cryptocurrencies

[exchemist]

Yes, Bitcoin isn't useful as a currency at the moment unless some business wants to accept it and either convert it daily or can afford to keep it as a long term store of value.

You haven't factored in the long term reduced purchasing power of the Euro either although the result would be similar over the short-term.

That's because this is a current account, rather than an investment account designed to match or beat inflation.

My savings are naturally kept in (stable but accessible) financial products that are designed with that in mind, which is what people do. Only a moron would use bitcoin to do that. One could lose over half of it in a matter of months.

 

[Seattle]

That's because this is a current account, rather than an investment account designed to match or beat inflation.

My savings are naturally kept in (stable but accessible) financial products that are designed with that in mind, which is what people do. Only a moron would use bitcoin to do that. One could lose over half of it in a matter of months.

As a long-term store of value Bitcoin has a good track record. Better than other asset classes as a matter of fact. Volatility doesn't mean something is a poor long-term store of value.

 

[exchemist]

As a long-term store of value Bitcoin has a good track record. Better than other asset classes as a matter of fact. Volatility doesn't mean something is a poor long-term store of value.

You are overlooking my reference to access to funds. I agree it could be an option for a very limited, high-risk tranche of savings that were invested for the long term. But personally, I wouldn't touch it with a barge pole. I think there is a good chance that, as regulation of the growing criminal use of crypto gets into its stride, a lot of unpredictable things can happen. I remember the dotcom bubble and this smells to me like another of those.

 

[Seattle]

You are overlooking my reference to access to funds. I agree it could be an option for a very limited, high-risk tranche of savings that were invested for the long term. But personally, I wouldn't touch it with a barge pole. I think there is a good chance that, as regulation of the growing criminal use of crypto gets into its stride, a lot of unpredictable things can happen. I remember the dotcom bubble and this smells to me like another of those.

There's not a "growing criminal use of crypto". The dotcom bubble gave us Amazon.

 

[James R]

Moderator note: Two off-topic posts, again on the subject of vested interests, have been moved to the thread where that is the topic.

 

[Sarkus]

I think there is a good chance that, as regulation of the growing criminal use of crypto gets into its stride, a lot of unpredictable things can happen.

There seems to be two aspects to this criminal behaviour of crypto, I think, that may be being conflated. The first is what the various exchanges do or don't do with their clients holdings. Places like FTX seemed to be criminal in their use of funds for unauthorised investments, only discovered when there's an issue. This has possibly increased, but possibly not. I'm not aware of any data either way. Certainly the large failures get reported, which may skew perception somewhat. These are large-ticket values, but are a failure of regulation and governance by the exchanges, not of criminal activity by the owners of the actual crypto.

The other is the criminal use of the actual crypto, i.e. transactions to/from addresses being used for illicit behaviour. Well, that has increased in value over the past few years, and volume significantly, but no where near as fast as the overall volume of crypto transactions during that time. Actual volume of transactions involving illicit addresses fell every year from 1.42% in 2017 to just 0.15% in 2021, although with an anomalous 3.37% in 2019 due mostly to the PlusToken Ponzi scheme. Source.
So it's not as simple as the headlines might want you to believe. As with all things, dig deeper. Is it a safe environment? Not as safe as fully regulated banks, for sure.
Bear in mind that as value of the crypto increases, the likelihood is that the value of illicit activity using it will also increase. So, to an extent, any increase/decrease in value will follow the trend of value of the crypto.

 

[Tiassa]

Binance to Face SEC Wrath

CNBC↱ reports:

The Securities and Exchange Commission filed 13 charges against Binance, the world's largest crypto exchange, and its co-founder Changpeng Zhao, alleging that both comingled billions of dollars worth of user funds and sent them to a European company controlled by Zhao.

The U.S. regulator alleged that Zhao and his exchange worked to subvert "their own controls" to allow high-net-worth U.S. investors and customers to continue trading on Binance's unregulated international exchange ....

.... The complaint alleges that Binance created Binance.US as a shield for the main company and Zhao, to "reveal, retard, and resolve" law enforcement targets and insulate Binance.

Two successive Binance.US CEOs expressed deep concern over Zhao's level of control, according to the SEC. Both testified before federal regulators: Neither were named, but its first and second chief executives were Catherine Coley and Brian Brooks.

"I'm not actually the one running this company, and the mission that I believe I signed up for isn't the mission. And as soon as I realized that, I left," a former Binance.US CEO identified as "BAM CEO B" testified to the SEC.​

That doesn't sound good.

But the ellipsis omits a reference to the suit itself, and it's better in its original context↱:

110. Zhao and Binance understood that they were operating the Binance.com Platform in violation of numerous U.S. laws, including the federal securities laws, and that these ongoing violations presented existential risks to their business.

111. As Binance's CCO bluntly admitted to another Binance compliance officer in December 2018, "we are operating as a fking unlicensed securities exchange in the USA bro."​

Yeah, that line even made it into the SEC press release↱.

And what makes it sound really bad is that while capitalists are generally shameless, smart capitalists recognize practical barriers. It's not quite like being a lawyer, but think about the idea of a capitalist being so certain he will get busted that he actually needs to explain that to his colleagues and would-be co-conspirators. More colloquially, if it's so obvious that the executive and his own lawyers can't figure a way around it, then it's pretty obviously bad.

It is not simply that, "Binance knew that tens of thousands of customers were in the U.S. but chose not to act … despite federal law barring the unregistered offer and sale of securities". Per CNBC, "SEC alleges that Zhao ordered the creation of an evasion plan for high-net-worth customers, using a VPN service to hide their U.S. location and submitting compliance documents to obscure their country of origin." Zhao allegedly told Binance officials, in 2019, that their VPN advice "needs to be finessed very carefully", because it will become public, and, "We cannot be held accountable for it." The suit also complains that Binance used two Zhao-owned companies to manipulate trading volume and prices in order to increase profit. Moreover, Binance is accused of mixing customer and company funds, which is one of those things that seems so obviously both that capitalists do and ought to know better than.

There is an old, obscure argument in the U.S., that certain financial scandals were unfair because the capitalists didn't know that they were doing anything illegal. And, yet, this always seems to be a risk when trying to plot ways to accomplish what laws otherwise prohibit.

These decades later, it's almost like they're not even trying, but just hoping nobody notices, and at Binance, it appears to have gone so far that even American capitalists will balk at the risk exposure.
____________________

Notes:

Goswami, Rohan. "SEC sues Binance and CEO Changpeng Zhao for U.S. securities violations". CNBC. 5 June 2023. CNBC.com. 5 June 2023. https://bit.ly/45PV3jB

Scarlato, Matthew, Jennifer L. Farer, and J. Emmett Murphy. "Jury Trial Demanded". Securities and Exchange Commission v. Binance Holdings Limited, et al. United States District Court for the District of Columbia. 5 June 2023. SEC.gov. 5 June 2023. https://bit.ly/42qp0np

U.S. Securities and Exchange Commission. "SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao". Press Release. 5 June 2023. SEC.gov. 5 June 2023. https://bit.ly/45PVxGr

 

[exchemist]

There seems to be two aspects to this criminal behaviour of crypto, I think, that may be being conflated. The first is what the various exchanges do or don't do with their clients holdings. Places like FTX seemed to be criminal in their use of funds for unauthorised investments, only discovered when there's an issue. This has possibly increased, but possibly not. I'm not aware of any data either way. Certainly the large failures get reported, which may skew perception somewhat. These are large-ticket values, but are a failure of regulation and governance by the exchanges, not of criminal activity by the owners of the actual crypto.

The other is the criminal use of the actual crypto, i.e. transactions to/from addresses being used for illicit behaviour. Well, that has increased in value over the past few years, and volume significantly, but no where near as fast as the overall volume of crypto transactions during that time. Actual volume of transactions involving illicit addresses fell every year from 1.42% in 2017 to just 0.15% in 2021, although with an anomalous 3.37% in 2019 due mostly to the PlusToken Ponzi scheme. Source.
So it's not as simple as the headlines might want you to believe. As with all things, dig deeper. Is it a safe environment? Not as safe as fully regulated banks, for sure.
Bear in mind that as value of the crypto increases, the likelihood is that the value of illicit activity using it will also increase. So, to an extent, any increase/decrease in value will follow the trend of value of the crypto.

I take your points but would point out I get my information from the Financial Times, so it's not just sensationalism from journos that don't know what they are talking about.

Tiassa's (characteristically meandering and almost incomprehensible) post above refers to Binance which, acc. my FT, is now being pursued for deliberately breaking financial regulations in the USA. So that's another major crypto exchange caught for malpractice. Meanwhile as you say, crypto has become a favoured form of currency for criminal enterprises, due to the opacity of transactions and lack of regulation by the authorities. A third cause for suspicion is the aggressive attitude of some crypto enthusiasts toward crypto sceptics, such as the FT's Jemima Kelly. That smells strongly of the kind of hype I remember being exposed - in my work - at the height of the dotcom bubble.

So while crypto may indeed have a long-term future in some form, once it is brought on-side and properly regulated, it seem obvious to me that right now it is a shark-infested pool.

 

[Seattle]

There's several things going on. Crypto (as opposed to Bitcoin) is centralized, does require trust and that trust is not being earned (too many con artists). Another thing that is going on is that traditional banking and the government feel threatened by it and are therefore (to use James' term) "biased" in what they put out to the public.

They are the one's bringing up criminal usage, high energy usage, etc. Those aren't really legitimate issues. There are possible cons to Bitcoin (for example) as well as many pros but the real cons aren't damage to the environment and criminal usage. The possible downsides are demand declining in the future and/or accounts being hacked. Criminals have used Bitcoin but they have used many more dollars so that's not a real issue. Energy usage is what gives Bitcoin value and security. Gaming uses as much energy and no one is talking about the damage it's doing to the environment. That's are just issues that "bankers" suddenly care about. It's not real.

What is going on with the SEC in the US is also less than straightforward. I assume that Biance probably (?) did all the things that they have been charged with. Maybe not but I don't doubt it. However the SEC's interest seems to only be prosecution and not doing as the UK is doing, and that's also legitimately trying to both write the rules and regulations for crypto to follow as well as prosecution where necessary. The UK is not trying to stamp out crypto, the US is.

Most of the financial publications here (Fortune, Forbes) either don't seem to be knowledgeable or they are just too vested in the traditional banking/finance world to be unbiased (in many cases). People quote Warren Buffett (appeal to authority) when his quote was "Bitcoin is rat poison". He also didn't like tech until someone in his company bought Apple and now he loves Apple. These aren't serious actors in this particular subject.

You might have seen the meme about economist Paul Krugman. It shows two quotes, one from the 80's when he says the internet will turn out to be no more important than a fax machine. His recent quote down plays Bitcoin.

Sometimes people just can't appreciate new technology and yet we revere them as all knowing.

 

[Tiassa]

¿'Sup, Jimmy Pop?

Per the Bulletin of the Atomic Scientists:

A bitcoin mine located at a waste coal power plant in Pennsylvania wants to add a new fuel to its power generation mix: scrap tires.

Stronghold Digital Mining describes itself as an "environmentally beneficial" bitcoin miner. But during a virtual press conference on Monday, Russell Zerbo, an advocate at Clean Air Council, said the facility, Panther Creek, had received at least seven air quality violations since it was acquired by the cryptocurrency mining company in 2021 ....

.... Stronghold is hardly the first company to think of burning tires to mine cryptocurrencies. In 2017, Vice News reported that the company Standard American Mining had partnered with PRTI, a tire "thermal demanufacturing" company based in North Carolina. Both the websites for Standard American Mining and the company that apparently acquired them are now nonoperational, but PRTI was still burning tires to mine cryptocurrency as recently as 2021.

Mel Magazine reported on another company in Texas, XcelPlus International Inc., which claimed it could convert all kinds of waste and garbage, including tires, and convert it to fuel to mine bitcoin. That company’s website is now also defunct, but an archived snapshot shows the company boasted that this would net them carbon credits, tax credits, and waste disposal fees.

As I previously reported for the Bulletin of the Atomic Scientists, the history of bitcoin mining has been a race to find the cheapest energy available. Increasingly, miners have resorted to acquiring the means of power production themselves. Some have purchased retired power plants, others have installed generators at gas wells, mining bitcoin at the source. Tire-derived fuels are cheaper than other fossil fuels, so the trend of bitcoin miners chasing cheap energy continues.

(McKenzie↱)​

Things are gettin' (tesc-) real, Kid Funky Fried.
____________________

Notes:

McKenzie, Jessica. "Scrap solution: Burning tires to mine bitcoin". Bulletin of the Atomic Scientists. 23 August 2023. TheBulletin.org. 24 August 2023. https://bit.ly/45NcgJD

Spoiler

 

[Sarkus]

It's a tough crypto-market out there at the moment. More volatile than stocks/shares and fairing somewhat worse. Good luck to any miner that uses their initiative to reduce their costs, but hopefully governments take into consideration the environmental impact of these make-shift power sources. Burning tyres may be cheap but surely the emissions alone should mean it is restricted?

 

[Tiassa]

Burning tyres may be cheap but surely the emissions alone should mean it is restricted?

In coal-country, Pennsylvania?

Two things to remember with these sorts of laws:

1) The regulations themselves are patchwork and subject to corruption in both form and execution.

2) We are in a time when we must, almost literally, "think of everything", and thus it is possible to simply make excuses, like the advance of tire technology and saying this is different stuff than when the regulation was written and thus not included in its prohibition.​

And beyond corruption, even well-intended public servants are challenged by institutional corrosion; analogously, it turns out there are thirty-two public defenders in Mississippi, so a whole lot slips through the cracks, and per the designed and intended inflictions, even good lawyers have a hard time fulfilling their clients' rights. With environmental hazards, all it really takes is one person at the right supervisory desk, and it wouldn't matter if there is a regulation against burning tires.

 

[Tiassa]

Let's go through the report from CNBC↱.

The headline: "Texas paid bitcoin miner Riot $31.7 million to shut down during heat wave in August".

The lede:

During the crypto boom of 2021, Riot Platforms was raking in cash from bitcoin mining. Now the company is losing so much money that it’s counting on energy credits from selling power back to the Texas grid to keep its costs under control.

Riot said on Wednesday that it earned $31.7 million in energy credits last month from Texas power grid operator ERCOT. The company generated the credits by voluntarily curtailing its energy consumption during a record-breaking heatwave.

The total value of the credits dwarfed the 333 bitcoin the company mined in August, worth about $8.9 million dollars as of the end of the month.​

ERCOT, the Electric Reliability Council of Texas, is a notorious, quite literally life-threatening failure. Still, the Lone Star State has managed to find so many ways to complicate an already bad situation:

ERCOT has historically struggled with fluctuating energy prices and sporadic service, so it strikes deals with flexible energy buyers like crypto miners. The agency also counts on bitcoin miners to soak up excess power when there’s too much supply, keeping prices in check.

Texas has made itself an ally to the bitcoin mining industry through credits, but the financial incentives hit a snag in early 2023. A bill to cut off the mining industry from those credits – SB 1751 – passed the Texas State Senate in April, but ultimately stalled out in a House committee.

Instead, state lawmakers passed two mining-friendly bills expanding incentives and cutting red tape for the industry. Those went into effect on Sept. 1.​

This feels familiar↑: As the world struggles to disrupt climate change and seek renewable energy sources, capitalists invent a new way to waste electricity by pretending to transform it into money.

Burning tires in coal country↑ is one manner of stupid, but inviting cryptocurrency to gobble up both electricity and public money while the grid itself continues to falter and fail is Texas stupid.
____________________

Notes:

Sigalos, MacKenzie and Jordan Smith. "Texas paid bitcoin miner Riot $31.7 million to shut down during heat wave in August". CNBC. 6 September 2023. CNBC.com. 7 September 2023. https://bit.ly/3EuXtrj

 

[Seattle]

For those interested in such things, several spot Bitcoin ETFs where approved by the SEC today in the U.S. and I guess some will actually be trading tomorrow.

 

[Seattle]

There doesn't seem to be a lot of interest in Bitcoin on the forum. I find that a bit odd but not totally unexpected.

The new ETF's that came out in January broke all new ETF records in terms of inflows. They're up about 48% YTD.

With the dollar being debased, a prudent strategy, to me, to deal with volatility is a cash reserve invested in a money market to stay ahead of inflation and large enough to ride out the Bitcoin down cycles.

Otherwise, Bitcoin has drastically outperformed all assets classes since its inception. I'm starting to wonder if there is any point in investing in stocks, bonds or real estate (other than a home) when Bitcoin is the alternative.

 

[Zero Point Native]

There doesn't seem to be a lot of interest in Bitcoin on the forum.

Because it just doesn't interest me.

 

[Seattle]

Because it just doesn't interest me.

That's what I just said.

 

[Zero Point Native]

That's what I just said.

Yep

 

[Sarkus]

I'm starting to wonder if there is any point in investing in stocks, bonds or real estate (other than a home) when Bitcoin is the alternative.

Its extreme volatility works against it. It is seemingly better suited as a long-term asset, although even then you need to time your exit appropriately, and then there's the matter of confidence in the end-game - when and what. Both of these should lead one to consider a far more balanced portfolio, surely, to mitigate the risks that do exist in crypto, even long-term. And the older you get, the less time you have to be able to react to financial shocks. My own IFA steers well clear of crypto, although that may change as it becomes better understood and more widely adopted.

 

[Seattle]

It is a longer term investment. That's what most investments are. You don't need to time an exit though. You don't need to "exit" the investment as a whole. You can easily plan when you take some out if that is needed.

It currently has a sharp ratio of 3.4 or so. That means that it has ample reward for the additional risk. It means, for example, that if you allocate 10% Bitcoin to a retirement portfolio you will have higher average returns than if you don't do that.

Whether Bitcoin is better understood depends on the individual. It's just like anything else, if you want to understand it, you can. The best books you can read, IMO, are "The Bitcoin Standard" and "The Price of Tomorrow".

Really, all you have to do is get past one 4 year cycle. Even with the volatility it's still the best performing asset class. Due to the constant debasing of the dollar (and I see no slow down there) you could make an intelligent argument that it should be the only asset class that you own. I'm not saying that is a fact, but it can be argued intelligently.

I think the key to any investment, is to have a well thought out plan. You can make a lot of things work out with a well thought out plan and you can make a mess of most anything without one.