Bitcoin, and the rest of the cryptocurrency universe, continues to enthral and entertain some while befuddling and bewildering others. No prizes for guesses which camp I am in. Here in the UK it’s all a bit of a fairground sideshow with few other than true apostles taking it seriously. That is beginning to change and like all central banks, the Bank of England is alert to the young upstarts and is taking steps to increase its institutional knowledge of this digital phenomenon which has gripped the attention of markets, entrepreneurs, organised crime and law enforcement across the world, (although the extreme volatility is likely to deter criminals from trusting it).  Expect growing regulatory interest in cryptocurrencies to be a theme for 2018. Cryptocurrencies are the Wild West of the investment universe with zero regulatory oversight, high cyber risk, no deposit insurance and no central clearing body. Notwithstanding the fact that criminals have the potential to run rings around money laundering legislation

It is said that about 40% of Bitcoin is owned by around 1,000 people, most of whom live in the San Francisco Bay area. But, the dominant forces in Bitcoin are in Asia. In Japan for example, there are roughly 1 million Bitcoin day-traders and somewhere in the region of 300,000 shops who accept Bitcoin for payment. South Korea, Asia’s fourth largest economy, which until this week accounted for 20% of daily volume in Bitcoin, has three of the largest Bitcoin exchanges but has recently banned trading in Bitcoin futures. The justice ministry there is considering banning Bitcoin completely. Expect more regulators to toughen their stance.


Examples of the ‘Madness of Crowds,’ are not hard to find. In December Long Island Iced Tea Corp, a soft drinks maker, changed its name to Long Blockchain Corp. Its shares rocked 350% higher in three days. Then, the company announced it would sell shares to raise $7.74m saying in its filing that “it was shifting its primary corporate focus towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology.” Moving quickly the company then announced it had entered into a purchase agreement to acquire 1,000 ‘mining rigs,’ to be used to ‘mine bitcoin, bitcoin cash and any other cash using SHA256 algorithim,’ for $4.2m. So, in two weeks the soft drinks company which incidentally intends to continue to manufacture soft drinks has changed its name, raised an improbable amount of cash and now ‘is focused on developing and investing in globally scalable blockchain technology solutions. It is dedicated to becoming a significant participant in the evolution of blockchain technology that creates long term value for its shareholders and the global community by investing in and developing businesses that are “on-chain.”

LBCC though, is in the nursery compared to others out there. How about UBI Blockchain Internet who filed with the SEC to sell 72.2m shares owned by management? Back in 2016 it acquired a shell company called JA Energy and changed its name. In the December mania the shares rocketed 1,100% in just 6 days from $7.20 to $87 giving it a market cap of $8bn. 3 days later the shares plummeted 67% to $29. Still though giving it a market cap of $3.6bn, not bad for a company with no revenues and an operating loss of $1.83m in 2017 and a disconnected telephone number in its filing. Proceeds from the share sale were destined to go to management, not the company. Unsurprisingly, the SEC suspended the shares on Monday.

Oh there is more, much more. Longfin listed in December in the US. In its filing it said it had revenues of $298,000 last year and $75 in cash. Two days after listing the shares soared 2,700% giving it a market cap of $7bn after making an announcement with the word ‘blockchain,’ in it. The shares have more than halved since but still sit at a numbing $45.65 with a market cap of >$4bn.

Digital Power, which makes power supplies for computers, saw the afterburners light up behind its share price when it announced it would aim its services at cryptocurrency miners. That was worth a near 900% share price rally. The shares subsequently lost about half of the rally but have still massively benefited from just one announcement mentioning cryptocurrencies.

So, what is blockchain and what is bitcoin?


Blockchain is the clever bit. Simply put, it is an ever growing record of all the transactions ever done in bitcoin. It is the grand (digital) ledger which cannot be retrospectively altered. There are though, thousands of copies of the grand ledger, all of which are updated when a transaction takes place checking for consistency to confirm you have the bitcoins you claim to have. When it all checks out the new transaction is added to all the ledgers simultaneously. Because all the ledgers have to reconcile to confirm someone’s ownership  no central entity, (like a bank), is needed. The problem, or the advantage, with blockchain, is that it is free.

While there is a limit to the number of bitcoins that can be created there is no limit to the number of cryptocurrencies that can be created. Yep, just a cute name and a few hours at the PC with some moderate skills and you too could be off and away. Something not lost on the creators of Dogecoin. It was started as a spoof (Doge-coin) and now has a market cap of $1bn, one of more than 1,365 crypto coins out there.

OK kid, you win this time.

OK kid, you win this time.

Some, including Goldman, Citi and indeed one of the Crumble kids believe that cryptocurrencies are viable as an alternative to traditional stores of value. Perhaps they will be but certainly not until government enforcement through regulation dampens their volatility.

The coins though have no intrinsic value. Bitcoin itself is simply an electronic receipt listing a line of transactions and is backed by fresh air…… and there are another 1,364 in a growing list of other coins out there. Of course, it has market value, for the moment but that is simply a supply and demand equation that can evaporate with fickle fashion driven users as quickly as it arrived. The valuable asset is blockchain technology but you are not buying that technology when you buy bitcoin. Blockchain is free, absolutely free which is why the barriers to new coin entrants is non-existent. It is also where the value lies. When the coin mania subsides, and a bunch of people are counting their losses and a smaller number their winnings, new ways to use blockchain with positive social and economic utility will emerge, some of which will properly benefit our daily lives.  


Before that happens, I am joining the party. The launch of CrumbleCoin is just around the corner.  

Calm Down At The Front

Each passing week sees the European referendum debate stepping up a gear and with it the rhetoric edging closer and closer still to the edge of the cliff signposted, 'barmy.' Last weeks offerings stretched credulity by offering both Hitler and Churchill in equal measure along with the not inconsiderable feat, from the Prime Minister, of including the dead of two world wars. Gordon Brown stepped forward to calm things down and instructed us in earnest Presbyterian tones that it would be un-British to leave the EU. Thank you Gordon. As it happens, one of the few quietly sensible reasons for Remain that I have yet heard is that the EU prevents some of the worst excesses of national governments, 'just think what Brown could have done to us had he been unleashed from the restrictions imposed by being part of the EU,' said my chum over a glass. 

Despite all the made up bilge that has poured out the polls remain remarkably consistent. They suggest that Remain have a lead of up to 10 points but are vulnerable to turnout numbers on the day and the 'fuck it,' factor. I don't use the phrase lightly. The backlash against the Establishment elites, which really started with the Arab Spring, has manifested itself across Europe and most prominently in the US with support for Donald Trump. National politicians and the media who get animated about Trump and sneer at his supporters are rather missing the point. Many if not most of his supporters are not Trump acolytes. They are simply fed up. Fed up working longer and harder for less. Fed up seeing their aspirations, ambitions and dreams being trampled on and fed up watching the relentless growth in the wealth gap between the super rich and the rest with no conceivable way of joining then party. The non stop lecturing from the inner circles of international finance, the Bank of England, (who mostly should at this point shut up), and supportive media like the Economist may just provoke a Trump like backlash from British voters that they least want. Such a backlash, and I do believe it is fermenting, would slice through that 10 point lead.

In fact, the Economist is becoming ever more shrill in it's warnings. Good thing the Economist rarely gets the big calls right then otherwise we'd all have Euro's in our pockets. No matter, it is to the Economist we look to find a letter from a reader in the United States who articulates rather well how the US election cycle has got to where it is. This is what Mr Mark Kraschel of Portland Oregon has to say,

You used so much ink trying to convince us that Donald Trump is not fit for office (“Time to fire him”, February 27th). Do you think the type of person who reads your erudite publication would ever consider voting for him? Not likely. The people who will vote for The Donald are the disaffected bitter-clingers whom the last candidate you passionately begged us to vote for—Barack Obama—disparaged in his campaign. Those same disaffected people haven’t been doing well over the past eight years, and in case you haven’t noticed, they are mad as hell.

Government isn’t working for us. There are few good jobs, we’ve been stuck with a joke of a health-care system, the few rights we still enjoy are under siege and the future looks dim for our children. We are powerless to foment a revolution while working two part-time jobs to make ends meet, so all we can do is register a protest against the Dickensian nightmare that the elites have created for us by voting. Apparently, nobody listened (Republican or Democrat) to what we were trying to say in 2012. Come November, you’ll be hearing from us again, louder and clearer.
— MARK KRASCHEL Portland, Oregon

From where I am standing, the Remain campaign would do well to take a big dose of humility and immediately stop hectoring from the pulpit. We don't like being threatened and no one likes a bully. Similarly, the Leave campaign must start explaining the positives of leaving and how the mechanics of extraction will work in practice and do so with calm authority and dignity. I'm obviously not holding out much hope for any of this to transpire and confidently expect proceedings to deteriorate into an unseemly squabble punctuated with more hysterical warnings of plague and pestilence from a political rabble who are increasingly detached from Planet Reality. Voters will take action accordingly.


The Dog Days

Terrifically well crafted piece on summer markets by friend, Stephen Lewis:

The day-by-day countdown to the hundredth anniversary of the outbreak of the First World War should serve to remind us there is no firm historical foundation for the common assumption that nothing significant ever happens in the dog days of August.  The markets’ old-timers will recall it was in August 1990 that Saddam Hussein invaded Kuwait, beginning the train of events that led to the Gulf War.  More recently, it was BNP Paribas’s halting of withdrawals from three funds it managed, in August 2007, that first alerted investors to the global scale of the fall-out from the US subprime mortgage crisis.  We would be yielding to superstition if we adopted a fearful view of the next few weeks simply because they will constitute another August month.  After all, while the war in 1914 began for the UK in August, hostilities had broken out between Austria-Hungary and Serbia on 28 July. Similarly, in 2007, Bear Stearns’ revelation on 16 July that two of its subprime hedge funds had lost almost all their value was warning enough that much was amiss in the US capital markets.  Troubles rarely come out of the blue.  Usually, the signs of impending disaster are long visible before the debacle occurs.  It is tempting, during the period of denial before the final cataclysm, when markets seem calm, to believe that the negative aspects of the situation must already be fully discounted.  But there is a world of difference between a notional catastrophe and a real one, and the full dimensions of a real catastrophe are seldom imagined beforehand.

Rarely in the writer’s experience, stretching back forty-five years, have the world’s capital markets been afflicted by so pervasive a sense of unfocused foreboding.  This is not reflected in the behaviour of securities prices which continue to be well underpinned, too well maybe.  Rather, the mood is evident from the volume of comment drawing attention to a host of extreme market values seeming to betoken an unsustainable stability.  In bond markets, ultra-low yields appear to deny the chances of the economic recovery that forecasters are standardly projecting. In equities, parallels are widely drawn with the metrics that prevailed in 2000 or 2007.  But, whereas on those previous occasions when equities stood on the brink of collapse, investors had an idea from which direction the destructive flame would come, there is now no consensus on what should be most feared.  What is universally agreed is that markets would not be where they are today if central banks had not spent the past five years so energetically rigging them.  Where they might be standing if central banks had not had recourse to unconventional policies, while pushing their conventional policies beyond their historic limits, is anyone’s guess.  What makes market sentiment sensitive to this question now, as it was not a year ago, is the expressed resolve of the US Federal Reserve and Bank of England at least to reduce the degree of accommodation they will provide, without indicating when this process will begin.  The malaise runs deeper than this, though.  It is not merely a case of market uncertainty that could be dispelled by some clear ‘forward guidance’.  For beneath the surface of day-to-day transactions lies the suspicion that the global crisis and the measures the authorities have taken to prevent a recurrence have wrought permanent damage to market structures.  In short, the market mechanism may now be even less well able to cope with sudden changes in sentiment than it was pre-crisis.  If this should be revealed to be the case, the shock to business confidence when sentiment does turn in capital markets could well be deeper and more long-lasting than after the 2007-09 meltdown.

There is no shortage of threats to market stability.  They have been accumulating while central banks have applied their anaesthetic.  Politically, the state of the world is much more menacing than it was five years ago, when bond and equity valuations were lower than today.  Successive rounds of sanctions against Russia have set the seal on that country’s exclusion from ‘the international community’.  But it seems very unlikely that China will allow its BRICS fellow-member to succumb to Western pressure.  In the past, China would not have had the resources to defy the West, even had it a mind to do so, but now it does.  The Beijing authorities may shrewdly judge they will never be subject to sanctions.  Western nations have consumed ‘a peace dividend’ they may now feel they must regurgitate.  That could impose a severe handicap on their future economic performance as resources that might have supported debt reduction or capital investment are diverted to defence spending.  Then there is the growing instability in the mid-East.  Though disruption of energy supplies from that region may seem a less serious threat to the world economy in light of shale developments, there have been few signs that shale producers, most notably the USA, are willing to share their bounty with those countries dependent on imported energy.  If the US ban on crude oil exports were to persist in the face of disruption in the global crude market, Western political unity might not survive long.  Alongside these risks, we need hardly labour the point that the EU and the euro zone look far less cohesive than they did five years ago.  Fresh strains are likely to affect the euro as the region’s economy appears headed for renewed weakness.

The most dangerous forces, though, may be those generated within the markets themselves.  As in the past, market excesses may bring disorderly correction.  Arguably, the very levels of market prices represent excess.  But in judging where excesses lie, it has always been most useful to examine where market activity has been growing most rapidly.  Thus, it seems unlikely that trouble will arise, at least in the first instance, from bank lending to non-financial corporate customers because, for years past, demand for such loans has been weak and the banks have been careful in granting credit.  The BIS, in its annual report, identified the massive substitution of bond finance for bank borrowing and the growth of non-bank asset management funds in recent years as potentially problematic.   It also warned against the concentration of risk in some ETFs.