International Monetary Fund warns crypto-related risks could soon become systemic The International Monetary Fund (IMF) has called for global, comprehensive, consistent, and coordinated regulation to protect the stability of the world's financial systems. That stern call was made yesterday in a post by Tobias Adrian, director of the IMF's Monetary and Capital Markets Department, and his deputies Dong He and …
Crossing borders is easy for money.
Crossing borders stealthily ... not so much.
You need lots of it and pay a lot for it - ask you local mafia don.
Actually, this is the *only* advantage of Bitcoin for the savvy: illegal money transfers are cheaper and harder to trace.
The point about crypto crossing borders quickly is that it requires financial regulators in different countries to collaborate and have a consistent approach. Even though they are widely used outside their home countries' borders, the Fed and the ECB (and their regulatory colleagues) are still able to keep a hand on the tiller of the USD and EUR. The same just isn't true of crypto.
"yep... but a Chinese company drops 300 billion and it's just chickenfeed..."
Not to worry man. The Evergrande default situation is "contained". The Chinese have told us so.
Of course the cascading defaults of dubious US loans and weird financial instruments based thereon in 2007-2008 were "contained" as well. Federal Reserve chairman Ben Bernake told us so.
Upon thought, one must question if crypto coins are nothing BUT a Ponzi scheme.
Why is the developer of blockchain STILL unknown? Except (possibly) that he doesn't WANT to be known, lest the world+dog find out that, after rolling out blockchain and embedding it in Bitcoin, that he hoarded several thousands of early Bitcoins for a pump and dump (a la TechLead)?
Yes yes, I'm being paranoid. But what other good reason would cause a developer, who helped create an economic "product", to hide their identity? Previously, when it happened, it didn't end well.
Your assumption is correct, but the conclusions you draw are likely incorrect. Before I explain what I mean by that, I want to first say that the situation you describe is not a Ponzi scheme. It is a crime (you use the correct term pump and dump), but it is in no way a Ponzi scheme as future investors' money would not be used to repay fictional gains. I have seen the term used in many cryptocurrency situations to describe criminal activity, real or imagined, and I want to ensure it's used correctly so the discussions are clear.
It's very likely that the creators of Bitcoin kept a lot of it for themselves. We can even identify some people who have done exactly this because the blockchain is public. We don't know if any of those people created the currency or if they're just early adopters, but they have stashed a bunch of it. This isn't really surprising, and it's also known to people who invest in it. They should be aware that some people have large quantities and could affect the value. The same is true for any other limited thing, especially including companies' stock. This makes it a riskier thing to speculate on. At least with Bitcoin, if someone who has a lot starts to sell it slowly, it's obvious from the transaction data that it's them doing so.
Much of that is true, except “ least with Bitcoin, if someone who has a lot starts to sell it slowly, it's obvious from the transaction data that it's them doing so.”
Not at all. It’s perfectly possible for them to legally transfer *ownership* of parts to somebody else, for cash (otherwise known as “selling”). All they do is sell the key for cash, via contract but off-blockchain. And of course, this is exactly what the BTC whales have done, and will do. Each “wallet” probably contains the claims of hundreds of different entities at this point.
It wouldn’t be in either the buyers or sellers interest to spook the horses when selling a billion worth of BTC. It is also much cheaper in transaction charges at that scale.
This only works if they have lots of small wallets. If we know they're large, it means we have identified large wallets. They can only sell part of that by transferring part into a new wallet and selling that, and that transaction is public. Given that, when it was created, individual Bitcoin were worth basically nothing and now they're large, anyone keeping value in 2009 is unlikely to have created wallets so small they can sell them today.
But what if I'm just stupid and they did exactly that, creating millions of wallets to store effectively zero value. We would still know about it, because the date on the wallets' transactions would be old. If a lot of wallets with no transactions since 2009 start having new transactions, someone will notice this. The data is out there, anyone with the desire can access it, and we can identify wallets that have a lot of Bitcoin or old Bitcoin. Since we can do this, we have the ability to notice when someone starts selling from them. A lot of the old ones probably belong to people who forgot or lost their Bitcoin, but certainly not all of them. Any investor should know this and take it into account, as they should with most other limited commodities where the same provisos apply.
What they mean is there is approaching $3 trillion worth of currency floating around that they have no control over.
If a country like Greece was totally crypto they wouldn't be able to nail it to the wall over loans from the IMF, or force countries to privatise functioning industries for the good of foreign investors and to the detriment of its people.
Chris G,
Greece didn't get into trouble and get nailed to the wall because it didn't use crypto. It got into trouble because its government borrowed money and lied about it. Of course it was made much worse by getting caught during a massive global recession. But the main point was that the Greek government couldn't fulfill its normal spending obligations without borrowing more money. And at this point, nobody would lend to them. So even if they'd been able to default on all their exisiting debt, they'd still have had to make massive cuts and make the recession in Greece much worse, because they weren't able to borrow.
Now admittedly being in the Euro took away all the options to deal with this crisis, and left the Greeks relying on their supposed partners in the Eurozone for any possible solutions to their problems. Because those solutions were basically printing money to stop their banks collapsing and QE. Both of which were the policy tools the UK and US were using at the time, but the European Central Bank were rejecting out of incompetence and stupidity, only to adopt them later anyway after having done massive damage to their own economies and credibilty.
So had Greece been using the Drachma, which they controlled, they wouldn't have suffered the biggest economic collapse in a modern economy in peacetime history (worse than the 1930s Great Depression in any country). But instead they'd joined the Euro, and it turned out their "partners" didn't give a fuck.
But if they've been using Bitcoin as a currency, they wouldn't have been able to print that either, so it would have had a similar, or worse, result. Plus running an economy on Bitcoin is insane anyway, becuase if your money supply doesn't increase with the size of your economy every year you get deflation, which is way worse than inflation for destroying economies.
If they'd been running a sovereign crypto currency then they could have acted to save their economy, but then why bother when you can just run a proper currency.
But if only it had done what the IMF typically advises. Slashed pensions, tax cuts for billionaires, privatised health, sold all its public services to US corporations and abandoned any anti poverty programs it would have been fine.
People are routinely unfair to the IMF. The World Bank have been far too guilty of pushing privatisation and cuts in government spending in order for countries to get approved for development programs, when those cuts/changes weren't necessary to the program. Not that I'm against privatisation, but with the World Bank it had become ideological, and there should be a large amount of decision left up to the governments in question, even if they're making mistakes - they have a legitimate right to do so.
But the IMF are different. The IMF are mostly brought in when things are fucked up. And in that case countries often have no other source of borrowing. So terms should be stringent. But also, the IMF only have a limited pool of money aviablable. So the point about an IMF program is that it's only supposed to tide a governent over long enough to get through the immediate crisis - until it's able to borrow on the international markets again, and can pay the IMF back.
One of the global controversies about the IMF loan is that it was a massive loan. The biggest the IMF had ever given by far. And given to a rich, developed country. Which means that money from many very poor, developing countries was being risked to bail out Greece in order to protect its government spending on benefits that those much poorer countries couldn't afford to give to their citizens. Had the IMF not been run by a French politician, it's not certain that the loan would have been approved. Christine Lagarde (the IMF managing director) did successfully argue that the risk of the Euro collapsing was systemic and could cause a global depression. And she did have a fair point there. But still, countries like China and Nigeria were pointing out that they were poorer than Greece and all the other countries in the Eurozone are also richer than them, so why couldn't the Eurozone bail Greece out.
Also, on the harshness of the cuts, they were also not totally IMF policy. The harshness was required because IMF rules require that a country have a sustainable deficit, and that an IMF loan is only allowed if this is the case. Given Greece's accelarating deficit this meant making harsher cuts than the IMF would recommend. In fact what happened was that Lagarde overruled the economics department of the IMF in order to allow the first bail-out, as there wasn't enough total money coming from the IMF and the EU to make it sustainable, and so they needed extra cuts in spending to make the numbers add up. But of course that meant the Greek economy would shrink more than predicted, so they had to fudge the forecasts.
The first bail-out of course failed. Cutting Greek government spending by 10% in one year caused the economy to shrink by 13%, instead of the predicted 7% (figures from memory warning). But the important thing was the economic contraction being larger than the government cuts, which meant that more would be needed to make the debt "sustainable" to allow the fiction to continue for the next two bail-outs. Which ended after 3 years with the economy having contracted by 30% (a world record, so congratulations guys!) and government spending having been cut by 25%.
This was against the recommendation of the IMF Economics Department and done basically by the Eurozone in connivance with the French political appointee at the helm of the IMF.
The IMF had an internal report into the failures of the Greek bailout and have at least apologised. The Eurozone, not so much.
"Now admittedly being in the Euro took away all the options to deal with this crisis, and left the Greeks relying on their supposed partners in the Eurozone for any possible solutions to their problems. Because those solutions were basically printing money to stop their banks collapsing and QE. Both of which were the policy tools the UK and US were using at the time, but the European Central Bank were rejecting out of incompetence and stupidity, only to adopt them later anyway after having done massive damage to their own economies and credibility."
Had the UK adopted the Euro it would've been even worse off than Greece during the financial crisis since it had a larger debt to GDP ratio. This was a major point in favour of Brexit since living under the EU entails ever closer union and a commitment to eventually adopt the Euro (all newly admitted member states must agree to this from the outset).
Greece is to blame, but the EU money movers share some liability. EU banks were encouraged to lend, knowing that they would be covered by the EU in case of default. Greece as a market purchased an inordinate number of BMWs during the period of easy money. Great for BMW, but the people of Germany end up paying the EU to cover the banks for their haircut.
China doesn't lend to Greece open endedly. They lend to to specifically build ports and infrastructure in Greece as an entrypoint for Chinese goods into the EU market. This is turn earns Greece enough money to make some payments on its EU debt, so the EU is loath to take action again that channel.
As we dish out blame for the Greek crisis, let's not forget the glorious role of Goldman Sachs in the story. The banks (not just European ones) were happy to game the system to make a quick buck and couldn't have cared less about the wider economic implications.
BTW, we haven't really solved the bank problem yet. For me the problem was best epitomized in a quote from Paulson (Goldman Sachs chair), who defended the banker's outrageous bonuses during the crises with the words "We need to pay the best salaries to attract the best and brightest". Indeed, they hired the best and brightest (including some of my fellow natural science graduates), who then proceeded to make themselves and their banks very rich and the rest of the world a lot poorer.
Do you really want the best and brightest administering the money flows of this world? You might be surprised that they find creative ways to divert those money flows into their own pockets. Imagine a world where Einstein, Watson&Crick, Turing, Heisenberg, Tesla, and their fellows became bankers with the goal to get themselves insanely rich, consequences be damned.
Give me a boring and reliable banker. I am willing to pay for his services as long as he doesn't run a shady get-rich-quick scheme with my pension funds.
And then, no.
I'm starting to agree with people complaining about the new use of "crypto" to mean "cryptoscam", err, I mean "currency".
Could we agree to lend them another term to help disambiguate? They could call it "the cybercrypto", for example. Twice as cool, and I'd know where to not click.
One of the fundamental problems with investing is that there's more money to be invested in than traditional investments to purchase. (By "traditional" I mean investments in hard assets that generate a return by making, growing, mining or generally doing useful things.) Humans, being both greedy and ingenious, come up with innumerable ways to invest that are purely virtual, they're based entirely on belief in the financial system or country that's backing them. Should that belief falter the monetary value of those investments could plummet to zero overnight so its important to maintain that belief. At best on a small scale these vehicles are a complicated form of "pass the parcel", the goal being to circulate the investment, inflating its cash value at each turn by extracting a bit of it as the parcel passes and hope like hell that you're not left holding it when the music stops. (This is why you get those sudden market dips when there's even a hint of negative news -- everyone (or rather everyoine's software) is racing to cash out before the cash value drops too far)(which invariably causes the value to drop faster and further).
If you buy a bitcoin you own nothing of value. Its only worth what someone else is prepared to pay for it. It has zero intrinsic value and actually loses value when you trade it because of the relatively high cost of each transaction. Personally I approve of it since the more money it sucks up the less there is to be used to inflate the cost of more tangible investments. (Leverage -- that's another story -- and another evil.)
If you buy a bitcoin you own nothing of value. Its only worth what someone else is prepared to pay for it.
Exactly the same can be said for almost any investment.
Take the Mona Lisa, perhaps £50 for the frame, 75p for the canvas and maybe £2.50 for the paint. It's worth is entirely due to what people are prepared to pay for the piece should it ever come to market.
Precious Metals? Totally artificial prices, Platinum is roughly £43,000 per kilo, Bismuth while being less abundant than Platinum and harder to extract costs under £40 per kilo.
Sure, the Mona Lisa specifically is a bad example.
But there must be literally millions of paintings worldwide whose intrinsic value of frame + canvas + paint is in the region of £50 that no-one would pay an entrance fee to see, but still change hands for thousands. And private collection items that no-one will ever exhibit that change hands for hundreds of thousands or millions. (funnily enough, these are physical analogues to Bitcoin in that they are very highly sought after for money-laundering - easy to transport, easily hidden, can be kept in bonded storage somewhere offshore / untaxable / untraceable etc).
The worst thing about blockchain-based cryptocurrencies is that they're, by design, auditable. Imagine how horrible it would be if the wallet of a prominent government or NGO figure were identified. Money that would previously have disappeared after being written off as a 'consultancy fee' could turn up anywhere: luxury goods sellers, arms dealers, genocidal dictators, a newsagent in Slough. That would be terrible because of how disheartening it would be for the public. Clearly, a menace that needs to be stopped.
Alternatively, the rugged loo paper sheet in public lavatories(*) already have "government property" printed on them, as well as being water resistant, so would serve well as currency. And they will always have practical value, for people on the go, who have to go.
(*) I'll admit to not having been in a council loo since the 1970's, but it's something I shall never forget.
Ransomware does have real value. To terrible people only*, but it does. Just as cryptocurrencies have some value from people using them for storage of value (bad idea) or transfers (better, but still not a great idea). In cryptocurrency's case, it's likely that the real value is a lot less than the market cap due to a lot of people using them only to speculate.
* I don't think the people selling services to prevent damage count as they would be selling those services for other security things anyway, so I'm counting the criminals and the businesses that work around them, thus only terrible people.
A lot of the issues that we see with cryptocurrency theft and secretive transfers existed years ago when our pirates sailed across the ocean and applied cannon balls to other nations ships that were busy transporting stolen artifacts from other countries to Europe. Back then we had to work at sea for months, now we can do everything working from home to deliver malware and receive bitcoins.
We see all of this as new problems today but we're been acting like idiots for centuries to get rich.
Central bankers and politicians hate cryptocurrencies because they have no control over them. Unlike the control said criminals have over fiat currencies (all the major currencies in the world), cryptocurrencies are governed by a different set of rules which severely limits the amount of defrauding of the public they can do. The IMF only does the bidding of these criminals. If cryptocurrencies replace the local fiat currency, the local criminals have effectively lost control over their currency manipulation.
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