another site
Despite the government’s “adjustments” of the ‘safe’ pollution level, and reassurances that smog is good for you, the following awful clip of what real Shanghai residents think may change some perspectives… “I don’t think it’s fit for humans to live in this kind of environment… but I have no choice, I have to go to work.”
Remember – this is not fog – it’s pollution-dense smog…
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/K4ACmZ1S4y0/story01.htm Tyler Durden
Following last week’s exuberance, this week has seen a notable change of trend… one asset class looks different to the others…
Charts: Bloomberg
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/DLNTFe_o70s/story01.htm Tyler Durden
Today’s AM fix was USD 1,243.50, EUR 902.79 and GBP 758.51 per ounce.
Yesterday’s AM fix was USD 1,255.25, EUR 912.05 and GBP 765.49 per ounce.
Gold fell $9.60 or 0.76% yesterday, closing at $1,252.90/oz. Silver slipped $0.09 or 0.44% closing at $20.31/oz. Platinum dropped $3, or 0.2%, to $1,381.75/oz and palladium rose $1.05 or 0.1%, to $736.2/oz.
Gold Prices / Fixes / Rates / Volumes – (Bloomberg)
Gold has found strong technical support at the $1,200/oz level, which the yellow metal reached earlier this week on speculators short-covering and physical demand in China. Premiums in China have risen this week as Chinese New Year approaches and gold on the Shanghai Gold Exchange (SGE) closed at $1,285.09 (see table above) which was a $30 premium over spot gold.
Gold was down in London after retreating from a three week high on speculation that the U.S. Fed will ‘taper’ and U.S. lawmakers reached a budget agreement that avoided a government shutdown. This funding expires on January 15.
The deal is actually bullish for gold as it is extremely modest in size. Republican and Democratic Congressional leaders unveiled an agreement to reduce the federal deficit by $22.5 billion over 10 years while freeing up $63 billion in government spending over the next two years.
It is important to remember that the Federal Reserve is printing nearly $20 billion every single week. The U.S. National Debt is now over $17.2 trillion and continuing to rise and the U.S. has unfunded liabilities (Social Security, Medicare and Medicaid) of between $100 trillion and $200 trillion.
U.S. Treasury Amount of Outstanding Debt – Price/Billion – (Bloomberg)
Staggering numbers which suggest alas that the U.S. politicians are rearranging chairs on the titanic.
These numbers alone should make people wary of buying into the notion that gold will fall in 2014 as the dollar strengthens due to the “normalisation of the economy.” The economy is not normalising and the recovery is completely abnormal, hence it will be wise to again ignore the publicised bearish calls of certain banks.
New EU Bail-In Agreement Yesterday
The EU agreed new rules yesterday for bank bailouts or “bail-ins.”
The new system will take effect from 2016 but emergency resolutions can be brought forward in the event of banks failing in the interim period. The “bail-in” will require that shareholders, bondholders and importantly now depositors will all suffer ‘haircuts’ or be burnt if a financial institution is in trouble.
The European parliament confirmed in a statement overnight that depositors with more than 100,000 euros ($137,000) would be bailed in after shareholders and bondholders. It is important to note that the 100,000 figure is an arbitrary figure and there is a possibility that this figure could be reduced by an insolvent government faced with an imploding banking system.
The deal does not exclude the possibility of public money being used “in exceptional circumstances,” the parliamentary statement said.
The agreement was spun as a victory for taxpayers, however the risks and ramifications of bailing in savers including families with their life savings and the deposits of already struggling small and medium size enterprises has yet to be appreciated.
Gunnar Hoekmark, who steered the legislation through the European parliament, said: “We now have a strong bail-in system which sends a clear message that bank shareholders and creditors will be the ones to bear the losses on rainy days, not taxpayers.”
Gunnar forgets that savers are taxpayers too and have paid taxes – on their income, on goods and services, on capital gains etc – on their hard earned savings already. Indeed, many are already paying punitive deposit interest rate taxes also.
There also appears to be a failure to realise that deposits – including family’s life savings, retirees pension incomes and businesses – are a vital part of the economy. You cannot have consumption without saving. You cannot have business growth and expansion and a consequent growth in much needed employment without capital.
Many countries now accept the principle that if banks get into difficulty, then it will not be the taxpayer but investors and creditors including already hard pressed savers that will suffer losses.
However, the situation regarding some countries – notably the BRICs is less clear. The imposition of bail-ins in western countries and not in BRIC and other nations would likely lead to capital flowing to the non bail-in countries.
Therefore, rather than solving the banking and debt crisis, bail-ins could ultimately compound the problem by further undermining the public’s confidence in our banks and the banking system.
What Bail-Ins Would Look Like
While bank bail-ins have not yet become commonplace, it’s worth examining what a bail-in would look like in practice. Some helpful insight comes from the Bank of England, but more importantly, from the evidence witnessed in Cyprus during its bank bail-ins.
The Bank of England recently extended the Financial Stability Board’s Key Attributes guidelines and added four practical steps to follow when bailing-in a financial firm.
These four steps are Stabilisation, Valuation and Exchange, Relaunch, and Restructuring:
• Step 1 – Stabilisation
Stabilisation is key, in that it reveals that international regulatory authorities are leaning towards the well-used ‘weekend solution’ plan, to which they actually refer as a ‘Resolution Weekend’
However, if the situation requires dramatic intervention, they can even opt for a mid-week bail-in:
“Ideally a firm would enter resolution at close-of-business on a Friday evening, which would provide the authorities approximately 48 hours in which to stabilise the firm outside market hours. But this cannot be guaranteed. If a firm reached the point of non-viability during the middle of the week, it would be necessary to commence resolution proceedings at that point.”
At the time of resolution intervention, the regulatory authorities would suspend stock and bond listing of the bank while making various announcements to the market. These announcements would include details on which securities were being totally wiped out, and which creditors, such as bondholders and depositors, would have their bonds and deposits converted into bank shares. The announcements would also, according to the Bank of England, provide a timeline for the other stages of the bail-in and seek to reassure insured depositors that they were protected while attempting to provide “market counterparties with confidence”.
• Step 2 – Valuation and Exchange
This step would re-value the firm, calculate its losses and capital needs, and then write down creditors (including deposit confiscation where necessary), while converting these creditors to shareholders before embarking on relaunch.
• Step 3 – Relaunch
Relaunch would relist the bank’s shares (and possibly some of the bank’s bonds) and then allow the bank to re-open while implementing restructuring.
• Step 4 – Restructur
ing
Restructuring would aim to force the bank to appoint new management, change its corporate governance procedures, and force it to operate in a way that prevents subsequent financial market instability.
Although the Bank of England’s four step bail-in approach is quite detailed, it does not address the capital controls that would be needed so as to prevent a bank run. This is where the Cyprus example becomes useful.
Capital controls were widely implemented in Cyprus during a theoretical two week long ‘Resolution Weekend’. Authorities knew that depositors would act rationally and attempt to close their accounts or transfer their funds abroad, thereby causing capital flight. To prevent this happening, draconian capital controls were imposed and banks were kept shut for two weeks.
This was the first time that capital controls had ever been imposed within the Eurozone.
Some of the capital controls included the following: Limits were imposed on bank withdrawals, foreign money transfers, and credit card transactions.
Customers could only withdraw a maximum of €300 per day from branches and ATMs, and could only carry a maximum of €3,000 while travelling out of the country.
In addition bank transfers over €5,000 needed Central Bank of Cyprus approval, and foreign credit card transactions were limited to €5,000 per month.
When capital controls are imposed on economies, they usually remain in place for some time, for example, Icelandic capital controls imposed in 2008 are still in place. Not surprisingly, Cypriot capital controls are still in place and will not likely begin to be lifted (in various stages) until early 2014, according to the Cypriot President, or even longer, according to the finance ministry. Controls on international fund transfers are envisaged as being the final piece of the controls to be lifted.
The lessons from the Bank of England plan and from Cyprus are essentially that depositors will not get any notice that their bank is about to be bailed in. The bail-in would probably happen during a weekend. The bank would probably not re-open on the following Monday. There is also a strong likelihood that capital controls would be imposed on the country’s banks during the bail-in and for a lengthy follow-on period.
Given this lack of warning, depositors need to plan in advance for the day when ATMs do not work and they cannot access cash in their bank accounts.
Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages)
Download our Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications –
Including 60 Safest Banks In The World List (51 pages)
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/JDxAWkridGI/story01.htm GoldCore
Trade of the Century? Remember that it was only 2 years ago that pundits where calling rising Treasury yields the “trade of the century”? Most of those folks were early, and after repeated failed attempts to call the top in Treasury bonds or bottom in yields, most of these folks have probably just given up. Most likely to focus on that other “trade of the century” –the one in equities.
To get more videos and independent market research, visit TACTICAL-BETA. WE ARE 100% FREE!!
Submitted by Michael Krieger of Liberty Blitzkrieg blog,
While we all know that the disaster that is Obamacare is extremely unpopular throughout the country, South Carolina is leading the charge to actually nullify the legislation. House Bill 3101 already passed the state House back in April by a wide margin, and is set to be voted on in the state Senate in January. It is widely expected to pass and then be signed into law by Governor Nikki Haley.
If that happens, it would set up a huge states rights victory and likely encourage other states to follow suit. It will be extremely interesting to see how the feds respond to this…
From the Daily Caller:
A bill set for fast-track passage in the South Carolina Senate in January aims to eliminate Obamacare in the state. The law could become a model for other states fed up with the federal health-care law.
House Bill 3101, titled the “South Carolina Freedom of Health Care Protection Act,” passed the state House of Representatives last April by a 65-34 vote. The bill now heads to the GOP-controlled Senate with special-order priority, setting up the likelihood that South Carolina will become the first state to exempt citizens and businesses from all participation in the Affordable Care Act.
The bill’s main component prohibits agencies, officers and employees of the state of South Carolina from implementing any provisions of the Affordable Care Act, leaving implementation of the national health-care law entirely in the hands of a federal government that lacks the resources or personnel to carry out the programs it mandates.
This provision, according to Davis, comes from the anti-commandeering doctrine established in case law that says feds can’t compel states to enforce federal laws.
Additional provisions of H3101 further neuter the Affordable Care Act by outlawing state exchanges, issuing tax deductions to individuals equal to the tax penalties levied by the federal government, and directing the state attorney general to sue over whimsical enforcement of the law. Taken together, the provisions effectively repeal the federal law for the people of South Carolina.
Given the sizable majority of Republicans in the South Carolina Senate — along with moderate Democrats who may support the bill out of fear of voter wrath — H3101 is likely to pass in short order and be signed into law by Gov. Nikki Haley, who has led the Palmetto State’s resistance against nationalized health care.
On the other side are opponents of H3101, whose main efforts consist of calling lawmakers racists and questioning the authority of states to oppose federal laws. Such attacks are likely to ring hollow in light of the dozens of state and local governments that have recently rejected federal marijuana laws, the Real ID Act, provisions of National Defense Authorization Act, federal gun control, and even U.S. immigration law. State and local governments governed from both sides of the political spectrum are increasingly flexing their Tenth Amendment muscles against perceived federal overreach.
Strong argument. Someone disagrees with you and all you can yell back is “racist!” Sad.
Full article here.
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Q0pzA-DUM0k/story01.htm Tyler Durden
The realization that RBS is not exactly populated by the sharpest tools in the shed first hit roughly two years ago, when its crack fixed income team was fined $1.9 million for not knowing the difference between Price and Discount, as was shown in the Dynegy CDS settlement auction. However, that episode was rocket surgery compared to what Bloomberg’s Jonathan Weil uncovered, which rightfully prompted him to award RBS the “dumbest bank of the year” award for 2013.
From Bloomberg:
Back in 1999, after the notorious con man Martin Frankel went missing, federal agents found a partially burned to-do list at his mansion in Greenwich, Connecticut. Item No. 1 on the list: “Launder money.”
Royal Bank of Scotland Group Plc might not have topped that one, but it came close enough to win this year’s “Dumbest Bank of the Year” award. OK, that’s not a real award, but it should be.
RBS, which is still government-controlled more than five years after taking a U.K. taxpayer bailout, will pay $100 million to federal and state banking regulators as punishment for using U.S. correspondent banks to conduct transactions with customers in Iran, Sudan and other countries subject to international sanctions. Often, violations of the law are difficult for banking regulators to establish, because the evidence tends to be gray and open to interpretation. That doesn’t seem to have been a problem in this instance.
According to a consent order released today by the New York State Department of Financial Services, RBS provided employees at its payment-processing centers in the U.K. with written instructions, containing “a step by step guide on how to create and route U.S. dollar payment messages involving sanctioned entities through the United States to avoid detection.”
Those instructions included this:
“IMPORTANT: FOR ALL US DOLLAR PAYMENTS TO A COUNTRY SUBJECT TO US SANCTIONS, A PAYMENT MESSAGE CANNOT CONTAIN ANY OF THE FOLLOWING: 1. The sanctioned country name. 2. Any name designated on the Office of Foreign Asset Control (OFAC) restricted list, which can encompass a bank name, remitter or beneficiary.”
In other words, RBS explicitly told employees how to cover the bank’s tracks. The consent order said the bank conducted $523 million of transactions from 2002 to 2011 through New York correspondent banks involving Sudanese and Iranian customers. It also said that RBS, to a lesser extent, processed U.S. dollar transactions for clients in Cuba, Burma and Libya.
After a dumb note like that, it’s no wonder RBS did the smart thing and settled.
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/df2cmVZs6Ck/story01.htm Tyler Durden
Six years after Blackstone paid $26.7bn to LBO this hotel chain (and pretty much marked the top of the last cycle), Hilton is back with the largest ever lodging IPO. Pricing at $20 per share, the largest hotel oeprator in the world is not enjoying the kind of post-IPO euphoria that the likes of ‘real’ companies like Facebook and Twitter had… for now HLT is up a mere 7%… the question is will the largest hotel IPO also mark the top of this cycle? Finally, with the “dot com 2.0 mentality” raging, will the fact that HLT actually has PE multiple expansion-limiting earnings, be its biggest curse?
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/u2tCucEPhP4/story01.htm Tyler Durden
Syria may be old news as any escalation has been put on hold at least until next summer, but the hilarity resulting from the bungled US foreign policy intervention in the country lingers. The latest chapter in John Kerry’s book of “Diplomacy for Idiots” is the case of General Salim Adris, a so-called moderate the top Western-backed commander of the Free Syrian Army, who was literally run out of the country by the more extremist, Al Qaeda based factions among the Syrian CIA armed and Qatar funded “rebel” forces.
As the WSJ eloquently puts it, “Islamist fighters ran the top Western-backed rebel commander in Syria out of his headquarters, and he fled the country, U.S. officials said Wednesday.” Any references to brave Sir Robin are purely accidental. It got better when the same Al Qaeda fighters “took over key warehouses holding U.S. military gear for moderate fighters in northern Syria over the weekend.” In other words, as we repeatedly forecast over the summer, the US is now once again arming Al Qaeda fighters with weapons that sooner or later will be used against the US, at a time of the CIA’s choosing.
As for the details of “patriotic” Gen. Idris’ humiliating departure from Syria, and the even more humiliating raid of US military gear, we read on from the WSJ:
Gen. Idris flew to the Qatari capital of Doha on Sunday after fleeing to Turkey, U.S. officials said Wednesday. “He fled as a result of the Islamic Front taking over his headquarters,” a senior U.S. official said.
An Islamic Front spokesman also said Gen. Idris had fled to Turkey.
The Front took over the warehouses and offices controlled by the Supreme Military Council, the moderate opposition umbrella group that includes the FSA and coordinates U.S. aid distribution, officials said. They also seized the Bab al-Hawa border crossing with Turkey, near the warehouses in the town of Atmeh.
Another bang up job by the State Department:
The growing strength of the Islamic Front prompted the U.S. and its allies to recently hold direct talks with Islamic Front representatives. The goal, according to Western officials, was to persuade some Islamists to support a Syria peace conference set for Geneva on Jan. 22 for fear that a lasting accord won’t be possible without their backing. The SMC already agreed to participate in the peace talks.
A quick primer on how brave the US “loyalists” in Syria are to both the cause, and to US equipment:
U.S. officials say there was no battle for control of the facilities between the SMC and the Islamic Front. One senior U.S. official said the takeover amounted to “an internal coup.” But other U.S. officials disputed that characterization.
U.S. officials said the Islamic Front offered to help protect the headquarters and two warehouse facilities from harder line groups. Then, when the Islamic Front came in and helped secure the sites, “they asserted themselves and said: ‘All right, we’re taking over,’ ” a senior U.S. official said.
In other words, one rebel faction essentially handed over US weapons to another rebel faction. Just add spin. Not surprisingly, the CIA had no comment:
The Central Intelligence Agency has been providing small amounts of arms to handpicked moderate rebels. A CIA spokesperson declined to comment on whether American weapons were in the warehouses that were seized by the Islamic Front. Gen. Idris also receives weapons from other countries, including Saudi Arabia.
The warehouses also housed nonlethal military gear, including American-supplied trucks and communications equipment.
Bottom line: the US, which nearly launched World War III over a few fabricated Youtube clips in order to help Qatar build a natgas pipeline to Europe support the much lauded freedom fighters, has just cut off aid to the very same group:
The U.S. decision to suspend the delivery of nonlethal aid to rebels in northern Syria is another blow to American efforts to strengthen and unify insurgents fighting Bashar al-Assad, analysts say.
The State Department said Wednesday it made the decision after Islamist groups within the opposition captured a warehouse and headquarters of the mainstream opposition alliance backed United States.
The decision reflects the challenge the United States has in supporting a fractured opposition where extremist groups are gaining an edge over moderates.
“There is simply no way to separate the two,” said Michael Rubin, an analyst at the American Enterprise Institute.
Somewhere Putin is laughing his ass off.
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/SIB8xnS3GCE/story01.htm Tyler Durden
Syria may be old news as any escalation has been put on hold at least until next summer, but the hilarity resulting from the bungled US foreign policy intervention in the country lingers. The latest chapter in John Kerry’s book of “Diplomacy for Idiots” is the case of General Salim Adris, a so-called moderate the top Western-backed commander of the Free Syrian Army, who was literally run out of the country by the more extremist, Al Qaeda based factions among the Syrian CIA armed and Qatar funded “rebel” forces.
As the WSJ eloquently puts it, “Islamist fighters ran the top Western-backed rebel commander in Syria out of his headquarters, and he fled the country, U.S. officials said Wednesday.” Any references to brave Sir Robin are purely accidental. It got better when the same Al Qaeda fighters “took over key warehouses holding U.S. military gear for moderate fighters in northern Syria over the weekend.” In other words, as we repeatedly forecast over the summer, the US is now once again arming Al Qaeda fighters with weapons that sooner or later will be used against the US, at a time of the CIA’s choosing.
As for the details of “patriotic” Gen. Idris’ humiliating departure from Syria, and the even more humiliating raid of US military gear, we read on from the WSJ:
Gen. Idris flew to the Qatari capital of Doha on Sunday after fleeing to Turkey, U.S. officials said Wednesday. “He fled as a result of the Islamic Front taking over his headquarters,” a senior U.S. official said.
An Islamic Front spokesman also said Gen. Idris had fled to Turkey.
The Front took over the warehouses and offices controlled by the Supreme Military Council, the moderate opposition umbrella group that includes the FSA and coordinates U.S. aid distribution, officials said. They also seized the Bab al-Hawa border crossing with Turkey, near the warehouses in the town of Atmeh.
Another bang up job by the State Department:
The growing strength of the Islamic Front prompted the U.S. and its allies to recently hold direct talks with Islamic Front representatives. The goal, according to Western officials, was to persuade some Islamists to support a Syria peace conference set for Geneva on Jan. 22 for fear that a lasting accord won’t be possible without their backing. The SMC already agreed to participate in the peace talks.
A quick primer on how brave the US “loyalists” in Syria are to both the cause, and to US equipment:
U.S. officials say there was no battle for control of the facilities between the SMC and the Islamic Front. One senior U.S. official said the takeover amounted to “an internal coup.” But other U.S. officials disputed that characterization.
U.S. officials said the Islamic Front offered to help protect the headquarters and two warehouse facilities from harder line groups. Then, when the Islamic Front came in and helped secure the sites, “they asserted themselves and said: ‘All right, we’re taking over,’ ” a senior U.S. official said.
In other words, one rebel faction essentially handed over US weapons to another rebel faction. Just add spin. Not surprisingly, the CIA had no comment:
The Central Intelligence Agency has been providing small amounts of arms to handpicked moderate rebels. A CIA spokesperson declined to comment on whether American weapons were in the warehouses that were seized by the Islamic Front. Gen. Idris also receives weapons from other countries, including Saudi Arabia.
The warehouses also housed nonlethal military gear, including American-supplied trucks and communications equipment.
Bottom line: the US, which nearly launched World War III over a few fabricated Youtube clips in order to help Qatar build a natgas pipeline to Europe support the much lauded freedom fighters, has just cut off aid to the very same group:
The U.S. decision to suspend the delivery of nonlethal aid to rebels in northern Syria is another blow to American efforts to strengthen and unify insurgents fighting Bashar al-Assad, analysts say.
The State Department said Wednesday it made the decision after Islamist groups within the opposition captured a warehouse and headquarters of the mainstream opposition alliance backed United States.
The decision reflects the challenge the United States has in supporting a fractured opposition where extremist groups are gaining an edge over moderates.
“There is simply no way to separate the two,” said Michael Rubin, an analyst at the American Enterprise Institute.
Somewhere Putin is laughing his ass off.
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/SIB8xnS3GCE/story01.htm Tyler Durden
Haters gonna hate, but the “Bitcoin bubble” meme has become the financial equivalent of a viral online cat video – wildly popular but pretty vacuous. In an effort to separate fact from fiction, ConvergEx’s Nick Colas reviews 11 bitcoin myths (and dispels them). Still, there’s no doubt that the public is entranced: there are now 3x more Google searches for “bitcoin” than “Western Union”, and 33x more than for “Gold coins”. We started writing about bitcoin back in February because it was – and still is – a fascinating invention (for better or worse). How it plays out, we will just have to wait and see.
Via ConvergEx’s Nick Colas,
In the spirit of the old high school essay question about the Holy Roman Empire, consider the following query: bitcoin is often described as an online crypto-currency, even though it is none of these things – discuss. The Cliff Notes suggested essay outline might go something like this:
Bitcoin doesn’t have to be just “Online.” There are meetups in parks around the world where you can bring your cash, hand it over to a guy or gal with a smartphone, and watch your Benjamins get deposited to an online bitcoin wallet.
The “crypto” part is also only partially correct. Yes, at its core the bitcoin system runs as a piece of open-source puzzles which individuals and businesses try to solve. The winner gets 25 new bitcoins for their trouble, currently worth about $23,000. Not bad, but the genius of the system is that everyone playing the puzzle must also register all bitcoin transactions that occur in the 10 minutes it typically takes to solve the puzzle. Those are also all visible to the system, but by forcing everyone to keep track and reconcile at the end of the 10 minute window, the chance of double-spending the same bitcoin is very low. Bottom line: you don’t need to know how to code to use bitcoins.
“Currency”… This is actually the hardest part of the question. Currencies exist primarily as a way for societies to avoid having to barter goods and services. It is much more efficient to hand over a $10 bill for dinner rather than contract with the restaurant owner to wash dishes for your meal. There are some places to spend bitcoin – a simple web search will find them. But the most accurate thing you can say about bitcoin as truly useful currency is ‘Not yet’.
We’ve been writing about bitcoin since February 2013 because we thought it was a remarkable and intellectually elegant solution to one key social problem: it simply costs too much money to move money. Want to send $100 to a friend in Argentina by Western Union? That will set you back $12. How about paying for a $1 bag of chips with a credit card in the US? Good luck with that – you’ll likely have to buy a 10 pack to meet the card minimum at the store. We had no idea the value of a bitcoin would skyrocket from our first report at $31 to about $900 today. We just thought it was cool.
Still, with all that capital appreciation comes a lot of misinformation. Part of that is understandable – bitcoin is new and very different from traditional notions of “Money”. Still, in the rush to understand what bitcoin is – and isn’t – the public discussion on the topic has gotten a bit muddy.
Today we offer up 11 bitcoin myths and our interpretation of the reality under the hype and confusion.
Myth #1: Bitcoin is huge
Reality: By any objective measure, bitcoin is tiny at a total value of $10.8 billion. Since one of the complaints about bitcoin is that it can enable hard-to-trace criminal activity, let’s compare that amount to the real enabler of drug sales, tax evasion, and even more heinous crimes the world over: the U.S. $100 bill. There are about $400 billion of those floating around the world. Total stock of cash money in the U.S.: about $800 billion. And when you look at total cash around the world, the number is about $3.8 trillion. Bottom line: bitcoin at current valuation is 0.3% of the world’s cash money. That is not huge.
Myth #2: Bitcoin is a major problem in dealing with drugs and terrorism
Reality: Bitcoin is way too volatile at the moment for any serious criminal element. These are not people that take capital risks where they don’t have to. Seriously – go try to steal 10% of a dealer’s cash and tell him it is frictional losses due to an illiquid market. I have heard enough Biggie Smalls raps to tell you how that story ends… Yes, some enterprising dealers clearly use bitcoin. But a serious problem? Bitcoin would be $10,000 or higher if it had any real share of the global drug trade. Consider that the UN Office on Drugs and Crime estimates the heroin trade into Europe is worth $20 billion on its own.
Now, it is entirely true that bitcoin businesses will have to develop the same anti-money laundering and know-your-customer rules as any other money transfer enterprise. And, as we will discuss briefly, that is very good for bitcoin.
Myth #3: Bitcoin is a currency.
Reality: Bitcoin really is a cross between a mutually held company or large partnership and a money transfer business. Its utility is that the bitcoin miners – those trying to solve the puzzles to get the 25 bitcoin reward – manage the transaction stack (blockchain, in bitcoin-speak) essentially for free. You want to be part of the partnership? Great – buy some bitcoins and hold on. But if you just want to send that friend in Buenos Aires money cheaply, you and she might both own bitcoins for a fraction of a second. You drop dollars in, she gets pesos out. Bitcoin is a system much more than it is a “Currency”. Maybe one day she will buy a beer with bitcoins, but the entire system has tremendous utility even without that functionality.
Myth #4: Bitcoin has never been more volatile than now, with all the attention it is getting.
Reality: Check out the two charts we’ve included after this note. They show trailing one month returns for bitcoin back to August 2010 as well as the standard deviation of those returns. May 2011 was the peak for trailing 28 day returns at 853%. The last peak was 11/30/2013 at 479%.
Myth #5: Chinese citizens are shut out of buying bitcoins by government regulation of the banking system.
Reality: According to data aggregator bitcoincharts.com, yuan-based bitcoin demand is still greater than dollar based transactions. Over the past 24 hours, 85,588 bitcoins changed hands on BTC China, while only about 56,000 traded on dollar-based exchanges.
Myth #6: Bitcoin is a store of value.
Reality: The phrase “Store of value” should be used very carefully and only with specific historical proof. It implies that when social or political floodwaters come, the asset in question will allow you to buy shelter, clothing and food. Gold has that history, as does silver. Perfect one-carat diamonds also make the grade, albeit only in the last 50
-100 years. Bitcoin may one day prove it deserves to sit alongside those assets. It isn’t there yet.
Myth #7: Bitcoin is untraceable.
Reality: Bitcoin transactions flow through an open-source piece of software, so everyone sees every trade. No, there are no name/address identifiers, but Forbes magazine showed how easy it is to trace bitcoins through the system back in September. Methods to “Launder” bitcoins certainly exist, but so do the risks of handing over your coins to an online thief. Bottom line: after hearing about what the NSA can do with your computer and phone records, if you think anything you do online is secret, I can’t help you. OK, if you have mad hacking and crypto-skills, maybe. But chances are pretty good that you’d just screw it up. And get caught.
Myth #8: Loss of anonymity will make bitcoin worthless.
Reality: Remember, as long as banks and money transfer businesses have to maintain expensive data centers to run their businesses, bitcoin will always be a cheaper way to transfer money. Now, how many business build attractive and secure consumer and business offerings on the core bitcoin system – that is an interesting question and is certainly the most important issue regarding its long term price.
Myth #9: It’s a Ponzi scheme!
Reality: A Ponzi scheme is one that has no use other than to defraud later victims into giving money to earlier participants. Again, bitcoin has a potentially significant positive social value. Two regional Federal Reserve papers, published in the last month, agree with that statement. But if you still think bitcoin is a Ponzi scheme, you should probably get rid of your Federal Reserve notes as well. They aren’t “Backed” by anything either. Please remit them directly to: Nick Colas, ConvergEx, 1633 Broadway, NY NY 10019. I will forward them to one of my favorite charities – the USO – where they will do a world of good.
Myth #10: Bitcoin is ready for prime time.
Reality: I don’t own any bitcoin (I lost the 0.10 someone gave me in a demo) and I won’t be using them any time soon. The reason? I am afraid that there is simply no safe place to hold them. Hackers attack bitcoin “Wallets” with disturbing regularity. As the price continues to rise, their incentives to up. Their game goes higher as well. I don’t think I am alone in this sentiment. I want a company I recognize to start a bitcoin storage site. It could be a bank, or Paypal, or Apple. I don’t care which. There are plenty – they call me regularly – bitcoin millionaires out there. How about some of you start reinvesting in the system that has made you so wealthy?
Myth #11: Something better will come along and wipe bitcoin off the map.
Reality: Of course something better will come along. That’s what happens in technology. I personally think a charity-based bitcoin product would be huge. Donate bitcoin in New York, and let the charity redeem them at very close to 100 cents on the dollar where they are needed. Somalia, as one example, is facing almost total isolation as Barclay’s – the last foreign bank in the country – threatens to leave at the end of the year. The $100 million remitted by Somalis working abroad will then have to pay even higher fees to send their money home. What if a famine or other calamity occurs? And how will the economy have a chance with no access to outside capital?
At the same time, I simply do not see why a competing product will wipe out the utility of bitcoin. It has a first mover advantage and a large existing network of miners to support it. There are scores of early adopters with eight and even nine figure net worths to reinvest and build the system. There are other online money transfer products out there, of course, and more to come. The challenges will be the same for all of them: security, utility and legal compliance.
Let me sum up with a final thought: I absolutely understand why there are so many bitcoin haters out there. But don’t hate the player, hate the game. Technology is a tremendously disruptive force in society, and it knows no boundaries. It disturbs every status quo. That’s what is does. Just don’t make the mistake of thinking that you can reverse it by calling it a bubble. Sticks and stones, that…
Now, if someone hacks the entire bitcoin system just to crash it (there’d be no actual value in the effort, since bitcoin would be worthless), then of course will go to zero. But that won’t be the end – something else will come along. Technology doesn’t stop. Get used to it.
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9LKglHEfkSc/story01.htm Tyler Durden