Bitcoin has no material substance; but it only exist in an environment of massive computer power which deploys energy to give effect to the complex algorithms and mathematical structures that it rests on, and the massive security networks that have been proven breachable at several points on various occasions.
The amount of brainpower that is included in the system and in its use has to be paid, fed and watered; as do all the traders and buyers who have now joined in the bubble. I have also seen massive estimates of the cost of the electric power that had been - and is being - consumed in the process.
The bitcoin bubble will burst: though the notional 'currency' may survive [as the South Sea Company survived the crash that ended that particular bubble]. More importantly, millions of people know a little about blockchain which will almost certainly develop as a massive set of tools of commerce very beneficially: but the costs of constructing and operating any such systems need carefully to be evaluated.
This is a very interesting phenomenon: but the bubble will end in tears for a lot of people.
Now I will return to the work that is preoccupying me at present. I will continue to blog occasionally so that i have a log of the dates on which I post comments.
Showing posts with label bitcoin. Show all posts
Showing posts with label bitcoin. Show all posts
Monday, 11 December 2017
Tuesday, 28 November 2017
Corbyn and Bitcoin: Capitalist Catastrophes
A major Wall Street bank has released a piece of research which [inter alia] warns that the advent of a Corbyn-led Labour government in the UK would potentially have a more calamitous impact on London share prices that would 'Hard Brexit'. The markets have balanced out the 'risk' arising to future profits from firms if the government totally cocks-up the Brexit negotiations with the actual fall in the pound among world currencies and the day-to-day performance of the listed companies. The level of the stock market index would fall in the event of failure; but the possibility is factored in to buyers' calculations. On the other hand, the imponderable impact on the market of Corbyn actually becoming prime minister is inestimable. How far he would cling to his lifelong Marxist dogma [and how far his party would follow him there] cannot be predicated on any known basis of probability. Thus, the bank argues, there might be no 'floor' below which British stock prices would fall. Consequently, the Wall Street Crash of 1929 might be replicated, or even exceeded, once panic sets in among dealers who have no precedent for such a change in government to be assessed against.
The very worst case is a catastrophic Brexit followed by a collapse of the present government and the anointing of Mr Corbyn to preside over the chaos, while John McDonnell would try to enact some of his socialist plans. This is no longer an impossibility, with Dr Fox, Mr Davis and Boris Johnson working so hard to achieve the disaster that they cannot understand.
Meanwhile, the vicious charade of bitcoin continues. The 'price' of this nonentity is continuing to rise, giving strength to some of the unknown number of hundreds of other cryptocurrencies that are now on offer. An ever-wider range of investors, fearful of the very high level to which the world's leading stock indeces have climbed, have 'diversified' some of their holdings into these fanciful 'assets'. Some expect that [whatever they may say now] the central banks might have to buy cryptocurrencies to prop up the market: as they have propped up derivatives and other bets that existed before the crash in 2008. If the central banks do shore up the whole rotten fantasy, the real-world economy will be hammered even harder than it has been since 2008.
The prospect for Britain, host to the London market, is especially hazardous. Warren Buffer called derivatives 'weapons of mass destruction' but they have have been protected and the market in them has continued to grow. The traders in, and owners of, those assets remain complacent: that is what gives confidence to the cryptocurrency speculators. Real people have good cause to be worried; and Corbyn's communist-inspired views give no reassurance at all.
The very worst case is a catastrophic Brexit followed by a collapse of the present government and the anointing of Mr Corbyn to preside over the chaos, while John McDonnell would try to enact some of his socialist plans. This is no longer an impossibility, with Dr Fox, Mr Davis and Boris Johnson working so hard to achieve the disaster that they cannot understand.
Meanwhile, the vicious charade of bitcoin continues. The 'price' of this nonentity is continuing to rise, giving strength to some of the unknown number of hundreds of other cryptocurrencies that are now on offer. An ever-wider range of investors, fearful of the very high level to which the world's leading stock indeces have climbed, have 'diversified' some of their holdings into these fanciful 'assets'. Some expect that [whatever they may say now] the central banks might have to buy cryptocurrencies to prop up the market: as they have propped up derivatives and other bets that existed before the crash in 2008. If the central banks do shore up the whole rotten fantasy, the real-world economy will be hammered even harder than it has been since 2008.
The prospect for Britain, host to the London market, is especially hazardous. Warren Buffer called derivatives 'weapons of mass destruction' but they have have been protected and the market in them has continued to grow. The traders in, and owners of, those assets remain complacent: that is what gives confidence to the cryptocurrency speculators. Real people have good cause to be worried; and Corbyn's communist-inspired views give no reassurance at all.
Wednesday, 1 November 2017
Bitcoin Marches On
Nobody really knows what 'Bitcoin' is, or what damage it can do to the global economy. Some people know [but do not tell] who invented this 'virtual' pseudo-currency; several dozen people and firms have made money from trading in it, and it is rumoured that some people and firms have played in the market and lost.
No government has responsibility for bitcoin; but several governments could find themselves dealing with a crisis which arose from reckless or careless trading in this medium to the extent that it impinged badly on their national economy. It would be unconscionable if any government required its taxpayers to assist any firms or persons who found themselves in a bitcoin crisis; and it would be politically disastrous if any government thereby plunged its citizens into a decade of reduced living standards as the British government did with the bale-out of the banks in 2008.
There have been plenty of warnings from well-known market players, to the effect that this totally unregulated free-enterprise market has no substance and can thus cause major disruption in any economy that allows assets designated in this nonexistent medium to take a prominent place in anybody's asset register.
Despite this, and despite asserting even a few days ago that they would never allow their platform to be used for bitcoin-denominated trades, the CME [formerly known as the Chicago Mercantile Exchange] has announced that bitcoin will be allowed in trades passing through their books. It is immaterial that this is experimental, and is envisaged only ever to be a small sideline in the market. The big point is that one of the world's largest and most important exchanges has legitimated this bastard child of greed.
Gordon Brown's memoirs are being marketed, for a big launch next week. He would not have wished it, but the commentariat will concentrate primarily on his failure to develop a mature prime ministerial personality [with the resultant tantrums and failures] and on his success - with Alistair Darling, the Chancellor of the day - in 'saving' the world banking system; at the long-term cost of the British people. In extracts that have been released already, Brown makes it clear that he deplores how completely his successors [the Tory-Lib coalition, the Cameron government and now the May regime] have totally failed to reform and rebuild the banking system so that it has the clarity of structure, the strength of reserves, and the separation of banking from wholesale gambling that were shown by the crisis to be absolutely necessary.
The Bank of England has warned that some 75,000 City jobs will migrate to Europe unless Britain gets a Brexit deal that keeps the country within the European Economic Area: but that is just the start of the catastrophe that could be played out if the bonkers Brexiteers ally with the 'free markets' lobby of wholesale gamblers in making the claim that any losses from legitimate banking and financial trading within the EU context can be replaced by growth in 'virtual' finance and betting.
Media muckrakers have found that Jacob Rees-Mogg was a notably unsuccessful fund manager in the period when Gordon Brown was at the apogee of his power, before the 2008 market failure. He is not a believable prophet of supposed good times that can follow from a 'hard Brexit'; nor is any other of the vociferous minority who are agitating for Britain to be plunged at the deep end of the shark-infested global market: if any of those buffoons comes out as an advocate of bitcoin, that will be proof positive of their intellectual limitations and perversity.
No government has responsibility for bitcoin; but several governments could find themselves dealing with a crisis which arose from reckless or careless trading in this medium to the extent that it impinged badly on their national economy. It would be unconscionable if any government required its taxpayers to assist any firms or persons who found themselves in a bitcoin crisis; and it would be politically disastrous if any government thereby plunged its citizens into a decade of reduced living standards as the British government did with the bale-out of the banks in 2008.
There have been plenty of warnings from well-known market players, to the effect that this totally unregulated free-enterprise market has no substance and can thus cause major disruption in any economy that allows assets designated in this nonexistent medium to take a prominent place in anybody's asset register.
Despite this, and despite asserting even a few days ago that they would never allow their platform to be used for bitcoin-denominated trades, the CME [formerly known as the Chicago Mercantile Exchange] has announced that bitcoin will be allowed in trades passing through their books. It is immaterial that this is experimental, and is envisaged only ever to be a small sideline in the market. The big point is that one of the world's largest and most important exchanges has legitimated this bastard child of greed.
Gordon Brown's memoirs are being marketed, for a big launch next week. He would not have wished it, but the commentariat will concentrate primarily on his failure to develop a mature prime ministerial personality [with the resultant tantrums and failures] and on his success - with Alistair Darling, the Chancellor of the day - in 'saving' the world banking system; at the long-term cost of the British people. In extracts that have been released already, Brown makes it clear that he deplores how completely his successors [the Tory-Lib coalition, the Cameron government and now the May regime] have totally failed to reform and rebuild the banking system so that it has the clarity of structure, the strength of reserves, and the separation of banking from wholesale gambling that were shown by the crisis to be absolutely necessary.
The Bank of England has warned that some 75,000 City jobs will migrate to Europe unless Britain gets a Brexit deal that keeps the country within the European Economic Area: but that is just the start of the catastrophe that could be played out if the bonkers Brexiteers ally with the 'free markets' lobby of wholesale gamblers in making the claim that any losses from legitimate banking and financial trading within the EU context can be replaced by growth in 'virtual' finance and betting.
Media muckrakers have found that Jacob Rees-Mogg was a notably unsuccessful fund manager in the period when Gordon Brown was at the apogee of his power, before the 2008 market failure. He is not a believable prophet of supposed good times that can follow from a 'hard Brexit'; nor is any other of the vociferous minority who are agitating for Britain to be plunged at the deep end of the shark-infested global market: if any of those buffoons comes out as an advocate of bitcoin, that will be proof positive of their intellectual limitations and perversity.
Sunday, 14 May 2017
'Robin Hood' Taxes and Bitcoin
Yesterday, the Labour Party added to their repertoire for the coming election the concept of a 'Robin Hood' tax; so-called because it can be represented as a tax on 'the rich' [financial institutions] to aid 'the poor' [HM Treasury]. It was explained by the BBC as a tax on bonds and on complex financial instruments, such as those called 'derivatives', and it was projected that at the outset it would raise over £20 billion for the national budget.
If any such tax were to be introduced, we can be certain that it would regularly be increased both in its rate and in its extent; as has happened with Insurance Premium Tax. During this election campaign, some Labour figures have suggested that Insurance Premium Tax should be increased on private health insurance premiums, to provide funds either for the NHS or for social care. The direction of travel is obvious, when any new tax is dreamed up.
The original concept that gave rise to the idea of 'Robin Hood' taxes came from the American Economist James Tobin, who proposed that there should be a tax [perhaps of 1%] on 'spot' trades in currencies. Thus if a trader went into the market and swapped dollars for yen, either the seller or the buyer would have to pay the 1% tax: and thereby disclose the transaction formally to the authorities and accept the liability for the tax to be paid. The spot trade in currencies was seen as potentially disruptive to business generally; and potentially disastrous to a government's management of its economy. The reality of this threat was made clear when Britain was forced out of the ERM [the European Monetary Regime, which was the precursor to the Euro] by the weight of speculation against the pound in international money-markets. Thus it was shown that the market could be more powerful than the government that supposedly controlled the world's most sophisticated financial system.
The speculative international monetary system has never been brought under control; and it almost overwhelmed the global economy in the 'crash' of 2007-8. To prevent that collapse from becoming fatal, the US, UK and other major governments whose banking systems were closest to bankruptcy in effect nationalised the banks' debts, putting an indefinitely great taxpayer guarantee behind all the banks' contracts with each other and with their customers - except in the cases of Bear Stearns, which the US authorities steered into the arms of a much bigger bank that was rich enough to absorb its liabilities [and, eventually, to cash in on them], and Lehman Brothers which was allowed to fail but which over the next decade was revealed to have had enough assets to meet all its liabilities [when they were unscrambled slowly over the next ten years; though they could not meet their immediate obligations on the day before they were declared to have failed].
Since 2008 there have been recurrent proposals, especially within European Union institutions, for a sort of Tobin Tax to be imposed on various types of transaction. Often these have been mooted by continental interests that are envious of the London market in finance.
I have several times advocated that the Tobin concept be developed along a different route, to mark out clearly the difference between banking [the essential function of conserving customers' money, and lending it judiciously to worthy borrowers] and betting [which everyone understands, in essentials; it is always a voluntary action in which a person or a firm stakes money in the hope of making more money: while accepting the downside risk that the stake - at least - may be forfeit if the bet fails].
Despite the near-meltdown of the entire legitimate banking system in 2008, regulators have continually backed off making this distinction, between banking and betting; which I believe is fundamental to understanding and controlling high finance. Real bankers accept savings into their safe [state-guaranteed] institutions and lend a permitted proportion of the deposits to worthy borrowers. That has been the essential mechanism for funding trade and industry for millennia, and it remains so today.
But betting is mere speculation, and the daily global turnover of that business now greatly exceeds legitimate banking. The most advanced and incomprehensible class of bets, as far as the general public is concerned, is called 'derivatives': they are simply bets: however complex may be the data on which the bet is formed and the contract in which it is expressed. Other forms of bets are many kinds of 'swaps', most 'futures' and 'spread bets' and 'options'. Very clever men and women have devised an impressive range of bets, and some of them can be dressed up as means by which the risks facing a real-world business [such as the basic rate of interest changing unexpectedly or a sudden and dramatic change in the price of some essential commodity like oil or iron] can be compensated to a greater or lesser extent. Sensible regulation can be framed to distinguish genuinely prudential purchases of options or futures by firms that function in the material economy from merely-financial bets. Both are classes of bets, but it would be possible to classify them such that different rates of betting-tax would be applied.
The segment of the financial market that Tobin would target first with his tax is the trade in currencies. Now, in a world context that the good professor could not have envisaged, computers responding to highly sophisticated algorithms trade billions of dollarsworth of imaginary currencies every minute; and even a 1% tax on those transactions [if it could be levied] would fund all the national budgets in the world. But if any national authority demanded 1% of the notional transactions, to be paid on a specific date in a specific currency, that would kill the business stone dead; because collecting 'real' money that features in a state's banking statistics in respect of fanciful transactions in the cybersphere would require a link to be opened up between two universes that cannot be conjoined. The real world remains under threat for so long as the megabetting industry masquerades as part of 'finance' [or even, in some cases, as 'banking']. The financial establishment would act quickly and effectively to see off any proposal for a UK Robin Hood tax, however big a parliamentary majority Corbyn's people could round up from their flying pigs.
Meanwhile, a global attack of 'malware' [aka ransomware'] that locks up computer files against a demand for ransom, has affected over 100 countries, including much of the NHS in this country. The ransom demands ask for payment in bitcoin. Bitcoin is a wholly pernicious invention of unnamed computing geniuses, which purports to be a form of money that can exist without the sanction of any government and without control by any central bank [or an international agency such as the International Monetary Fund]. From the day it was established, it has been agonisingly obvious that it is perfect for many sorts of criminal settlements. Nevertheless, some licensed bankers and traders have seen themselves being able to add to their business portfolios by trading in bitcoin; and hitherto they have been able to persuade their regulators and the central banks to let bitcoin payments develop. The catastrophic criminality that has been evident in the past 24 hours must, surely, set the thing in true perspective. All use of bitcoin - or of any clone or derivative of bitcoin - must be criminalised
If any such tax were to be introduced, we can be certain that it would regularly be increased both in its rate and in its extent; as has happened with Insurance Premium Tax. During this election campaign, some Labour figures have suggested that Insurance Premium Tax should be increased on private health insurance premiums, to provide funds either for the NHS or for social care. The direction of travel is obvious, when any new tax is dreamed up.
The original concept that gave rise to the idea of 'Robin Hood' taxes came from the American Economist James Tobin, who proposed that there should be a tax [perhaps of 1%] on 'spot' trades in currencies. Thus if a trader went into the market and swapped dollars for yen, either the seller or the buyer would have to pay the 1% tax: and thereby disclose the transaction formally to the authorities and accept the liability for the tax to be paid. The spot trade in currencies was seen as potentially disruptive to business generally; and potentially disastrous to a government's management of its economy. The reality of this threat was made clear when Britain was forced out of the ERM [the European Monetary Regime, which was the precursor to the Euro] by the weight of speculation against the pound in international money-markets. Thus it was shown that the market could be more powerful than the government that supposedly controlled the world's most sophisticated financial system.
The speculative international monetary system has never been brought under control; and it almost overwhelmed the global economy in the 'crash' of 2007-8. To prevent that collapse from becoming fatal, the US, UK and other major governments whose banking systems were closest to bankruptcy in effect nationalised the banks' debts, putting an indefinitely great taxpayer guarantee behind all the banks' contracts with each other and with their customers - except in the cases of Bear Stearns, which the US authorities steered into the arms of a much bigger bank that was rich enough to absorb its liabilities [and, eventually, to cash in on them], and Lehman Brothers which was allowed to fail but which over the next decade was revealed to have had enough assets to meet all its liabilities [when they were unscrambled slowly over the next ten years; though they could not meet their immediate obligations on the day before they were declared to have failed].
Since 2008 there have been recurrent proposals, especially within European Union institutions, for a sort of Tobin Tax to be imposed on various types of transaction. Often these have been mooted by continental interests that are envious of the London market in finance.
I have several times advocated that the Tobin concept be developed along a different route, to mark out clearly the difference between banking [the essential function of conserving customers' money, and lending it judiciously to worthy borrowers] and betting [which everyone understands, in essentials; it is always a voluntary action in which a person or a firm stakes money in the hope of making more money: while accepting the downside risk that the stake - at least - may be forfeit if the bet fails].
Despite the near-meltdown of the entire legitimate banking system in 2008, regulators have continually backed off making this distinction, between banking and betting; which I believe is fundamental to understanding and controlling high finance. Real bankers accept savings into their safe [state-guaranteed] institutions and lend a permitted proportion of the deposits to worthy borrowers. That has been the essential mechanism for funding trade and industry for millennia, and it remains so today.
But betting is mere speculation, and the daily global turnover of that business now greatly exceeds legitimate banking. The most advanced and incomprehensible class of bets, as far as the general public is concerned, is called 'derivatives': they are simply bets: however complex may be the data on which the bet is formed and the contract in which it is expressed. Other forms of bets are many kinds of 'swaps', most 'futures' and 'spread bets' and 'options'. Very clever men and women have devised an impressive range of bets, and some of them can be dressed up as means by which the risks facing a real-world business [such as the basic rate of interest changing unexpectedly or a sudden and dramatic change in the price of some essential commodity like oil or iron] can be compensated to a greater or lesser extent. Sensible regulation can be framed to distinguish genuinely prudential purchases of options or futures by firms that function in the material economy from merely-financial bets. Both are classes of bets, but it would be possible to classify them such that different rates of betting-tax would be applied.
The segment of the financial market that Tobin would target first with his tax is the trade in currencies. Now, in a world context that the good professor could not have envisaged, computers responding to highly sophisticated algorithms trade billions of dollarsworth of imaginary currencies every minute; and even a 1% tax on those transactions [if it could be levied] would fund all the national budgets in the world. But if any national authority demanded 1% of the notional transactions, to be paid on a specific date in a specific currency, that would kill the business stone dead; because collecting 'real' money that features in a state's banking statistics in respect of fanciful transactions in the cybersphere would require a link to be opened up between two universes that cannot be conjoined. The real world remains under threat for so long as the megabetting industry masquerades as part of 'finance' [or even, in some cases, as 'banking']. The financial establishment would act quickly and effectively to see off any proposal for a UK Robin Hood tax, however big a parliamentary majority Corbyn's people could round up from their flying pigs.
Meanwhile, a global attack of 'malware' [aka ransomware'] that locks up computer files against a demand for ransom, has affected over 100 countries, including much of the NHS in this country. The ransom demands ask for payment in bitcoin. Bitcoin is a wholly pernicious invention of unnamed computing geniuses, which purports to be a form of money that can exist without the sanction of any government and without control by any central bank [or an international agency such as the International Monetary Fund]. From the day it was established, it has been agonisingly obvious that it is perfect for many sorts of criminal settlements. Nevertheless, some licensed bankers and traders have seen themselves being able to add to their business portfolios by trading in bitcoin; and hitherto they have been able to persuade their regulators and the central banks to let bitcoin payments develop. The catastrophic criminality that has been evident in the past 24 hours must, surely, set the thing in true perspective. All use of bitcoin - or of any clone or derivative of bitcoin - must be criminalised
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