Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, June 21, 2013
MT Gox suspends US Dollar withdrawals for 14 days ( at least ) effective immediately - when the pro-offered reason is that rising volumes of deposits and withdrawals has impacted processing of transactions , it funny deposits and transfers TO Bitcoin accounts are still going to be allowed ! Is there a US dollar shortage / liquidity issue at Bitcoin Exchange Mt Gox ? BTW , what hidden role has NSA or for that matter CIA have with Bitcoin ?
( Perhaps the attacks on Bitcoin stem from NSA or other government entities who want to establish their preferred cyber currency unit that they can control and eliminate any competition... )
Recently a 1996 NSA report surfaced, ‘predicting’ a crypto-cyber unit eerily close to Bitcoin. So eerily close, that, knowing their M.O., the question arises whether this report is a prediction, or a plan.
The report can be found here. I don’t know how long it has been circulating in the Alternative Media, but it seems it just surfaced. It is stunning. It looks very much like an architectural design of the kind of issues this cyber unit should solve. It is stunning not only because it so closely resembles the architecture of Bitcoin, but also since it so conspicuously avoids all the real problems with our monetary system, i.e. Usury, scarcity of money and the manipulation of volume.
If we look at similar ‘predictive’ reports on for instance population control, which have had such a major impact on the Truth community, we must conclude that this particular NSA report on crypto-cyber currencies looks more like a design than a prediction.
Meaning that Bitcoin just officially became a Money Power meme.
Bitcoin architecture
The NSA report goes deeply into the challenges a crypto currency faces and lists the various security and implicated regulatory risks. Both from the point of view from regulators and developers of such schemes.
Amazingly, a key writer of the report is called Tatsuaki Okamoto. In the Bitcoin community this has been picked up as remarkably similar to Satoshi Nakamoto, the pseudonym of the enigmatic developer of Bitcoin.
As we have been discussing, Bitcoin was designed to be scarce and deflationary. Interest-free credit is impossible with Bitcoin and this year we have seen wild trading in the cyber-unit, with a massive bubble and the unavoidable crash. Nonetheless, Bitcoin’s rate at this point is about $110 today, up from $5 November 2011. Its total market capitalization topped $1 billion at its peak and is still substantial.
Implications
An interesting issue is In-Q-Tel’s involvement. In-Q-Tel is the ‘not for profit’ investment arm of the CIA. Undoubtedly just another control mechanism. In-Q-Tel is investing or planning on investing in Bitcoin, presumably by buying some of them. The CIA has been involved in an extensive dialogue with Bitcoin people. It is unclear as to what this ‘dialogue’ amounts to, but obviously, combined with this shocking NSA paper, the whole thing looks pretty suspect.
So what are the bad guys up to? Are they creating a unit with which they can finance their international drug trade without risking money laundering in the banking industry, which is forced to be more and more transparent?
Perhaps it’s not for nothing that American legislators have shown alarm at the uncontrollable flow of funds?
Or is it all just a ruse to undermine free market currencies and regulate them to death, using Bitcoin as some sort of monetary false flag?
This latter scenario would explain the heavy handed and totalitarian way the DHS recently seized some account owned by Mt. Gox, the biggest Bitcoin exchange. Note the DHS is not some financial regulatory body, but the Gestapo itself.
Conclusion
Even today it’s too early to come to conclusions about Bitcoin. Perhaps it’s still a well-intentioned try, destined to failure by its faulty design, or destroyed by the agencies. Or it was designed from day one as a tool to help maintain control of the money supplies of the world.
But it is amazing how the NSA report addresses the ‘need’ for privacy with transactions as the main monetary issue, ignoring all the far, far more important problems we have with our money, and how Bitcoin answers exactly the challenge put forward.
Knowing the ways these people think and operate, this NSA report basically puts to rest the notion that Bitcoin was a completely innocent ‘free market’ or ‘human action’ kind of thing to begin with.
Today, Mt Gox announced they are suspending USD withdrawals for at least two weeks. This suspension was caused by a high volume of USD withdrawals from Mt. Gox’s bank accounts, with the company citing difficulty for their bank in processing transactions “smoothly.” This news comes one month after the announcement that the US Government seized their Dwolla bank accounts for failing to register as a Money Service Business (MSB). Two weeks ago OKPay, a long time partner of Mt. Gox wire transfers, suspended all operations with bitcoin customers.
Statement that Mt. Gox halted USD withdrawals – posted on June 20th
There will likely be two effects from this action: a temporary rise in USD/BTC value as holders use bitcoin to move their funds out of the Mt. Gox exchange; followed by a further decline in Mt. Gox’s market share of bitcoin exchanges. Following the May 14th announcement, there was a 10 day increase in the USD/BTC exchange rate as price increased from $115 to $135. This was followed by a 2 week decline down to $90. While other macro trends certainly had an effect on the exchange rate, the fear of further Mt. Gox account seizures is likely responsible for a significant effect.
Daily USD/BTC Price, chart from clarkmoody.com
Following the Dwolla announcement in May, Mt. Gox’s market share dropped precipitously from 80% of the total USD market by volume to an average of approximately 65% for most of the last few weeks. Bitstamp was the large winner after that announcement, more than doubling their market share from 10% to 20%.
It is still unclear how this will affect merchant bitcoin payment processors that rely on Mt. Gox for rapid conversion of BTC to USD in order to reduce volatility risk. Hopefully we will see announcements from BitPay and Coinbase saying they have diversified away from Mt. Gox and their customers are unaffected. These services have become essential for many companies that process bitcoin transactions.
Most large players in the bitcoin community realize that bitcoin is more than its exchanges. It is healthy for the bitcoin eco-system to decentralize away from Mt. Gox as the primary exchange. They have been the dominant player for four years, and other startups have had trouble gaining the volume and liquidity that Mt. Gox provided. While this event may cause short-term instability in bitcoin markets, as events like these continue to transpire the diversification will make bitcoin stronger in the long run.
Mt. Gox, the world's largest bitcoin trading exchange, said it has halted withdrawals of customer funds in U.S. dollars as it makes systems improvements.
The Tokyo-based exchange posted the notice on its website. The halt comes as the exchange has seen rising customer use.
"Please be reassured that USD deposits and transfers to Mt. Gox will remain unaffected, as will deposits and withdrawals in other currencies, and we will be resuming USD withdrawals once the process is completed," the notice said.
Mt. Gox has experienced an increase in deposits and withdrawals in recent weeks from "established and upcoming markets interested" in bitcoin, the exchange said.
"This increased volume has made it difficult for our bank to process the transactions smoothly and within a timely manner, which has created unnecessary delays for our global customers," the company said. "This is especially so for those in the United States who are requesting wire transfer withdrawals from their accounts."
The notice didn't identify the bank. Mt. Gox representatives didn't immediately respond Friday to a request for comment.
The suspension of withdrawals is the latest hiccup for Mt. Gox, which has gained attention amid rising interest in bitcoin, a so-called virtual currency that can be bought and sold online.
In May, the U.S. Department of Homeland Security obtained a warrant to seize an account of a subsidiary of Mt. Gox for failing to get a license to operate as a "money-services business."
Mt. Gox last month said it was strengthening its identification procedures for customers who deposit or withdraw traditional currencies from the exchange.
Virtual-currency experts said Friday that Mt. Gox's move to halt U.S. dollar withdrawals could merely be a sign of the ongoing growing pains facing the nascent industry. But the move could also raise additional scrutiny from regulators.
The suspension of withdrawals "is something that will cause bank regulators" to monitor activities "even more closely," said Mercedes Kelley Tunstall, an attorney with the law firm Ballard Spahr LLP who has consulted financial institutions that are interested in potential business opportunities involving virtual currencies.
A spokesman for FinCen declined to comment on Mt. Gox's announcement.
The Department of Homeland Security didn't immediately respond to a request for comment on whether it was reviewing Mt. Gox's notice.
The price of one bitcoin, which has fluctuated widely in recent months, was trading around $107 on Friday, according to bitcoincharts.com. The virtual currency hit an all-time intraday high of $266 in April.
The currency, and others like it, has attracted a variety of investors amid turmoil in global economic markets. Some merchants also like bitcoin because they say the virtual currency is cheaper to accept than credit and debit cards, which carry transaction fees.
But virtual currencies have also drawn scrutiny from regulators, who worry about their use in illegal activities such as money laundering and drug trafficking.
Federal Reserve Vice Chairwoman Janet Yellen said during a speech earlier this month that it was examining potential risks associated with such payment mechanisms.
FinCen Director Jennifer Shasky Calvery said during a speech earlier this month the agency isn't looking to eradicate virtual currencies but expects exchanges and other companies dealing with such payment methods to follow existing rules.
Mt. Gox, the world’s largest Bitcoin exchange, is going through some more growing pains. On Thursday, the company announced it will shut down U.S. dollar cash withdrawals for the next two weeks, effective immediately. The shutdown does not affect withdrawals in other currencies; American dollar deposits and transfers to Tokyo-based Mt. Gox are also still working.
The company says the halt in cash withdrawals is necessary as Mt. Gox upgrades its systems to handle the increasing number of transactions on its systems.
“Over the past weeks Mt. Gox has experienced rising volumes of deposits and withdrawals,” Mt. Gox said in a statement on its website. “This increased volume has made it difficult for our bank to process the transactions smoothly and within a timely manner… This is especially so for those in the United States who are requesting wire transfer withdrawals from their accounts.”
Bitcoin is a virtual and semi-anonymous currency that can be traded online and exchanged for real world money. It can also be used to purchase goods from websites and a limited number physical retail operations.
Problems and more problems
Mt. Gox’s decision to suspend withdrawals for American greenbacks is just the latest in a string of technical and legal problems that have recently plagued the company. In early April, Mt. Gox was fending off a large distributed denial-of-service (DDoS) attackthat the company believed was intended to manipulate Bitcoin pricing. Mt. Gox’s explanation, as we described at the time, would be for attackers to sell their Bitcoins while the prices were high. Then the crooks would initiate a DDoS attack in the hopes of triggering widespread panic and a fast sell-off of the currency. That would drive Bitcoin pricing down and make it widely available for purchase at a lower cost.
A week after the attack, the DDoS plan appeared to be working when Bitcoin prices on Mt. Gox quickly plummeted from a high of more than $200 down to around $120 following service lags on the site. After the price drop, Mt. Gox temporarily shut down trading for a short cooling off period. Mt. Gox later blamed the service lags on a large spike in trading on the site. Similar to the DDoS plan, the company said service lags caused some investors to panic and sell their currency causing Bitcoins to lose value.
Beyond its technical difficulties, Mt. Gox is also mired in legal troubles with a jilted business partner and the U.S. government. In early May, U.S.-based start-up CoinLab filed a $75 million suit against Mt. Gox alleging the Bitcoin exchange breached an agreement to connect the companies’ computer systems for North American trading.Mt. Gox was supposed to partner with CoinLab to make it easier for Americans and Canadians to purchase Bitcoins via the exchange. Also in May, authorities with the U.S. Immigration and Customs Enforcement seized Mt. Gox’s U.S.-based funds over allegations it failed to comply with American financial regulations.
While some Bitcoin fans are content to wait for Mt. Gox to harden its systems and chalk the current delays up to growing pains for an increasingly popular form of trading, others are getting fed up. What’s the point of investing in a virtual currency, after all, if you can’t cash out when you need to?
Bitcoin shunned by big banks as Mt Gox halts dollar payouts
The world's best-known Bitcoin exchange stopped paying out customers in US dollars on 20 June. Mt. Gox didn't exactly explain what was going on, though. It blamed an "increased volume" of transactions, and said it would suspend US cash withdrawals for two weeks as it sorted things out.
The issue "is with processing the sheer volume through our banks in Japan, which is causing a delay," said Mt. Gox's Thomas Glucksmann-Smith in an email message. "We are currently attempting to improve our services for this. In the meantime USD deposits are unaffected as are other currencies."
But the Japanese company has fallen afoul of regulators and is clearly under pressure in the US
The suspension comes a month after the Department of Homeland Security froze a Wells Fargo account that Mt. Gox had been using to pay US funds to the Dwolla mobile payment service. When it set up the account, Mt. Gox had failed to properly identify itself as a money transmitting business, a violation of US anti-money-laundering regulations, the DHS said.
And that, according to some observers, has made it radioactive to US banks.
These regulatory problems have almost certainly caused some banks to shy away from doing business with Mt. Gox, says Larry De Palma, the CEO of TDG-Phenix, a financial services consultancy that focuses on payments. That's causing a serious liquidity problem when it comes to trading other currencies into US dollars. "They can't go out and trade or cover trades," he says.
But that's not behind the suspension of cash withdrawals, according to Glucksmann-Smith. "This has nothing to do with the US Banks."
It may be that Mt. Gox is simply going through additional hoops to fix a technical problem or reassure its current banker, but the fact that the exchange has already run afoul of regulators is certain to make banks nervous, says Will Voorhees the director of the financial intelligence unit with Silicon Valley Bank.
DePalma puts it this way: "Banks are already bogged down with Dodd-Frank," he says. "They don't even know what the US dollar is doing, let alone a virtual currency."
In March, the federal agency responsible for enforcing the nation's anti-money-laundering laws, the Treasury Department's Financial Crimes Enforcement Network, spelled out what exchanges like Mt. Gox must do in order to stay in the good graces of US regulators. Although some have said that the regulations are confusing and inappropriate for small businesses (for example, coffee shops that give cash back in exchange for Bitcoins technically must also register as money transmitters) the FinCEN's director says they were designed to take virtual currencies such as bitcoin to the next level. "I will not deny that there are some troublesome providers out there," said FinCen director Jennifer Shasky Calvery, according to a transcript of a speech she gave in Washington on 13 June. "But, that is balanced by a recognition of the innovation these virtual currencies provide."
Nevertheless, some think the government is cracking down on virtual currencies. In May federal prosecutors shut down another digital currency network, Liberty Reserve, and charged its founder with money laundering.
Bitcoin is different. Unlike Liberty Reserve, it works on a peer-to-peer network that isn't controlled by anyone. It operates as a much more transparent digital currency where money transfers can be tracked in public -- even if the names of the people doing the transactions are kept secret. But nevertheless, US banks are nervous. In the past month two other Bitcoin companies, Bitspend and Bitfloor, have also had accounts shut down by US banks. Bitfloor, a Bitcoin exchange, is now out of business.
Bitspend is a website that helps you spend Bitcoins on sites that do not accept them. It says that Chase froze its account in order to figure out if its money was coming from legitimate sources. "So because we have money coming in from Bitcoin exchanges, we are now a criminal and have had all our money seized," company founder Justin Whelchel wrote in exasperation on Reddit on 19 June.
The problem is that US banks are afraid that doing business with Bitcoin companies might draw the attention of US or state regulators, Voorhees says. Although unrelated to Bitcoin, last month's shutdown of Liberty Reserve, contributed to this sense of unease. "I've been in this space for 10 years and I can tell you that I've never seen a more visceral reaction to an industry than the way I've seen banks respond to the digital currency industry," he says.
Because regulators are not on board, "the downside of dealing with the companies using/selling/brokering is much greater than any possible upside (fees)," wrote one commentor on the Bankers Online discussion board, on 18 June.
This reluctance may be fed by the sense that Bitcoin poses a threat to the banking industry. Anyone can transfer Bitcoins anywhere for free and that could put a dent in some banking transaction processing fees.
But Silicon Valley Bank sees money to be made in Bitcoins. There's been a mini-boom in Bitcoin startups over the past year, for example, as Bay Area venture capitalists have moved in. "We've built out a really robust onboarding process and then an ongoing monitoring process so that we can bring them in safely and make sure that they live up to our standards," Voorhees says.
No comments:
Post a Comment