IMF Chief: Cryptocurrencies Will Give Banks ‘a Run for Their Money’

The head of the International Monetary Fund (IMF) has said cryptocurrencies may eventually give traditional banking systems ‘a run for their money.’

Speaking at a Bank of England conference at the end of September, Christine Lagarde, the managing director of the IMF, said that ‘it may not be wise to dismiss virtual currencies.’

She added, however, that:

“For now, virtual currencies such as bitcoin pose little or no challenge to the existing order of fiat currencies and central banks.”

The reason this is is because cryptocurrencies are ‘too volatile, too risky, too energy intensive, and because the underlying technologies are not yet scalable.’

Yet, she states:

“Many of these are technological challenges that could be addressed over time.”

She cites the fact that experts once believed that personal computers would not catch on and that tablets would simply be regarded as ‘expensive coffee trays.’

Adopting Cryptocurrencies

Notably, Lagarde outlines how countries with weak economies and unstable national currencies might embrace digital currencies instead of another country’s currency such as the U.S. dollar or the British pound.

Furthermore, it might provide them with better value for money by doing so.

She explains by saying:

“It may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable.”

She went on to say that countries may increasingly turn their attention to new payment services through a decentralised economy. Rather than paying by credit card or e-money, which charge high fees for small transactions, particularly across borders, cryptocurrencies may flourish.

“Instead, citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash—no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities.”

Lagarde adds:

“So in many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.”

Cryptocurrencies Are ‘Unlikely’ to Weaken the Fed

At a time when Lagarde believes digital currencies will give banks a run for their money, the U.S. Federal Reserve chief doesn’t think they will weaken its influence on the U.S. economy.

Speaking at a fintech event, Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, said that bitcoin has yet to be tested by a serious issue that will see its price drop.

Additionally, when one does take place, people are more likely to turn to a government-backed currency, Harker claims.

He said:

“The paper that’s in your pocket, that we call money, only has value because we believe it has value, because we believe the government stands behind it. It’s all trust issues.”

He added:

“And so, when cryptocurrencies and other forms of currency emerge, I think the basis of that has to be how do they create that trust?”

Despite the growth of the digital currency market, Harker appears unconcerned. So much so, that he doesn’t believe that it will weaken the Fed’s influence on the U.S. economy.

China Crackdowns on Domestic Exchanges

Both of these comments come at a time when the crypto market is experiencing a renewed surge in price. Bitcoin’s price in particular has rebounded since September.

On the 2nd September, its price was trading over the $5,000 mark for the first time. However, a few days later Chinese authorities announced they would be banning initial coin offerings (ICOs). This was shortly followed by a crackdown on domestic digital currency exchanges. As a result, the value of bitcoin fell to below the $3,000 mark on the 15th September, to $2,987.

As traders weighed China’s decision many sold their coins during a massive selloff. It wasn’t just bitcoin that was impacted; cryptocurrencies across the board saw their values drop in some way as a result.

Consequently, several prominent Chinese digital currency exchanges revealed that they would be closing their services. ViaBTC was the first domestic exchange to do so. However, questions remain as to whether the exchange will relaunch its operations overseas in light of Beijing’s ban.

BTCC is the latest digital currency exchange to cease operations, with its suspension taking place on the 30th September. On the 27th September, the exchange had stopped accepting deposits. In a tweet, BTCC claimed to have had the longest known lifespan of a digital currency exchange, having operated for ‘2,305 days.’

BTCC have said that they will continue operating their services outside of China. Additionally, the exchange has confirmed that its mining pool will operate normally. Yunbi, OKCoin and Huobi are expected to cease the operations at the end of October.

‘More than Just a Fad’

Interestingly, while most bank CEOs are staying away from the crypto market, not all think the same.

At a time, when Jamie Dimon, JPMorgan Chase CEO, called bitcoin ‘a fraud,’ Morgan Stanley’s CEO has come out in favour of it.

Shortly after Dimon made his comments, James Gorman, CEO of Morgan Stanley, is taking a measured view of the cryptocurrency.

At the end of September, he said that bitcoin is ‘certainly something more than just a fad.’

Speaking at an event held by the Wall Street Journal, he explained:

“The concept of anonymous currency is a very interesting concept – interesting for the privacy protections it gives people, interesting because what it says to the central banking system about controlling that.”

While Gorman said he hasn’t invested in the crypto market, these comments will no doubt be refreshing to hear.

He added:

“It’s obviously highly speculative but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.”

Bitcoin’s Value Increases

Despite September being a terrible month for the cryptocurrency market, it has rebounded in price.

At the time of publishing, on the 2nd October, bitcoin’s value has risen to $4,405, a 2.43 percent rise in 24 hours. In seven days it has increased by 13.83 percent. Its market value is currently worth $73.1 billion.

The combined crypto market is now worth $148.9 billion. This is still below its $180 billion record; however, the market is steadily recovering.

Featured image from Flickr via World Economic Forum.

Novogratz: Cryptocurrency Market Will be ‘Largest Bubble of Our Lifetimes’

A former hedge fund manager at Fortress Investment Group is, reportedly, looking to create a $500 million hedge fund focusing on cryptocurrency and blockchain.

Mike Novogratz, the former manager at Fortress Investment Group, is investing $150 million of his own money. An additional $350 million is expected to be raised by January, 2018, through outside avenues, reports Bloomberg News.

If true, the Galaxy Digital Assets Fund would represent the biggest of its kind. Not only that, but it would illustrate Novogratz’s aggressive move into the sector, to date.

Despite the fact that he didn’t specify whether he’s raising a fund, he did explain why he’s taking part in what he called ‘the largest bubble of our lifetimes.’

He says:

“This is going to be the largest bubble of our lifetimes. Prices are going to get way ahead of where they should be. You can make a whole lot of money on the way up, and we plan on it.”

Investing in Bitcoin

Novogratz made headlines in April when he revealed he had put 10 percent of his net worth into bitcoin and ethereum.

At the time he declined to reveal how much his net worth was. However, he claimed that it was ‘the best investment of my life.’ In April, bitcoin was trading over $1,200. Fast-forward to September and bitcoin’s price topped the $5,000 mark on the 2nd.

Yet, shortly thereafter, it’s price plunged 30 percent as China’s ban on initial coin offerings (ICOs) and a crackdown on domestic digital currency exchanges impacted the market’s price.

Novogratz explains that he sold at the right time.

“I sold at $5,000 or $4,980. Then three weeks later I’m trying to buy it in the low $3,000s. If you’re good at that and you’re a trading junkie, it’s a lot of fun.”

It is because of the market’s fluctuating prices that Novogratz compares it to the Wild West. He believes that the cryptocurrency market needs more regulation and that some ICOs are simply fraudulent ‘get-rich-quick-schemes.’

Concerns Still Remain

While Novogratz appears keen to explore the cryptocurrency market further, most large establishments are steering clear. For many, concerns about its unregulated nature and its volatility remain.

Jamie Dimon, CEO of JPMorgan Chase, recently added his voice to those against bitcoin when he called it ‘a fraud.’

At a news conference, the banker claimed that the digital currency ‘won’t end well’ and that it will eventually blow up.

He said:

“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed. Currencies have legal support. It will blow up.”

He also mentioned that he would ‘fire in a second’ any employee found trading in bitcoin. Interestingly, questions have been raised about the fact that JPMorgan handles bitcoin-related client trades.

Another figure that has been against bitcoin is Howard Marks, founder of Oaktree Capital Management. At the end of July, Marks claimed that digital currencies ‘aren’t real‘ in a 22-page memo to clients. At the time, he said people were investing in the market for fear of missing out. Additionally, he claimed that digital currencies are ‘nothing but an unfounded fad or perhaps even a pyramid scheme.’

Interestingly, he has since changed his view on the market. As a result, in a new 11-page memo to clients he admits that bitcoin could become a legitimate currency. Yet, even though he considers himself ‘less of a dinosaur’ regarding his understanding of the currency, he’s still not investing in it.

He wrote:

“I still don’t feel like putting my money into it, because I consider it a speculative bubble.”

Seeing Opportunity Where Others Smell Fear

For Novogratz, though, the cryptocurrency market presents the perfect opportunity. And it’s one that he wants to be a part of.

He explains:

“In a lot of ways, this is a market like any other market. You see the psychology of fear and greed in the charts the same way you’d see it in charts of the Indonesian rupiah or dollar-yen or Treasuries. They’re exaggerated because of less liquidity and because you can’t get short.”

Interestingly, Rainer Michael Preiss, executive director at Singapore-based Taurus Wealth Advisors, said that CEOs of major U.S. banks are ‘probably afraid‘ of bitcoin and the blockchain.

In a report, he said:

“Of course, if you run a very large U.S. bank, most probably you are afraid of blockchain and bitcoin.”

This is understandable considering the amount of wealth they control. However, Preiss believes that cryptocurrencies are becoming a viable alternative to people because of a bank’s lack of transparency.

He added:

“The concerns are about the fractional reserve banking system, and the balance sheet of the Federal Reserve at $4.5 trillion, where the Fed officially refuses an audit. On the other hand, on the bitcoin blockchain, you have an audit everyday because it’s open-sourced.”

Investing in Ethereum

It wasn’t until Novogratz left his job at Fortress that he made a name for himself in the crypto market. In 2015, after seeing a friend’s startup and the success of it, he decided he wanted to become more involved in the space.

Instead of investing in bitcoin, though, he put his money into ethereum. At less than a dollar per ether, Novogratz invested $500,000 and left for a holiday to India. When he returned ether’s value has risen fivehold.

During 2016 and 2017, ether and bitcoin soared in value: ether touched $400 and bitcoin scaled $2,500. As a result, Novogratz was able to make around $250 million through the coins he sold. From then he became hooked. He believes that bubbles help to ‘fundamentally change’ the way people live.

“Remember, bubbles happen around things that fundamentally change the way we live. The railroad bubble. Railroads really fundamentally changed the way we lived. The internet bubble changed the way we live. When I look forward five, 10 years, the possibilities really get your animal spirits going.”

He now estimates that he has around 20 percent of his net worth invested in digital assets.

Despite his self-imposed exile from Wall Street after his losses at Fortress, Novogratz is keen to enjoy this venture in the cryptocurrency space. As he says, you ‘learn from your mistakes.’

Featured image from Shutterstock.

Japan’s FSA Regulator to Monitor Bitcoin Exchanges from October

Japan’s Financial Services Agency (FSA) is to begin monitoring Japanese bitcoin exchanges from October.

According to the Japan Times, the move is to ensure that digital currency exchanges have the correct internal systems, such as protecting customer assets, in place. If not, on-site inspections will be carried out.

In April, a revised payment services law went into affect. This set out operational standards for digital currency exchanges in addition to recognising bitcoin as a legal form of payment. As a result, there has been strong trading from Japan, which helped push bitcoin’s price up to $5,000 at the beginning of September.

According to an FSA executive, the move is to ensure the development of the market and to regulate bitcoin exchanges.

“We pursue both market fostering and regulation enforcement. We aim for sound market development.”

By the end of September, all cryptocurrency exchanges operating in Japan are required to register with authorities. The revised law includes anti-money laundering (AML) and know-your-customer (KYC) regulations.

To monitor the more than 20 bitcoin exchanges in Japan, the FSA has established a team of 30 members with the relevant expertise. The team will determine whether the exchanges have the appropriate risk management measures in place, including how to respond to cyberattacks.

Japan is no stranger to incidents involving the lose of customer assets in the digital market. The now-defunct bitcoin exchange Mt Gox is well known for its notorious past. In 2014, the exchange collapsed, which saw the loss of millions of dollars in customers’ funds. The exchange’s failure is considered a vital component in pushing Japanese authorities to regulating the market.

China Cracks Down on Domestic Bitcoin Exchanges

This move comes at a time when Chinese authorities have outlawed initial coin offerings (ICOs).

According to authorities, ICOs are an illegal form of fund-raising that is open to:

“…financial fraud, pyramid schemes and other criminal activities.”

After this announcement came the call to stop prominent domestic digital currency exchanges from operating in the country. Naturally, news of this saw market prices plummet. So much so, that on the 15th September, bitcoin’s price was trading at $2,947. As a result, its market cap was pushed down to $48.8 billion.

Following China’s move to halt bitcoin exchanges, several have already revealed when they will be closing. Chinese exchange BTCC is expected to stop functioning at the end of September. However, ViaBTC, will cease operations today, as of the 25th September. OKCoin and Huobi will halt their operations at the end of October. They have been given extensions due to the large number of users on their platforms and because neither listed ICO trading pairs.

Reportedly, ViaBTC will relaunch its platform overseas; however, it’s not know when the relaunch will take place.

Last week, at a global blockchain event held in Hong Kong, Haipo Yang, CEO of ViaBTC, said:

“A third of our customers come from outside China, and I believe these overseas users will continue to use the ViaBTC platform, so we can still provide value.”

Bitcoin’s Price Recovers Slightly

Since achieving the $5,000 mark at the beginning of September, bitcoin’s price has been on a roller coaster ride. This has been greatly brought about by China’s move to crackdown on the market.

However, today, the digital currency is showing some signs of improvement. At the time of publishing, bitcoin’s price is trading at $3,897, a 4.81 percent rise in 24 hours. In seven days, though, its value has dropped by 1.23 percent. Its market cap is currently worth $64.6 billion. Yet, it still has a way to go before it can attain its $75 billion market cap it achieved at the beginning of September.

At present, the combined market value is worth $135.4 billion. This, too, is a significant drop from its near $180 billion market value from the start of the month.

Only time will tell whether bitcoin’s price can once again reach new heights. Despite this slight setback in price many people remain confident that it will rise again, even further than what has already been seen.

To the Moon for Bitcoin?

Tom Lee, a Wall Street strategist and co-founder at Fundstrat, an independent research boutique, providing market strategy and sector research, believes bitcoin will rise to $25,000 in five years. Additionally, he states that it will remain the best asset to invest in to the end of 2017.

In a report, Lee said:

“I unequivocally believe bitcoin is your best investment to the end of the year.”

These are similar comments he made in August when he said:

“It has a lot of characteristics that are very similar to gold that I think will make it ultimately attractive as an alternate currency. It’s a good store of value.”

According to Lee, there’s no point in projecting bitcoin’s price two months from now. Instead, looking at its long-term future is the way forward.

Veteran trader masterluc has predicted a bullish price of $15,000 for bitcoin by the end of 2017. According to the trader, bitcoin will continue its bull run into 2019. At which point, the trader believes it will be worth between $40,000 and $110,000.

Bitcoin is ‘a Fraud’

Despite the confidence in the currency, not everyone thinks the same.

According to Jamie Dimon, JPMorgan Chase CEO, he thinks the cryptocurrency is ‘a fraud‘ and that it ‘won’t end well.’

At a conference in New York, the banker said:

“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed. Currencies have legal support. It will blow up.”

Additionally, he stated that he would ‘fire in a second’ any employee found trading in the digital currency.

More recently, he took another shot at bitcoin claiming that it is a ‘novelty‘ and that it’s ‘worth nothing.’

In an interview, Dimon stated:

“Right now these crypto things are kind of a novelty. People think they’re kind of neat. But the bigger they get, the more governments are going to close them down.”

He added that ‘creating money out of thin air without government backing is very different from money with government backing.’

As such, this sort of creation, to him, is ‘worth nothing.’

One report suggests, though, that the CEOs of major U.S. banks are ‘probably afraid‘ of bitcoin and the blockchain.

Rainer Michael Preiss, executive director at Singapore-based Taurus Wealth Advisors, thinks this is because cryptocurrencies are becoming a viable investment alternative for people.

Featured image from Shutterstock.

Dimon Faces Market Abuse Report After Bitcoin Fraud Comments

A market abuse report has been filed against JPMorgan’s CEO after ‘spreading false and misleading information’ about bitcoin.

The report in question was filed by London-based Blockswater, an algorithmic liquidity provider. It was filed with the Swedish Financial Supervisory Authority against JPMorgan and its CEO Jamie Dimon.

According to Blockswater, Dimon violated Article 12 of the European Union’s Market Abuse Regulation (MAR) when he called bitcoin ‘a fraud.’

On the 12th September, Dimon took a shot at the digital currency stating that it ‘won’t end well’ and that it will eventually blow up.

He also said that he would ‘fire in a second’ any employee found trading in the digital currency for two reasons:

“It’s against our rules and they are stupid. And both are dangerous.”

After Dimon’s comments one observer noted that the cryptocurrency dropped in value.

According to the complaint, Dimon’s comment impacted bitcoin’s price negatively as the ‘cryptocurrency’s price and reputation’ dropped.

Florian Schweitzer, managing partner at Blockswater, said:

“Jamie Dimon’s public assertions did not only affect the reputation of bitcoin, they harmed the interests of some of his own clients and many young businesses that are working hard to create a better financial system.”

It was added that Dimon ‘knew, or ought to have known, that the information he disseminated was false and misleading.’

Since Dimon’s comments questions have been raised as to why the bank handles bitcoin-related client trades. According to a report, most Wall Street banks use the Bitcoin XBT platform to act as agents for buyers and sellers. JPMorgan does so too.

Yet, a spokesperson for the bank said it doesn’t trade with its own capital.

Brian Marchiony, JPMorgan Chase spokesperson, said:

“They are not JPMorgan orders. These are clients purchasing third-party products directly.”

Blockswater also claim that the bank traded bitcoin derivatives on Stockholm-based exchange Nasdaq Nordic for clients before and after Dimon’s comments. Schweitzer is of the opinion that it ‘smells like market manipulation.’

As a result, Schweitzer has asked the Swedish regulator to investigate. He notes in his complaint that market abuse in Sweden is punishable by up to two years in jail.

Bank CEOs Are ‘Afraid’ of Digital Currencies

Interestingly, one wealth advisor believes that CEOs of major U.S. banks are ‘probably afraid‘ of bitcoin and the blockchain.

Recently, Rainer Michael Preiss, executive director at Singapore-based Taurus Wealth Advisors, said:

“Of course, if you run a very large U.S. bank, most probably you are afraid of blockchain and bitcoin.”

His comments are in light of Dimon’s remarks about bitcoin. Preiss believes that due to a bank’s lack of transparency, cryptocurrencies are becoming a viable investment alternative for people.

He added:

“The concerns are about the fractional reserve banking system, and the balance sheet of the Federal Reserve at $4.5 trillion, where the Fed officially refuses an audit. On the other hand, on the bitcoin blockchain, you have an audit everyday because it’s open-sourced.”

Additionally, he believes that bitcoin remains ‘a good store of value.’ This is down to the fact that its price has risen from $7 to $5,000 since January, 2014. Bitcoin reached the $5,000 mark on the 2nd September when CoinDesk’s Bitcoin Price Index (BPI) recorded it at $5,010. Chinese bitcoin exchange OKCoin recorded the currency’s price at $5,149. At the time the combined market cap was worth nearly $180 billion. At the time of publishing, on the 21st September, it’s valued at $124.8 billion.

Bitcoin’s Price Tumbles to $3,600

Since the announcement from China that it is outlawing initial coin offerings (ICOs) and cracking down on domestic digital currency exchanges, bitcoin has seen its price drop.

This is due to the fact that several prominent exchanges will cease their operations. At the end of September Chinese digital currency exchanges BTCC and ViaBTC will suspend their functions. Meanwhile, OKCoin and Huobi are expected to stop operating at the end of October. It’s believed this is because of the large number of users on the platforms and because neither had listed trading pairs for ICO tokens.

So far since this announcement the number one digital currency has dropped below the $3,000 mark. On the 15th September it was recorded at $2,947, pushing its market cap down to $48.8 billion. Since then, however, it has improved. So much so, that on the 19th September it was trading at $4,090, pushing its market cap back up to $67.7 billion.

Yet, uncertainty still reigns within the market. As a result, the price of the currency has since dropped. At the time of publishing, it is trading at $3,647, which is an 8.22 percent drop in 24 hours. Subsequently, its market value is now worth $60.4 billion. Favourably, though, over a seven day period, its value has risen by 8.88 percent.

Cryptocurrencies Are ‘Garbage’

This is according to gold investor John Hathaway. He is the latest individual to speak out against the market in a new report.

Speaking with Kitco.com, a precious metal news and data site, the asset manager said simply that the cryptocurrency craze was simply ‘garbage.’

Hathaway said:

“It’s an absolute bubble – there’s no question in my mind that it’s in a bubble.”

Manager of the $1.2 billion Tocqueville gold fund, he added:

“Sure you can make money in bubbles any time but you have to get out. Let’s not forget that the total market value of these cryptocurrencies is $180 billion or so, maybe a little less now – that’s tiny compared to gold.”

Some have speculated that interest in bitcoin is taking away interest from gold. Mohamed El-Erian, Allianz’ chief economic adviser, is one such figure to voice these concerns. However, Hathaway doesn’t believe that’s the case.

“The idea that cryptocurrencies have somehow diverted interest in gold is baloney, it’s just not true.”

What Now?

It remains to be seen whether Dimon does face any repercussions from his bitcoin fraud remark. However, he will be hard pressed to find people who don’t think his comments impacted the currency’s price and reputation.

For now, we just have to wait and see. There are, however, a number of factors affecting bitcoin’s price, which it’s currently struggling to recover from.

Featured image from Shutterstock.