This is NOT new news. Regulators are reactive, not proactive.
Action only ever gets taken AFTER the proverbial hits the fan.
To quote from the 2009 Parliamentary Joint Committee Inquiry into Financial Products and Services in Australia (emphasis added):
‘On 16 March 2009 the Senate agreed that the following additional matter be referred to the Parliamentary Joint Committee on Corporations and Financial Services…
‘The committee will investigate the involvement of the banking and finance industry in providing finance for investors in and through Storm Financial, Opes Prime and other similar businesses, and the practices of banks and other financial institutions in relation to margin lending associated with those businesses.’
Note the date our Senate agrees to hold an inquiry into the perils of leveraging into investments…16 March 2009.
Classic example of horse bolted; gate shut.
The ASX 200 — after falling 53% over a 15-month period — bottomed out a fortnight earlier on 1 March 2009.
Source: Yahoo! Finance
By the time our elected officials limped into action, the damage was well and truly done.
The inquiry should have been held in 2006…before the highly speculative strategies of Storm Financial, Opes Prime, and others cost investors their life savings.
The present-day Wild West of financial markets is in cryptos.
These digital multi-level marketing scams are a haven for fraudsters, criminals, speculators, and the naïve (those who really think there’s going to be a legitimate digital currency alternative…just taking a momentary pause while I get my laughter under control).
Anyway, in this mostly unregulated frontier world, the crypto pump-and-dump schemes are grist for the mill.
The ‘whales’, networks, and exchanges they control manipulate prices to enrich themselves and impoverish their victims.
Bitcoin [BTC] is a worthless proposition which is being given a (completely ludicrous) value thanks to speculators speculating on the speculation.
In professional circles this is known as the greater fool theory.
Blind faith-based value is a seriously flawed pricing model.
To those who say, ‘If this is true, then why have cryptos gained so much traction?’.
The answer can be found in the wisdom of Einstein:
‘Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.’
The bottom line is people need to be protected from their own stupidity. I saw this firsthand with Storm Financial clients. No amount of reason could dissuade them from pursuing this flawed investment model.
Whereas, tougher and tighter regulations BEFORE the event may have limited the damage.
Where cryptos are concerned, signs of regulatory control are beginning to appear…
From Bloomberg, 24 September (emphasis added):
‘China banned on all crypto transactions and vowed to root out mining of digital assets, delivering the toughest blow yet to the industry.
‘Crypto-related transactions will be considered illicit financial activity, including services provided by off-shore exchanges, the People’s Bank of China said on its website. It added that cryptocurrencies, including Bitcoin and Tether, are not fiat currency and cannot be circulated.’
From Protocol, 22 September (emphasis added):
‘Binance, the largest global crypto exchange, has been hit by a raft of regulatory challenges worldwide that only seem to increase.
‘It’s the biggest example of what worries regulators in crypto: unfettered investor access to a range of digital tokens finance officials have never heard of, without the traditional investor protections of regulated markets.’
From Axios, 30 September (emphasis added):
‘The uneasy and largely unspoken compromise in most of the crypto world is that national regulators can and will closely monitor all attempts to convert fiat currency into cryptocurrency, or vice-versa: the so-called “on-ramps and off-ramps”.’
However, as in 2009, the really tough and restrictive regulatory actions won’t happen until the crypto pyramid scheme collapses under its own fraudulent weight.
And for those who think accounts held in the ether can evade regulatory oversight, you really are living in a fool’s paradise.
When US regulators — empowered by (an as yet to be held) US Senate Inquiry into ‘Crypto Corruption’ — decide to get serious, they’ll have reach and power beyond their national borders.
Precedents of US reach and power
Ever heard of Liberty Reserve? The US already have a template on shutting down digital currency services.
‘Liberty Reserve was a Costa Rica-based centralized digital currency service that billed itself as the ‘oldest, safest and most popular payment processor, serving millions all around a world’.
‘The site had over one million users when it was shut down by the United States government. Prosecutors argued that due to lax security, alleged criminal activity largely went undetected, which ultimately led to them seizing the service.
‘In May 2013, Liberty Reserve was shut down by United States federal prosecutors under the Patriot Act after an investigation by authorities across 17 countries.’
When US tax collectors wanted to boost revenues, the secretive Swiss banking system was put firmly in their sights
As reported by Reuters on 6 December 2013:
‘Switzerland’s private banks have until Monday to decide whether to bow to U.S. pressure and ditch the centuries-old culture of secrecy that has made the Alpine state a global vault for the world’s rich.’
Guess what happened? The Swiss banks complied.
Remember Edward Snowden…the former NSA whistleblower? The US did not take kindly to his very public airing of its highly dubious surveillance tactics. Snowden was public enemy number one.
He fled the US to seek asylum in Russia. The US suspected Snowden was leaving Russia, bound for Bolivia onboard the Bolivian president’s private jet.
So what did the US do?
This is from CNN in July 2013:
‘Bolivian officials say their country’s presidential plane had to land in Austria on Tuesday after false rumors circulated that former U.S. National Security Agency contractor Edward Snowden was aboard the aircraft.
‘Portuguese authorities wouldn’t let President Evo Morales’ plane land for refueling in Lisbon, Bolivian Defense Minister Ruben Saavedra told CNN en Español. French authorities also wouldn’t let the plane enter their airspace, he said.’
Whether it be on land, sea, or air, the US can exert enormous influence when it wants to.
And what about that other whistleblower’s operation…Julian Assange’s WikiLeaks?
According to The World, 19 July 2012 (emphasis added):
‘Under pressure from the US government, Visa and MasterCard cut off processing WikiLeaks donations soon after the site began publishing State Department cables at the end of 2010.’
The US only had to lean on these two institutions to choke off WikiLeaks’s funding.
When the US decides to get serious, believe me, they can move heaven and Earth to achieve a desired outcome. To think otherwise really is a case of hope over experience.
What if US regulators serve notice to financial institutions to cease handling transactions from unregulated crypto exchanges?
What if US regulators demand so-called stablecoins undergo regular audits — as opposed to the current useless Letters of Attestation — to prove genuine dollar for dollar backing?
And we haven’t even explored the options available to central banks to promote the officially sanctioned digital currencies and actively marginalise the pretenders.
This whole crypto sh*t show is destined to come crashing down. From the ashes, a phoenix or three might rise.
Due to its high profile, bitcoin is likely to be one of the survivors. Tether [USDT] won’t be…it’s a massive fraud just waiting to be exposed by market pressure.
Absent Tether’s overt manipulation of bitcoin’s price, I suspect the speculators will stop speculating on the speculation and bitcoin’s true value will eventually be revealed…it’s worthless.
Editor, The Rum Rebellion
PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.