back to article US authorities issue strongly worded warnings about crypto-investments

The chair of the United States Securities and Exchange Commission (SEC) has issued a strongly worded Statement on Cryptocurrencies and Initial Coin Offerings that recommends extreme caution for anyone contemplating any kind of involvement in such investments. The main thrust of Chairman Jay Clayton's words urged individual …

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  1. Khaptain Silver badge

    Hidden meaning

    "Financial market professionals were warned to make sure they stay on the right side of securities laws"

    Should we understand from this phrase that they have already detected something unsavoury is going on behind the scenes ?

    1. Nick Kew

      Re: Hidden meaning

      Um, the media are reporting widely its use in criminal transactions such as ransoms, and money laundering. Doesn't look very hidden to me!

      1. amanfromMars 1 Silver badge

        Re: Hidden meaning

        Um, the media are reporting widely its use in criminal transactions such as ransoms, and money laundering. Doesn't look very hidden to me! ... Nick Kew

        Hi, Nick Kew,

        Maybe the system is terrified of losing their money laundering monopoly ...... http://www.zerohedge.com/news/2017-12-11/hsbc-share-surge-us-doj-removes-sword-damocles-money-laundering ..... and their shirts too whenever guilty of facilitating this home grown madness ........ http://www.zerohedge.com/news/2017-12-11/its-mania-phase-securities-regulator-warns-mortgages-are-being-taken-out-buy-bitcoin

        Some would tell you that mortgages are ransoms.

        1. phuzz Silver badge

          Re: Hidden meaning

          "Some would tell you that mortgages are ransoms."

          Yes, but "loan" would be a far more accurate one-word description.

          1. Naselus

            Re: Hidden meaning

            No, he was doing quite well - at least a ransom is a financial object. Normally he'd have told us mortgages were a type of government-sponsored spy lizard or something.

        2. Zippy's Sausage Factory
          Meh

          Re: Hidden meaning

          Maybe the system is terrified of losing their money laundering monopoly ...... http://www.zerohedge.com/news/2017-12-11/hsbc-share-surge-us-doj-removes-sword-damocles-money-laundering .....

          I miss the days when Zero Hedge had the mission of being an economics blog, instead of trying to make Breitbart look like the Socialist Worker...

    2. Anonymous Coward
      Anonymous Coward

      Re: Hidden meaning

      My reading of this is that some US financial market professionals may be selling crypto currencies to investors who are given the impression that the products are regulated when they are not.

      I suspect this is aimed at fraud around the trading of crypto currencies rather than any underlying issue with them - there maybe in future but it isn't part of the SECs oversight at present.

      I'm aware there are heavily leveraged (15:1) to exploit the current market so there will be tears...

  2. AMBxx Silver badge

    Bitcoin's value fell by nearly three per cent on Monday

    For Bitcoin, that's just noise.

    Maybe we should also be encouraging the newspapers to stop reporting on people who have become millionaires by investing a few thousand in bitcoin. Just encouraging the bubble to get bigger before going pop.

    1. Anonymous Coward
      Anonymous Coward

      Re: Can the value be real?

      If I declare AnonCoin to have 1 billion dollars a coin, and I have 2000 of them, and will happily trade against myself for the value, should I wish to... I just have not yet. Is it totally legit?

      I guess it is to an extent. Just as tulips are.

    2. inmypjs Silver badge

      Re: Bitcoin's value fell by nearly three per cent on Monday

      "encouraging the bubble"

      I read a sincere post from someone saying the trick to bitcoin investment is to always sell when it has reached x 3 to x 5 times your bought price. That way you can't possibly lose.

      We have speculative bubbles because there is a large supply of bigger fools like this guy.

      Every penny anyone makes from bitcoin was or will be lost by someone else (less I suppose small commission like earnings on its use to evade taxes and the law).

    3. Zippy's Sausage Factory
      Coat

      Re: Bitcoin's value fell by nearly three per cent on Monday

      For Bitcoin, that's just noise.

      Hence the old joke:

      BOY: Dad, can I have £10 worth of Bitcoin?

      DAD: £9.62 worth of Bitcoin? What do you want £11.12 worth of Bitcoin for?

      1. Anonymous Coward
        Anonymous Coward

        Has anyone seen reports of REAL bitcoin millionaires?

        As in, they actually cashed out ahead over a million dollars? I'm sure there are a few, but someone who bought a few hundred bitcoins a couple years ago for $5000 and who now have holdings worth $2.5 million or whatever aren't millionaires because the price of bitcoin could drop back down to where it started the year by Dec. 31.

        Having a million dollars worth of bitcoin is one thing, but given how illiquid the exchanges are, someone who tried to sell a few thousand of them at once would probably cut the price in half.

        1. Anonymous Coward
          Anonymous Coward

          Re: Has anyone seen reports of REAL bitcoin millionaires?

          Anecdotally, yes. Someone I know mined BTC when it was worth fuck all in the early days. Cobbled together 10s of them and just held them for shits and giggles as they may one day be worth something - the actions of a techie who probably wanted the fun of buying and building the rigs more. Fast forward to today and he's theoretically a $1+m guy. He does however face a number of issues:

          • He'll have to pay CGT at his marginal rate after relief, $1m -> $0.75m. You could argue they were attained not as an asset but for the use and enjoyment of them in order to avoid any tax but then imprisonment is an additional risk.
          • Settlement/credit risk. You need to transfer the coins somewhere in order to exchange for fiat. Where you go to exchange could get "hacked" or quite honestly just piss off with your money. The more these 1s and 0s are worth the more tempting it is.
          • Market risk. Given you may not wish to take a large settlement risk by cashing out all at once, you are then subject to the volatility of BTC.

  3. Anonymous Coward
    Anonymous Coward

    Crypto

    Can you stop using "crypto" as shorthand for crypto currency?

    I'd rather not have to start explaining this stuff all over again becasue some marketing wonk has come up with a 'new' buzzword.

    I'd appreciate that mmmkay

  4. ratfox

    I find the whole thing fascinating. Whether Bitcoin goes even higher, manages to keep its value or crashes back, history is being made. As a social experiment, it's almost unbelievable.

    1. Doctor Syntax Silver badge

      As a social experiment, it's almost unbelievable.

      I think I missed out a strike-through.

    2. Pen-y-gors Silver badge

      Nah, it's perfectly believable.

      I refer @ratfox to previous posts on the subject, listing a long history of global gullibility, including black tulips, south sea bubbles, the Wall Street Crash and Welsh silver and lead mines.(Actually, I don't know if anyone has mentioned the mines before, but trust me, many gullible/greedy people lost a lot of money - my book on the subject should be out next year, very reasonably priced)

      The human race has a distressingly large number of people who are both greedy and stupid, and who never learn from history. I blame the government.

      1. Nick Kew

        @ Pen-y-gors - of course it's a bubble, and could burst. But some bubbles can outlive us all. Most obvoiusly, gold, whose financial value has far exceeded any intrinsic value for millennia.

        @ratfox - social experiment. Hmmm, well it's not without precedent (as has been pointed out). But a new concept with zero intrinsic value? This is most interestingly a commentary on fiat currency. Viewed like that, it's an intrinsically better store of value than something the Emperor[1] can just print more of whenever it's expedient.

        [1] A reference, if you like, to the sub-plot in Goethe's Faust where Mephistopheles invents Fiat currency just when the Emperor is desperate, causing a devastating bubble.

        1. I ain't Spartacus Gold badge

          But some bubbles can outlive us all. Most obvoiusly, gold, whose financial value has far exceeded any intrinsic value for millennia.

          Gold clearly isn't a bubble. There's something inate about us humans that we like the shiny and it has fulfilled a role as currency/store of value for thousands of years. Sure its price may fluctuate and sometimes go into bubble territory (as a few years ago), but if you average those fluctuations out it's actually maintained a relatively steady value over millenia.

          The thing about Bitcoin is that the investment madness is now starting to kill off its use as a currency. Some people argue about how fiat currency smells just as bad a Bitcoin, so whatabout that. But the point is, Steam just dropped it as a payment method, because transaction costs had gone up to £20.

          So because the Bitcoin processing system doesn't appear to scale well the worst outcome for it is if this bubble continues for another year or two - the "investors" might drive away the users. Leaving only investors left and not the underlying economy. If that happens, the collapse might be total. Whereas if the bubble pops now, it could go back to business as usual, like a few years ago when the price crashed from $1,000 in December to $50 by January.

          1. Brangdon

            Bitcoin fees

            Bitcoin fees are due to too many people using it, rather than the high price of Bitcoin. The plan to fix it is by adding another layer, called the Lightning Network, to move most transactions off-chain. This should get done over the next year, so if it can survive until then it can survive indefinitely.

            1. I ain't Spartacus Gold badge

              Re: Bitcoin fees

              What the hell is the point of having this magic cryptographically signed and un-alterable distributed ledger, if you then have to move all the transactions off it - in order for it to work?

              Bitcoin had some clever ideas, but basically because the designer didn't understand the theory of money, it's too flawed to ever be a useful currency.

              Plus mining is stupidly wastefully energy intensive - and how are the miners going to be paid when there are no more coins to mine. Plus how would Bitcoin then cope with the vicious spike of deflation that would cause. In general you want your money supply to expand at the same speed as your economy - so there's enough money to go round, but without causing inflation.

              1. Naselus

                Re: Bitcoin fees

                "Plus how would Bitcoin then cope with the vicious spike of deflation that would cause."

                They're infinitely divisible, so you just keep adding more decimal places as the economy expands. The effect is pretty much the same as inflation for normal currencies.

                As for the miners... yeah, when the coins run out they're not in a great place. Not only have they spent a great deal of money on power to make coins with a fairly small profit margin, but they've also invested an extraordinary amount of money into the physical equipment, much of which is now so specialized that it can't be repurposed.

                Basically, the entire value of Bitcoin is based on wasted resources that could've been used for something practical.

                1. fedoraman

                  Re: Bitcoin fees

                  The way I understand it, when there are no more coins to be mined, the miners get paid solely by the transaction fees.

                  Which suggests that the fees are going to rise!

                  Its already too slow and too expensive to use as a payment service. Well, except for ransomware, but how can you base an economy on that?

                2. katrinab Silver badge

                  Re: Bitcoin fees

                  If my kilo of coke costs 1 bitcoin today and 0.7 bitcoin tomorrow, then that is deflation, regardless of how many decimal places I could quote the price to in the future, and it is a disincentive to spend money today.

                  I've no idea how much cocaine costs, these figures are for illustrative purposes only.

                  1. BebopWeBop Silver badge
                    Holmes

                    Re: Bitcoin fees

                    I've no idea how much cocaine costs, these figures are for illustrative purposes only.

                    I don't indulge and really only have the (I suspect somewhat inflated) PSS - police standard scale to go by, as reported in the press on the value of drugs hauls, but I think 1 bitcoin will get you an awful lot of cocaine, for the moment at least

                3. I ain't Spartacus Gold badge

                  Re: Bitcoin fees

                  They're infinitely divisible, so you just keep adding more decimal places as the economy expands. The effect is pretty much the same as inflation for normal currencies.

                  Naselus,

                  This is the wrong way round.

                  Say I hold 1 BTC and in order to have enough units of currency we're adding a decimal place, so 0.1BTC becomes the same value as 1 BTC. Extreme example. That means you've given me the equivalent of 9 BTC for free. This is money becoming more valuable over time. That's deflation.

                  Inflation is where money reduces in value over time. The Bank of England increase the money supply over the year by 4% to account for the growth in the economy + inflation, so every pound in my pocket or bank account is now worth 4% less than last year. Most of this is not done by printing notes and coins, so actually the BofE are targetting an average money supply growth over time - monetary theory and practise is really complicated and weird... So anyway that's inflation. The money in my pocket is worth less.

                  Inflation means I have an incentive to spend my money now, or invest it to protect its value. It also means if I take out debt, that the nominal value of that debt stays the same, while the real value falls over time, thus making it less onerous over time. Interest must then be charged to cover this loss of value, plus some profit for the lender.

                  Deflation means that I have an incentive to save my money now, as it will buy me more goods in future. The value of the money itself is rising - or the price of goods is falling - as both have the same effect.

                  This gives less incentive to invest, as my money is already increasing in value. So why take the risk? Without investment economic growth collapses. Debt becomes hideously awful. Because the nominal debt level stays the same, but now the real value of that debt is increasing. Thus if you can't pay it off, you're getting poorer every day. This also shrinks the economy.

                  The combination of debt overhang crippling people and companies, the incentive not to spend throttling growth and the lack of investment (borrowing to invest being suicidal) causes depressions that can last for decades - without massive government intervention. Japan was in depression from the mid 90s to last year - the 30s depression was ended by World War II (that's excessive government intervention...), the 1870s depression lasted until the 1890s. Greece, bequeathed inflation by incompetence and stopped from solving it by the Eurozone is predicted by the IMF to get unemployment down from its current 23% to 12% by 2040!!!!!

                  1. Anonymous Coward
                    Anonymous Coward

                    Re: Bitcoin fees

                    To be picky, when you use "deflation" you mean "disinflation". Deflation is when the economy as a whole shrinks. Unfortunately they both have "inflation" as their opposite.

              2. ratfox

                Re: Bitcoin fees

                I refer @ratfox to previous posts on the subject, listing a long history of global gullibility, including black tulips, south sea bubbles, the Wall Street Crash and Welsh silver and lead mines.

                For all of these, there was at least a claim that these things had intrinsic worth, or eventually were going to have one. The claim was wrong, but it existed.

                To answer the incoming choir of voices about fiat money: Even for fiat money, there is an implicit assumption that the country issuing the money has an interest in having a semi-stable currency. For instance, the US government could technically pay their debts in one day by printing a single bill of $5 trillions and giving it to the Chinese. They're not doing it, because it would crash their economy into the stone age (along with most of the world). That's why people keep US instead of Zimbabwean dollars.

                For Bitcoin, there is nothing of the sort. Under all the complex cryptography algorithm ensuring various interesting features, you are literally buying a number in a finite list. It is very much like fiat money, except that the country is only made of people who happen to be currently working with bitcoin, and any of them can leave that country at any time without losing anything. As long as everybody does not leave at once, Bitcoin keeps existing.

              3. Anonymous Coward
                Anonymous Coward

                Re: Partial solution

                All currency has transaction and processing costs. Even if it is just your time counting £300 worth of pennies (which I had to do, but thankfully had scales).

                The Lightning system seems to just deffer some transactions until they can be lumped into one, and save some processing fees or time on the crypto side, by running a normal "tab" with suppliers or users.

                It does not seem to be big enough of a change for the other random transactions to make the difference where it counts for the individual. But it does seem to make it easier for businesses. Why am I not surprised?

                1. I ain't Spartacus Gold badge

                  Re: Partial solution

                  The Lightning system seems to just deffer some transactions until they can be lumped into one, and save some processing fees or time on the crypto side

                  Then what problem is Bitcoin solving?

                  I thought the point was simultaneous transactions to allow for trust over online payments.

                  With Lightning you're forced to trust one side of the transaction again - or whatever intermediary to hold the money in Escrow. I would point out that Bitcoin has a distressing history of intermediaries, like the exchanges, either stealing or losing the coins entrusted to them.

                  At this point, you may as well just use the banks, who have secure and cheap international transaction systems already in place. £20 is a massive transaction fee, and as almost nobody gets paid in Bitcoin, that doesn't even account for the fee you have to pay an exchange to get hold of Bitcoins in the first place.

          2. BebopWeBop Silver badge
            Mushroom

            Gold clearly isn't a bubble. There's something innate about us humans that we like the shiny and it has fulfilled a role as currency/store of value for thousands of years.

            I remember an ex-colleague of mine commenting on the longevity of the precious metals used in the "clock of the long now" - his comment went along the lines of, "well after civilisation has finished itself off, the descendant, or equivalent, of the Mongol warrior, on board his shaggy pony, will strip it to give his mate some bright trinkets to make sure he gets a good shag when he makes it back to the tent"

      2. BebopWeBop Silver badge
        Holmes

        The human race has a distressingly large number of people who are both greedy and stupid, and who never learn from history. I blame the government.

        Well, you would probably be better off blaming the government(s) we have on them surely?

  5. Pen-y-gors Silver badge

    Like a hawk?

    Glad they're monitoring things like a hawk. Hawks are renowned for their excellent eyesight and can see little mice in the grass from a great height. Sadly they're not very good at seeing moving electrons in cyber-space as a bit-chain grows to exploding point.

  6. Anonymous Coward
    Anonymous Coward

    Meanwhile....

    Popcorn sales are WAAAAY up.

    1. I ain't Spartacus Gold badge
      Devil

      Re: Meanwhile....

      Oh, that gives me an idea! I'm gonna be a billionaire!!!

      An crypto-currency powered by online arguments. Every time someone's rude to someone else online, we encode part of our transaction log in their post. Coins will be infinite, as arguments on the internet are infinite. There's no cost to mining, because online arguments are going to happen anyway.

      I'm calling it: Popcoin

      My logo will be a styalised piece of popcorn with a line through it, like the dollar sign. In gold, naturally.

      It can't fail!

      1. Boris the Cockroach Silver badge
        Happy

        Re: Meanwhile....

        You need to incorparate the 'nazi' algorithm into your Popcoin mining operation.

        Then by using Godwin's law the number of coins you can mine will really take off

        1. Mark 65

          Re: Meanwhile....

          Sounds like you might end up with Weimar inflation.

  7. Flywheel Silver badge

    Investment you say?

    Personally I bought some so that I could buy stuff online, but as not too many places accept btc, my small stash remains largely untouched. However, my HODLing has meant that the btc value has increased, but I'm still not looking at it as an investment: I use real (fiat) money for that...

    1. I ain't Spartacus Gold badge

      Re: Investment you say?

      Real fiat money isn't an investment. It's a relatively predictable store of value - but inflation still gives a penalty in holding it. Which is why you balance liquidity needs against cost of holding cash - and try to protect assets from inflation by investing the rest. Generally sacrificing liquidity for better returns.

      The problem for Bitcoin appears to be that the "investors" are causing it to be less useful as a currency, for example by bidding transaction costs up to £20 a time - and if it once loses its value for use as a means of exchange then the value for the investors will soon disappear after that.

      1. Nick Kew

        Re: Investment you say?

        Real fiat money isn't an investment. It's a relatively predictable store of value - but inflation still gives a penalty in holding it.

        Exactly.

        Sadly the price indexes used to publish official inflation figures no longer bear any relation to reality. Real inflation is now in asset prices. The house price bubble that sucked the real economy dry in the first years of this century (while consumer prices reflected not our economy but rather the rise of Chinese exports), and the pension price inflation caused by money-printing in the zombie economy.

      2. Anonymous Coward
        Anonymous Coward

        Re: Investment you say?

        BTC, currency or commodity?

  8. TrumpSlurp the Troll
    Trollface

    The problems will start

    When people start to cash in their gains. That is, more people selling than buying.

    Looks like a ramping up Ponzi scheme at the moment.

    Or the dotcom boom where people were cashing in their pension pots to buy shares in companies with lots of hits but no revenue stream.

    1. Naselus

      Re: The problems will start

      "Looks like a ramping up Ponzi scheme at the moment."

      No, it doesn't. The people holding Bitcoin aren't receiving dividend payouts from the new entrants into the market; they're selling assets. It's a bubble - a very, very obvious one which is probably going to collapse in the next couple of days - but it's not a fraud.

    2. Mark 65

      Re: The problems will start

      What will make it more interesting still is that we already know the transaction processing part of the scheme does not scale well at all so it will be a sight to behold when everyone rushes for the exits at the same time.

  9. amanfromMars 1 Silver badge

    He would say that, wouldn't he ..... just as he's told to say it and prostitute himself

    Spot the Luddite.

  10. Packet

    You mean to tell me you aren't enjoying millennials smugly telling you that it's different this time as they pontificate their self-professed economic and financial wizardry?

    As Danny Glover aptly put it in the Lethal Weapon series, I'm getting too old for this shit.

    Most recently, I read of someone claiming the school of Austrian economics as their guiding light in/for cryptocurrency.

    1. Anonymous Coward
      Anonymous Coward

      well as an early miner (who sold out his meagre haul month or so ago) I never counted my imaginary chickens. Paid for the kid's university fees though....

  11. Anonymous Coward
    Anonymous Coward

    I'm launching a new Crypto currency

    It's called Tulip1637Coin.

    I'm going to use my currency to invest in gardening centres, can I ask are you interested in investing?

    1. I ain't Spartacus Gold badge
      Happy

      Re: I'm launching a new Crypto currency

      Only if the currency symbol is a nice pot of tea and a cream scone.

  12. yellowlawn

    This is what worries me, that 40% of Bitcoin is in the hands of 1000 people - https://ind.pn/2kp1Smj

    If a few of them cash in, it may start a run on BTC. What if someone like George Soros owns a large chunk and at the behest of his puppet masters, sells up his BTC.

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