7 million before the sale ends on Nov. 28. For those readers who aren’t avid gamers, Bloomberg explains that a “skin” is a decoration for the virtual guns and knives found in video games like CounterStrike: Global Offensive. While the concept of building a company around these products might seem silly, some buyers will pay thousands of dollars for the rarest skins.

The two-year-old company has raised about $41 million by selling what it calls WAX tokens, a virtual currency that will become the default way to buy and sell skins on its intercompany skins exchange, the Worldwide Asset eXchange, which will allow buyers to connect to dozens of disparate marketplaces. The idea is to simplify purchases for gamers from different countries and give everyone a clearer sense of what a particular item is worth, using the same kind of digital-ledger system as the cryptocurrency bitcoin.

Previously, the market for these virtual items was highly fragmented, and wealthy buyers would often play intermediaries a premium to root out the best deals on their behalf.

The company bets that making its exchange accessible to rivals, who can then make a broader catalog available to customers, will expand its audience beyond the limitations of an individual website, says Chief Information Officer Malcolm CasSelle, who’s helping lead the WAX effort. In theory, there’s lots of room for new skins buyers, says Chris Grove, managing director at researcher Eilers & Krejcik Gaming LLC. About 200,000 new people buy virtual items through OPSkins each month, but the site sells gear for online games with more than 125 million regular players.

 

“This could be the perfect on-ramp,” says investor Scott Walker, who helped fund the “initial coin offering,” or ICO. Early investors are getting more WAX tokens for their money, but their value will become another variable once the exchange goes live in December.

 

OPSkins doesn’t disclose its financials, but its revenue is growing at double digits annually, says CasSelle, previously chief technology officer at Tronc Inc., the former Tribune Co. Partly, he says, the WAX token strategy is a way to stave off competitors. Over the past few months, rivals including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other trader has the muscle to create the kind of intercompany exchange OPSkins is building. Starting next year, websites that install the WAX widget will get as-yet-undetermined fees for resulting sales.

However, before you rush out and buy WAX tokens purely for the sake of speculating, It’s worth considering the fact that OPSkins entire business is essentially at the mercy of the giant video game studio that produces many of the games whose wares Skins sells on the secondary market.

The volatility of the WAX token price may make it a poor place to hold money not being used for short-term item buying and selling. But OPSkins’ biggest potential roadblock is the maker of the games. Industry leader Valve Corp., which publishes Counter-Strike: Global Offensive and the other big hits OPSkins exploits, has the power to ban sites from trading skins. Last year, Valve sent cease-and-desist letters to 23 online gambling sites to prevent them from using skins as collateral, a move aimed at reducing teenage gambling on professional video game matches. “Valve has certainly left the door open to an action in the future,” says Grove, the Eilers researcher.

However, the company’s technology chief says it doesn’t need Valve Corp.’s cooperation to build a successful business.

CasSelle says that the new exchange can work without Valve’s help, including as a way to acquire other virtual goods, and that OPSkins is looking to raise an additional $7 million in WAX tokens before it finishes its ICO on Nov. 28. (The company initially sought a total of $63 million but lowered that goal because the flurry of interest around bitcoin and its spiking value has diverted attention from ICOs.) Alexander, the personal shopper for virtual goods, says he thinks the exchange will be good for people like him in the short term, swelling the overall market for skins. “It makes the entire process effortless,” he says. “It is a massive pain dealing with the payment methods available at the moment.” But he’s hedging his bets, having returned to college to finish his degree in economics. He says he eventually wants to get a job in finance or start his own business.

OPSkins doesn’t disclose its financials, but its chief technology officer – who was previously the CTO at Tronc Inc. – explained that the WAX token strategy is a way to stave off competitors. Over the past few months, some of OPSkins rivals, including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other company has the muscle to create the kind of intercompany exchange OPSkins is building.

If it succeeds in being the first platform to capture a dedicated customer base, maybe – just maybe – the WAX token might have a future.

Unfortunately for investors, most of the other 799 tokens trading on one of hundreds of exchanges scattered across the Earth, probably won’t.
 

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As online retailers in the United States prepare for Cyber Monday, i.e. the biggest online shopping day of the year, China’s largest e-commerce company just recorded the biggest day in its history.

As Statista's Felix Richter notes, on November 11, Chinese Singles’ Day, online shoppers bought merchandise worth more than $25 billion across Alibaba’s platforms (mainly Tmall and Taobao), shattering last year’s sales record in the process.

Alibaba processed 812 million orders within 24 hours and its payment service Alipay handled 1.5 billion transactions during the day, peaking at an incredible 256,000 transactions per second.

Compared to these numbers, Cyber Monday and Black Friday look like celebrations of frugality.

You will find more statistics at Statista

In 2016, total Cyber Monday e-commerce sales in the United States amounted to $3.06 billion with Thanksgiving and Black Friday adding another $3.79 billion to a weekend total of $6.85 billion.

This year’s Thanksgiving weekend will likely bring about another record in U.S. e-commerce history, but it won’t come close to matching China’s largest shopping extravaganza.

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Authored by David Stockman via The Daily Reckoning,

103 years ago, in 1914, the Federal Reserve opened-up for business as the carnage in northern France was getting under way.

And it brought to a close the prior magnificent half-century era of liberal internationalism and honest gold-backed money.

The Great War was nothing short of a calamity, especially for the 20 million combatants and civilians who perished for no reason discernible in any fair reading of history, or even unfair one.

Yet the far greater calamity is that Europe’s senseless fratricide of 1914-1918 gave birth to all the great evils of the 20th century – the Great Depression, totalitarian genocides, Keynesian economics, permanent warfare states, rampaging central banks and the follies of America’s global imperialism.

Indeed, in Old Testament fashion, one begat the next and the next and still the next.

The old liberal international economic order – honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration – resulted in a 40-year span between 1870 and 1914 of rising living standards, stable prices, massive capital investment and prolific technological progress that was never equaled either before or since.

The Great War undid it all.

In the case of Great Britain, for example, its national debt increased 14-fold, its price level doubled, its capital stock was depleted, most off-shore investments were liquidated and universal wartime conscription left it with a massive overhang of human and financial liabilities.

Yet England was the least devastated.

In France, the price level inflated by 300% its extensive Russian investments were confiscated by the Bolsheviks and its debts in New York and London catapulted to more than 100% of GDP.

Among the defeated powers, currencies emerged nearly worthless with the German mark at five cents on the pre-war dollar, while wartime debts – especially after the harsh peace of Versailles – soared to crushing, unrepayable heights.

And the Great Depression’s tardy, thoroughly misunderstood and deeply traumatic arrival happened compliments of the United States.

In the first place, America’s wholly unwarranted intervention in April 1917 prolonged the slaughter, doubled the financial due bill and generated a cockamamie peace, giving rise to totalitarianism among the defeated powers and Keynesianism among the victors.

Even conventional historians admit as much.

Had Woodrow Wilson not misled America on a messianic crusade, the Great War would have ended in mutual exhaustion in 1917 and both sides would have gone home battered and bankrupt but no danger to the rest of mankind.

Indeed, absent Wilson’s crusade there would have been no allied victory, no punitive peace, and no war reparations; nor would there have been a Leninist coup in Petrograd or Stalin’s barbaric regime.

Likewise, there would have been no Hitler, no Nazis, no holocaust, no global war against Germany and Japan and no incineration of 200,000 civilians at Hiroshima and Nagasaki.

Nor would there have followed a Cold War with the Soviets or CIA sponsored coups and assassinations in Iran, Guatemala, Indonesia, Brazil and Chile to name a few. Surely there would have been no CIA plot to assassinate Castro, or Russian missiles in Cuba or a crisis that took the world to the brink of annihilation.

There would have been no domino theory and no Vietnam slaughter, either.

Nor would we have had to come to the aid of the mujahedeen and train the future al Qaeda in Afghanistan. Likewise, there would have been no Khomeini-led Islamic counter-revolution, and no U.S. aid to enable Saddam’s gas attacks on Iranian boy soldiers in the 1980s.

Nor would there have been an American invasion of Arabia in 1991 to stop our former ally Saddam Hussein from looting the equally contemptible Emir of Kuwait’s ill-gotten oil plunder – or, alas, the horrific 9/11 blowback a decade later.

Nor would we have been stuck with a $1 trillion Warfare State budget today. But I digress.

Economically, the Great War enabled the already rising American economy to boom and bloat in an entirely artificial and unsustainable manner for the better part of 15 years.

The realities of war finance also transformed the new Federal Reserve into an incipient central banking monster in a manner wholly opposite to the intentions of its great legislative architect – the incomparable Carter Glass of Virginia.

During the Great War America became the granary and arsenal to the European Allies – triggering an eruption of domestic investment and production that transformed the nation into a massive global creditor and powerhouse exporter virtually overnight.

Altogether, in six short years $40 billion of money GDP became $92 billion in 1920 – a sizzling 15% annual rate of gain.

Needless to say, these fantastic figures reflected an inflationary, war-swollen economy – a phenomena that prudent finance men of the age knew was wholly artificial and destined for a thumping post-war depression.

World War I simply gave birth to the modern Fed as we know it.

When Congress created the Federal Reserve on Christmas Eve 1913, just six months before Archduke Ferdinand’s assassination, it had provided no legal authority whatsoever for the Fed to buy government bonds or undertake so-called “open market operations” to finance the public debt.

In part this was due to the fact that there were precious few Federal bonds to buy. The public debt then stood at just $1.5 billion, which is the same figure that had pertained 51 years earlier at the battle of Gettysburg, and amounted to just 4% of GDP.

Thus, in an age of balanced budgets and bipartisan fiscal rectitude, the Fed’s legislative architects had not even considered the possibility of central bank monetization of the public debt, and, in any event, had a totally different mission in mind.

The big point here is that Carter Glass’ “banker’s bank” was an instrument of the market, not an agency of state policy. The so-called economic aggregates of the later Keynesian models — GDP, employment, consumption and investment — were to remain an unmanaged outcome on the free market, reflecting the interaction of millions of producers, consumers, savers, investors, entrepreneurs and even speculators.

But WWI crossed the Rubicon of modern Warfare State finance. During World War I the U.S. public debt rose from $1.5 billion to $27 billion – an eruption that would have been virtually impossible without wartime amendments which allowed the Fed to own or finance U.S. Treasury debt.

These “emergency” amendments – it’s always an emergency in wartime – enabled a fiscal scheme that was ingenious, but turned the Fed’s modus operandi upside down and paved the way for today’s monetary central planning.

Washington learned that it could unplug the free market interest rate in favor of state administered prices for money, and that credit could be massively expanded without the inconvenience of higher savings out of deferred consumption.

Effectively, Washington financed Woodrow Wilson’s crusade with its newly discovered printing press – turning the innocent “banker’s bank” legislated in 1913 into a dangerously potent new arm of the state.

It was this wartime transformation of the Fed into an activist central bank that postponed the normal post-war liquidation – moving the world’s scheduled depression down the road to the 1930s.

The Fed’s role in this startling feat is in plain sight in the history books, but its significance has been obfuscated by Keynesians presuming that the state must continuously manage the business cycle and macro-economy.

The Great Depression thus did not represent the failure of capitalism or some inherent suicidal tendency of the free market to plunge into cyclical depression — absent the constant ministrations of the state through monetary, fiscal, tax and regulatory interventions.

Instead, the Great Depression was a unique historical occurrence — the delayed consequence of the monumental folly of the Great War, abetted by the financial deformations spawned by modern central banking.

The “failure of capitalism” explanation of the Great Depression is exactly what enabled the Warfare State to thrive and dominate the rest of the 20th century because it gave birth to what have become its twin handmaidens — Keynesian economics and monetary central planning.

Together, these two doctrines eroded and eventually destroyed the great policy barrier – that is, the old-time religion of balanced budgets – that had kept America a relatively peaceful Republic until 1914.

If only we could rewind the clock to 1917 and keep Wilson out of WWI, history – and economics – likely would have been a lot different.

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Almost exactly one year ago, the IRS realized that it could be leaving billions of dollars on the table in the form of uncollected taxes, and launched a tax-evasion probe on the largest US Bitcoin exchange, Coinbase, seeking to identify all Coinbase users in the U.S. who “conducted transactions in a convertible virtual currency” from 2013 to 2015.

In a vexing paradox for cryptocurrency traders who had hoped they could avoid the IRS indefinitely as someone, somewhere once may have mentioned, the higher the price of bitcoin rose, the more motivated the IRS was to obtain access to user transaction records. Or, as Bloomberg put it, “the exploding value of the cryptocurrency since its first real-world transaction in 2010 is one reason the U.S. Internal Revenue Service is pushing to see records on thousands of users of Coinbase Inc., one of the biggest U.S. online exchanges. The company’s digital currency platform allows gains to be converted into old-fashioned dollars in transactions that the IRS alleges are going unreported.”

To be sure, as we have reported over the past year, Coinbase and industry trade groups are fighting back in court, claiming the government’s concerns about tax fraud are unfounded and that its sweeping demand for information is a threat to privacy. That however, did not stop the IRS which claimed in a court filing that “U.S. taxpayers, including Coinbase users, have made use of virtual currencies to avoid the reporting and payment of taxes.” The agency said it needs access to customer records to “gain some degree of visibility into a space where it is already necessarily moving about somewhat in the dark.”

Meanwhile, both Coinbase and bitcoin have exploded. Whereas Coinbase had under 5 million users last November when the IRS filed its lawuist, as of last week it had 12.2 million users, deploying 41 million virtual currency wallets in 32 countries that have so far exchanged $40 billion in digital currency. The price of bitcoin hit a record high just under $8,000 at the start of November, more than 10x higher than in November 2016.

The biggest problem, however, and the reason why the IRS is unlikely to relent is that as the IRS said, it detected a “reporting gap” between the 500,000 virtual currency users Coinbase reported between 2013 and 2015 and the less than 900 bitcoin users reporting gains or losses for each of those years.

That would imply that less than 0.2% of coinbase users bothered to report anything on their tax forms. One can see why the IRS is angry.

And, worse for those who believe they will be able to get away with their cryptoprofits unscathed by Federal Taxes, following last week’s hearing, a federal judge is poised to allow a limited investigation into those gains to proceed over the company’s objection that the agency is on “a massive fishing expedition” meant to make itself look tough in the eyes of its critics in Congress, according to Bloomberg.

“It’s legitimate for them to investigate whether people are making money on their bitcoin purchases” and paying taxes on any gains, U.S. Magistrate Judge Jacqueline Scott Corley in San Francisco told lawyers for Coinbase at a hearing last Thursday. “I have to give tremendous discretion to the agency as to how they investigate,” she added later.

Coinbase was not impressed. Mike Lempres, the company’s chief legal and risk officer said after the hearing that the company can’t negotiate with the IRS about a “forward-looking, rational reporting system” so long as the agency is suing it. Such discussions aren’t possible “because we’re in this tussle with them where they are improperly searching for private information of our customers with no evidence of wrongdoing,” Lempres said. He declined to comment on Corley’s pending ruling before the company has seen a final order in writing.

Last year, the IRS persuaded Corley last year to order Coinbase to approve its summons for customer records from 2013 to 2015 for an investigation into whether taxpayers failed to report income. Coinbase resisted, and negotiations between the company and the agency resulted in a narrowed request for information about 8.9 million transactions and 14,355 account holders. Coinbase argued Thursday the inquiry remains unreasonably broad.

On Thursday, Bloomberg reports, Corley said she would allow the IRS to investigate Coinbase customers who made money on the currency and bar the agency from probing accounts of those who hadn’t. The judge also said she’ll probably give Coinbase time to appeal her decision before it turns over any customer information.

While lots was said of bitcoin’s drop over the past 4 days, much of attributed to suspension of the controversial Segwit 2x fork which was originally due in mid-November, some are wondering if a key catalyst for the price drop wasn’t the latest court ruling, although it in itself should have little impact on trading decisions: after all, at this point it’s a binary outcome: either the IRS will have access to all those who made money trading the crypto… or it won’t.

In retrospect, it will be interesting to find out, if only based on the number of IRS submissions, how many of the over 12 million bitcoin accounts have actually made money trading cryptos. We will soon find out.

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