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Rickards: ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¹Ãƒƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“Bitcoin is a Ponzi SchemeÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢

Published on 19 Oct 2017

Bitcoin has been in existence for all of eight years but a debate is raging in the investing community: Is the cryptocurrency actually useful beyond just being a vehicle for speculation? At its worst, does it help facilitate highly questionable and illegal transactions and activity?

 

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Ask chipmakers whether or not cryptocurrencies are in a bubble

The Lex Column

Supplying picks and shovels is supposed to be a safer way of profiting from a gold rush. Does the same apply to cryptocurrency mining?

 

For months now, as Bitcoin has surged to new highs, the Philadelphia Semiconductor Index has surged along with it. "Miners" need high-powered chips and processors for the computations which underpin cryptocurrencies.

 

Those who think this is all a bubble or one of the other epithets flung by Wall Street luminaries in the last few weeks should also worry about the price of chip stocks. The Sox* has risen almost 40 per cent this year; it is only 10 per cent away from its March 2000 peak.

 

Even chip investors enthused about cryptocurrencies should be concerned about the information gap. A favourite question from analysts during this earnings season is "do you make any revenues from cryptocurrency?" - which seems a little late. The spread of answers ranges from acknowledgment that it has become significant to denial of any detail.

 

On Wednesday, United Microelectronics, the Taiwanese semiconductor, was in the latter camp, citing customer confidentiality. Xilinx, the US chipmaker, acknowledged that it had been maybe "too elliptical" in pointing to growth in its consumer division without flagging the contribution to that line from miners.

 

Mark Liu, chief executive of Taiwan Semiconductor Manufacturing Company, was good enough to divulge the precise impact from cryptocurrencies: $US350m-$US400m of revenues in the quarter, which is about 5 per cent of the total. He said he could not predict sustainability "but we don't see it drop either".

 

AMD, though, saw its stock tumble 13 per cent on Wednesday after it offered weak fourth-quarter guidance.

 

One headwind identified by the chipmaker: expected weaker demand from miners. By now, this is too big to ignore and more data needs to be provided next quarter. It may be that the Sox finally overtakes its 2000 peak, only to be undone by the bursting of another bubble.

Financial Times

 

*SOX - Nasdaq PHLX Semiconductor Sector

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When it comes to bitcoin I am totally ignorant and indifferent (Uncle Wazza told me that if I don't understand it then I shouldn't dabble in it) but I do like to follow China Inc. I've come to the conclusion that the Chinese have the anti-midas touch, in that they have so much easy cash and have such abandon that every investment sector they look at they blow up into an unsustainable bubble. And so, I would have thought that the Chinese would be all over bitcoin.

 

But not the case with bitcoin it seems.

 

For a while leading up to early this year the rise and rise of bitcoin seems to have been closely aligned to the Chinese moving money out of the country. But the Chinese authorities cracked down on that and in this article it is suggested that for much of 2017 it has not been the Chinese supporting the continued rise of bitcoin. If it is true that bitcoin is returning something like 20000% in the last decade then I'm surprised the regulatory crack-down has been so effective, as my experience is that the Chinese love to chase a trend.

 

https://www.cfr.org/blog/bitcoin-and-yuan

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Bitcoin climbed past $US7,000 ($9078) for the first time, breaching another milestone less than one month after it tore through the $US5,000 ($6484) mark.

 

Spot pricing for bitcoin climbed as much as 7.1 per cent to a high of $US7,045.46 before pulling back slightly to $US6,977.40 at 9.27am in London. The crytocurrency is up as much as 640 per cent this year and is now worth more than $US100 billion.

 

The digital currency got new impetus this week after CME Group Inc., the world's largest exchange owner, said it plans to introduce bitcoin futures by the end of the year, citing pent-up demand from clients.

 

Sceptics including Themis Trading say the rally is evidence that the software-created asset is a bubble that should not be given regulatory cover.

 

"It is simply remarkable how resilient bitcoin has been in the face of significant negativity," said Lukman Otunuga, a research analyst at ForexTime, in a Nov. 1 note to clients. "The price action suggests that bulls have a very firm grip."

 

In a blog post this week, Themis warned CME is "caving in" to pressure from clients and placing a seal of approval around a "very risky, unregulated instrument that has a history of fraud and manipulation." The products planned by CME "remind us of the collateralised debt obligations which were peddled during the financial crisis," the post said.

 

Asked whether he's concerned about a potential bubble, CME Chief Executive Officer Terry Duffy said on Bloomberg TV on Nov. 1 that the firm's job is to "manage risk, not decide what the price of a product is."

Bloomberg
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Don't Ban Digital Currencies

- The Economist

Markets and manias go together. The latest frenzy is for all things crypto. The price of the best-known digital currency, bitcoin, has risen by nearly 700 per cent this year and is now about $US7600 ($9922); one enterprising firm recently quadrupled its share price simply by adding the word "blockchain" to its name.

 

But nowhere do alarm bells ring more loudly than in the realm of "initial coin offerings", a form of crowdfunding in which firms issue digital "coins" or "tokens" in return for a payment (typically in ether, another crypto-currency). ICOs have raked in more than $US3.2 billion this year, rivalling the money flowing to internet start-ups from early-stage venture capital. Although most of these tokens are supposed to be used in exchange for the companies' products, as in a corporate loyalty scheme in the offline world, investors scent something different: the chance to be in at the birth of another bitcoin.

 

It is tempting to dismiss ICOs as nothing but a fraud's charter. They are easy to pull off, requiring little more than a few enterprising souls and an ambitious-sounding plan. Unlike equity owners, coinholders get no claim on an issuer's earnings. Projects are being marketed to retail investors. In September America's Securities and Exchange Commission brought its first charges against a token-issuer, for allegedly promising hefty returns from firms that barely exist. China and South Korea have banned ICOs altogether.

 

Yet there is usually meaning in the madness of technology-driven bubbles. The British railway mania in the 1840s helped create a national network of train lines; the dotcom boom spawned firms such as Amazon and eBay. So it is with ICOs. They can provide a source of finance for serious software projects which otherwise have a hard time getting off the ground. As an analogy, imagine that in the early days of the internet domain names had been sold to finance the development of the network with the promise that their value would rise as online traffic grew.

 

ICOs may also give rise to new forms of firm; because founders, employees and users hold coins, everyone has an interest in seeing their network grow, as this will drive up the value of the token. One example of this is Filecoin, which in September raised $US257 million and will allow token-holders to buy and sell digital storage on each other's computers. Enthusiasts say that these "crypto co-operatives" combine the advantages of a firm ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ lower transaction costs, aggregation of capital ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ with a decentralised structure that means no one controls it or the data it holds.

 

Such hopes may prove unfounded, but there is a chance that organisations of this sort could offer an alternative to the monolithic tech giants of today.

 

For these reasons, it is wrong for regulators to ban ICOs. Fortunately, most are more thoughtful. Some, like the financial market authorities in Quebec, have invited ICOs into a regulatory "sandbox", where less strict rules apply. The SEC has issued a useful report giving guidance about when a token is a security, meaning that an ICO has to comply with registration requirements. This month it warned celebrities against making endorsements of an ICO (as Floyd Mayweather, a boxer, and Paris Hilton, a socialite, have done).

 

The big test of regulators will come when the ICO bubble pops, as it surely will, and people lose money. If the backlash is severe, ICOs and the organisations they finance might fall out of favour for years to come. A lot of today's ICOs sound silly, and some are scams; most of the projects they finance will fail. But they might just contain the seed of a digital future not dominated by online giants.

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