As Bitcoin continues its mania, warnings are coming in fast and furious. For those unfamiliar with the price action of historic thin-air manias, here are a couple prime examples- the Dutch Tulip Mania and the South Sea Bubble.
Historically, the “market” evaporates. No doubt then, as now, during the parabolic phase, the holders were chortling and mocking those who missed out and warned.
When the South Sea bubble was all over and after losing a fortune, Issac Newton shared his “Beavis and Butt-Head” life lesson: “I can calculate the movement of the stars, but not the madness of men.”
The New Nationalist (TNN) reported on Bitcoin’s vulnerability to hacking. This is intensifying. The psychopaths are crawling all over this vehicle. Last week came one of the largest Bitcoin heists yet, as more than $70 million worth was stolen from a cryptocurrency-mining service called “Nice Hash” following a security breach. Other sites are regularly reported to be down and inaccessible.
Obviously, much bitcoin is held and thus manipulated by criminal enterprises. Bulgarian law enforcement busted a sophisticated organized-crime network, arrested 23 Bulgarian nationals and seized a total of 213,519 bitcoins. The amount seized is now worth approximately $3.7 billion. There is plenty of incentive to liquidate, as this windfall would cover 18% of Bulgaria’s national debt. In fact, there is plenty of incentive for police to seize and liquidate mania-priced bitcoins from criminals or just plain citizens.
Indeed, the U.K. Treasury this week disclosed plans to regulate Bitcoin that will force traders in so-called cryptocurrencies to disclose their identities and report suspicious activity. The new rules will be applied across the European Union and are expected to come into force by the end of the year or early 2018. They are invoking rules on anti-money laundering and so-called counter-terrorism.
We also learn that in addition to criminal enterprises, unregulated bitcoin ownership is highly concentrated into the hands of whales. Yes, I am sure these players are on the up and up. Uh huh, right.
According to Bloomberg, about 1,000 so-called “whales” control 40% of the bitcoins in circulation, giving them unrivaled leverage over the broader market. And because there are no laws explicitly banning collusion in digital currency markets, only the most blatant pump-and-dump operations risk prosecution for fraud.
Bloomberg points out that the markets for Bitcoin and most of its cryptocurrency clones more closely resemble the U.S. equity market of the Gilded Age, where a handful of powerful traders and brokers colluded to move prices in their favor. And because securities laws at the time were virtually nonexistent, the big players minted suckers with impunity.
Futures trading is dead ahead. From Zero Hedge comes an article on who will be setting the settlement price in the City of London financial hub. In summary, here we have a new Bitcoin futures contract, a derivative on the global phenomenon that is Bitcoin, whose settlement price is based on a reference rate calculated in London by an unknown company whose sole director is from Goldman Sachs.