CLOSED SYSTEMS OF FINANCE: THE RECENT CRYPTOCURRENCY TUMBLE

As most regular readers here are aware, I'm not on the crypto-currency bandwagon. Indeed, I've been struck by the impression that for many people, crypto-currencies are a phenomenon approaching that of a religion; they're not only financially invested in them, but to a certain extent, emotionally and spiritually invested. The hype which accompanied their advent seems to corroborate this impression, for I recall that many viewed them as a kind of "end run" around central banks and fiat money and monetized debt. The selling point, at that time, was not only that they were "secure", but that the system was closed, only a certain number of "XYZ" virtual "coins" were created, and the more people that bought into them, the higher their value soared, and the smaller the fraction of a coin one could own became.

It was this aspect of a closed system that bothered me (and continues to do so), for beyond all the claims about "security" - which, again, I've questioned, because cyber-systems are in my view inherently insecure, and I've even voiced that suspicion about quantum entanglement encrypted systems, bucking the claims made for it (keys can be stolen,  after all, by good old fashioned analogue means called "a spy"). Why does the closed system aspect of this bother me?

Simply put, because it privileges the very (few) people launching this or that "cryptocurrency." If ever a system were designed to enable a very few to manipulate the fortunes of the many, this was it, it seemed to me. This, again, was not a view many people shared.

But now RT is reporting that this is precisely what happened (this article was spotted and shared by Mr. P.K., who has my thanks for doing so):

Bitcoin price manipulated from $150 to $1,000 by single actor – researchers

Consider the implications of the following paragraphs:

In a paper published in a recent issue of the Journal of Monetary Economics, a team of researchers examined the impact of fraudulent activity that occurred on the leading bitcoin currency exchange in 2013, and found that a single actor was “likely” behind a massive spike in exchange rates.

In their paper, “Price Manipulation in the Bitcoin Ecosystem,” the researchers from Tel Aviv University in Israel and the University of Tulsa examined Mt. Gox transactions over a ten-month period from February to November 2013, and found that approximately 600,000 bitcoins, valued at $188 million, were “acquired by agents who likely did not pay for the bitcoins.”

In an early version of the paper published by the Tandy School of Computer Science at the University of Tulsa, researchers said they discovered a group of users that had “??” as an entry for country and state fields, which usually contain location data or a null value.

After analyzing the accounts with abnormal location values, they found one account named “Markus,” which was different from the rest. Markus never paid transaction fees and “reportedly paid seemingly random prices for bitcoins.”

“Markus likely did not pay for the bitcoins he acquired; rather, his account was fraudulently credited with claimed bitcoins that almost certainly were not backed by real coins,” the researchers wrote.

The Markus account bought a total of 335,898 bitcoins, worth $76 million, over the course of 225 days.

An additional 49 accounts with abnormal location values were grouped into a collection of accounts that the researchers named “Willy.” Each of the Willy accounts bought exactly $2.5 million worth of bitcoin before they became inactive.

The researchers referred to the group of Willy accounts as “Willy Bot,” which they said collectively bought around 268,132 bitcoins for just under $112 million over the course of 65 days.

...

Researchers said the fraudulent purchases had a “very strong positive association” to the “unprecedented” increase in the bitcoin exchange rate, which grew from around $150 to more than $1,000 in two months.

There you have it: essentially, two actors drove the early spike in price on Bitcoins. Add to this recent revelations that various unsavory groups have used the phenomenon of crypto-currencies as funding mechanisms for their activities, and you get the idea.

And what goes up, can come down, via the same mechanisms(this article was shared by Mr. T.M., who again I would like to thank for bringing it to our attention):

Crypto carnage: Bitcoin briefly dips below $10,000 on Coinbase, and ethereum crashes too

I would argue - herewith my high octane speculation of the day - that the inherent danger of such closed systems, privileging the few who jump on the bandwagon early, is perhaps lurking behind the scenes of this story as well, though as of this moment there is no evidence of this. As Mr. T.M. put it in his email to me, get in early, pump, and then dump, and convert back to normal assets and cash, and voila, one has made a tidy profit by harvesting the wealth of others locked into the system.

Now, if that speculation seems wild and woolly (and most of my high octane speculations are, to be sure, wild and woolly!), just exactly as I was writing this blog, I received the following link from Catherine Austin Fitts, who sent along a link that Ms. K.M. had just shared with her! And, with thanks to both of them, ponder this:

Bitcoin Is A ‘Project Of US Intelligence,’ Kaspersky Lab Co-Founder Claims

Now as most computer security savvy people are aware, Kaspersky Labs has one of the most widely-used computer security platforms out there. And here is Natalya Kaspersky's assessment:

The Bitcoin cryptocurrency was developed by “American intelligence agencies,” Natalya Kaspersky, CEO of the InfoWatch group of companies and specialist in cyber security systems, said during her presentation at ITMO University in St. Petersburg.

“Bitcoin is a project of American intelligence agencies, which was designed to provide quick funding for US, British and Canadian intelligence activities in different countries. [The technology] is ‘privatized,’ just like the Internet, GPS and TOR. In fact, it is dollar 2.0. Its rate is controlled by the owners of exchanges,” one of the slides read. (Emphasis added)

That's the advantage of a closed system privileging the initial participants: it's a perfect mechanism for funding of all sorts; its private unregulated nature makes it a virtual playground for "unsavory groups", and it's a perfect means to harvest people's wealth, and convert it to a covert funding mechanism.

Now, just imagine coupling this technology to the calls for a constitutional convention, and one has the perfect "walk away from the responsibility for missing money" nightmare scenario...

See you on the flip side...