Governments and CEO’s React to Crypto

by Alex Lightman and David Lightman. February 10, 2018

China began cracking down on exchanges at the beginning of 2017. Later they instituted a total ban on ICOs and then announced that all Bitcoin exchanges had to close. The inside story, according to information from a leader of one of the exchanges that was shut down, was that the Chinese Communist Party received a report on the rise of Bitcoin and other crypto-currencies which claimed that $1 trillion in value would be generated in a relatively short period.

The Party wanted a piece of this action and didn’t want to see all this wealth fall into the hands of non-party members who were also learning to using encryption technologies which allow secure communication. They were literally afraid they could be overthrown. The former exchange owners were given a choice of jail, should they protest publicly, begging for a job if and when the Party opens state-owned exchanges or to simply leave the country.

When this ban occurred the Bitcoin price, which had been booming, dropped down a thousand or so for about a week. Then the former Chinese crypto exchange volume simply shifted over to Japan and North Korea and everyone could see that Bitcoin was moving along just fine without China. A few days later Bitcoin hit all-time-highs.

China, which once had been, together with the US, the world leader in crypto – had unfortunately thrown itself into the dark ages. A few years ago, even a negative statement about Bitcoin by the Chinese leaders could send the price tumbling. But now the economic powerhouse that is China has virtually no impact on the crypto space.

South Korea, which had been crafting thoughtful legislation on ICOs, panicked and slapped on a (hopefully temporary) total ban instead.

The US just a few days ago issued an announcement that it considers most of the ICOs issued so far to be securities and therefore required registration and regulation. Even a token sold with no promises made at all, still constitutes a security.

“According to the SEC, an offer would be considered a security if it is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”

In Jay Clayton’s view (chairman of the SEC), most tokens offered in ICOs to date fall under this definition, whether or not they have “utility” functions as well:
“By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws. Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved.”

Despite this fact, so far, no ICOs have registered with the SEC, as Clayton points out.
”Russia has been quite hostile to Bitcoin from the start. Sometimes threatening users with 7 years in jail if they buy bitcoins and other times appearing to embrace it. Putin even realized that they could develop a crypto-currency to trade with other nations, they could get around the onerous sanctions from the US. Putin even met with Vitalik Buterin, the Russian kid who invented Ethereum. Putin was very open to Vitalik reaching out to groups in Russia.”

Cointelegraph reported that the Moscow Exchange was considering including Bitcoin-based derivatives and exchange traded funds (ETFs) among its many offerings.

Alexey Moiseev, the deputy finance minister of Russia, said earlier this week that he expects pending legislation on cryptocurrencies will feature a ban on payments made in cryptocurrency.

After Putin blamed a host of Russia’s criminal problems on Bitcoin, the central bank echoed his remarks, calling digital currency a pyramid scheme: “We have seen how Bitcoin has transformed a payment unit into an asset, which is bought in order to obtain a high yield in a short period of time. This is the definition of a pyramid.” Cointelegraph reported earlier today that the Bank of Russia is attempting to block all Bitcoin exchanges in the country.

“The state understands indeed that cryptocurrencies are real. There is no sense in banning them, there is a need to regulate them.”

Despite all this tough talk, it’s very likely that Russia will continue to allow Bitcoin and the crypto world to flourish. They see much potential in ICOS in terms of funding Russian startups.

Also, the excellent token platform called WAVES is a Russian enterprise. The beauty of the WAVES platforms is that anyone can issue a token in just a few minutes. That token is then immediately available on the WAVES decentralized exchange. It is an excellent platform that may become much more important in the future, since issuing tokens is far easier than with Ethereum. It would be extremely foolhardy for Russia to stop this group – and I doubt they will. The nice thing about the Russians is that they may be authoritarian but they are also dyed-in-the wool capitalists.

Even more embarrassing are the titans of the financial industry who blatantly announce their lack of understanding of Bitcoin and the other crypto-currencies. Despite knowing nothing about it, they are certain it’s a bubble which is about to pop:

“The owner of the New York Stock Exchange said Tuesday he may end up regretting not jumping at the chance to offer bitcoin futures, unlike his competitors.

“We may be stupid for not being first on that.”Jeff Sprecher.

Speaking at an investment conference in New York hosted by Goldman Sachs Group Inc. Jeff Sprecher, chairman and chief executive of Intercontinental Exchange Inc. said bitcoin and its brethren pose a conundrum. “I don’t have the answers, I wish I knew” what will happen, he said, according to Bloomberg News. “I don’t know what to make of crypto-currencies.”

“Billionaire investor Carl Icahn has jumped on the bandwagon of financial bigwigs saying bitcoin is in a bubble. The business magnate and founder of Icahn Enterprises told CNBC that the cryptocurrency “seems like a bubble” and that he didn’t understand the hype around bitcoin. Icahn stated: “I got to tell you honestly, I don’t understand it … I just don’t get it. I just stay out of something if I don’t understand it.

In September “JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he would fire any employee trading bitcoin for being “stupid.” The cryptocurrency “won’t end well,” he told an investor conference in New York on Tuesday, predicting it will eventually blow up. “It’s a fraud” and “worse than tulip bulbs.” If a JPMorgan trader began trading in bitcoin, he said, “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.”

Only two months later, one of JP Morgan’s own analysts announces:
“The prospective introduction of bitcoin futures has the potential to elevate crypto-currencies to an emerging asset class,” Panigirtzoglou said. “The value of this new asset class is a function of the breadth of its acceptance as a store of wealth and as a means of payment and simply judging by other stores of wealth such as gold, cryptocurrencies have the potential to grow further from here.”

Oops. Jamie Dimon’s own analyst completely contradicted him. But it’s not surprising that JP. Morgan did a com plete 180 – because no doubt that many of JP Morgan’s customers are demanding exposure to this new digital gold or they will likely switch investment companies.

Janet Yellen. “Bitcoin at this time plays a very small role in the payment system. It is not a stable store of value, it doesn’t constitute legal tender. It is a highly speculative asset. The Fed doesn’t play any regulatory role with respect to Bitcoin.”

The Governor of the Reserve Bank of Australia Governor Philip Lowe, referring to Bitcoin’s current “fascination,” said that it “feels more like speculative mania than it has to do with their use” as a form of payment. Similarly, the European Central Bank chief Mario Draghi also considers that cryptocurrencies are immature. As CNBC reported, Draghi said: Cryptocurrencies are not ‘mature’ enough to be considered by the European Central Bank (ECB) for regulation.

A few days ago, Former Chairman of the U.S. Federal Reserve Alan Greenspan also dismissed the digital currency. Greenspan said, “Bitcoin is not rational,” and compared it with a fiat currency that the U.S. Continental Congress minted in 1775 to finance the American revolutionary war effort.

The upshot is that the titans of finance don’t have a clue what Bitcoin is. All they can see it that there are these digital tokens backed by nothing that are being driven up to incredible values. So, they are warning folks not to invest – but they don’t certainly see how this new form of digital gold could possibly affect the economy.

Tychoons like Jamie Dimon and Vladimir Putin instinctively hate Bitcoin because they are power players, and they can sense that this is a potential threat to their power. But they really don’t understand it, why should they fear an insane speculative bubble over nothing? And practically everyone else is happy to jump on the digital gold bandwagon and saying – this is the latest innovation, it’s modern, banks love blockchain, all the smartest developers are into it, it’s going to create lots of jobs. A win win for everyone. But what happens when Bitcoin is larger than the US money supply?

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