Price Manipulation in the Bitcoin Ecosystem – ScienceDirect

To its proponents, the cryptocurrency Bitcoin offers the potential to disrupt payment systems and traditional currencies. It has also been subject to security breaches and wild price fluctuations. This paper identifies and analyzes the impact of suspicious trading activity on the Mt. Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188 million were fraudulently acquired. During both periods, the USD-BTC exchange rate rose by an average of four percent on days when suspicious trades took place, compared to a slight decline on days without suspicious activity. Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months.KeywordsBitcoincryptocurrenciesfraudexchange rate manipulationJEL classification

Source: Price Manipulation in the Bitcoin Ecosystem – ScienceDirect

Is the Bitcoin Bubble the New ‘Subprime Mortgage’ Bomb?

Bitcoin as ‘Digital Tulips Bitcoin demand and price appreciation may also be understood as the consequence of the historic levels of excess liquidity in financial markets today. Like technology forces, that liquidity is the second fundamental force behind its bubble. To explain the fundamental role of excess liquidity driving the bubble, one should understand Bitcoin as ‘digital tulips’, to employ a metaphor.The Bitcoin bubble is not much different from the 17th century Dutch tulip bulb mania. Tulips had no intrinsic use value but did have a ‘store of value’ simply because Dutch society of financial speculators assigned and accepted it as having such. Once the price of tulips collapsed, however, it no longer had any form of value, save for horticultural enthusiasts.What fundamentally drove the tulip bubble was the massive inflow of money capital to Holland that came from its colonial trade in spices and other commodities in Asia. The excess liquidity generated could not be fully re-invested in real projects in Holland. When that happens, holders of the excess liquidity create new financial markets in which to invest the liquidity—not unlike what’s happened in recent decades with the rise of unregulated global shadow banking, financial engineering of new securities, proliferating liquid markets in which securities are exchanged, and a new layer of professional financial elite as ‘agents’ behind the proliferating new markets for the new securities.Bitcoin Potential Contagion Effects to Other MarketsA subject of current debate is whether Bitcoin and other cryptos can destabilize other financial asset markets and therefore the banking system in turn, in effect provoking a 2008-09 like financial crisis………….Deniers of the prospect point to the fact that Cryptos constitute only about $400 billion in market capitalization today. That is dwarfed by the $55 Trillion equities and $94 trillion bond markets. The ‘tail’ cannot wag the dog, it is argued. But quantitative measures are irrelevant. What matters is investor psychology. ……For example, should cryptos develop their own ETFs, a collapse of crypto ETFs might very easily spill over to stock and bond ETFs—which are a source themselves of inherent instability today in the equities market. A related contagion effect may occur within the Clearing Houses themselves. If trading in Bitcoin and cryptos as a commodity becomes particularly large, and then the price collapses deeply and at a rapid rate, it might well raise issues of Clearing House liquidity available for non-crypto commodities trading. A bitcoin-crypto crash could thus have a contagion effect on other commodity prices; or on ETFs in general and thus stock and bond ETF prices.”

Source: Is the Bitcoin Bubble the New ‘Subprime Mortgage’ Bomb?

Decoding Blockchain Legal Issues — A Financial Law Perspective by Paul Oudin :: SSRN

This paper is intended to contribute to the debate on blockchain’s financial regulation. First and foremost, it provides through the example of securities law an introductory overview of how American and French legal systems fail to properly handle the existing reality of blockchain. It subsequently identifies some of the peculiar issues that blockchain raises from a financial point of view and that justify a tailored legal regime. Finally, it examines the efforts made by blockchain’s stakeholders to compensate the lack of regulation and discusses how those efforts may fall within a broader reform movement. For the sake of clarity, this last section will focus on the French example.

Source: Decoding Blockchain Legal Issues — A Financial Law Perspective by Paul Oudin :: SSRN

Despite run-up, bitcoin’s future is still uncertain – The Boston Globe

That’s the theory. But Preston Byrne doesn’t buy it.“It’s outrageous what CME is doing,” said Byrne, a fellow at the Adam Smith Institute, a free-market think tank in the UK and former chief operating officer of Monax, a blockchain software company in London. He pointed to a statement issued Friday by the US Commodity Futures Trading Commission, in which the agency admitted that it has little power to keep bitcoin markets honest, and warned of “the potentially high level of volatility and risk in trading these contracts.”“This is the understatement of the century,” said Byrne.He believes media hype is attracting individual investors to the bitcoin market. Some are gambling their retirement funds, while others are buying the currency with credit cards, saddling themselves with high-interest debt. The bitcoin boom, said Byrne, “exhibits all of the classic features you would expect from a financial mania.” He is sure it will fall, and he worries that the CME’s decision to permit futures trading will ensure that damage from the crash will spread to other financial markets.But for now, nobody’s listening.

Source: Despite run-up, bitcoin’s future is still uncertain – The Boston Globe

The Next Generation of Currency Wars: Private vs. State-backed Crypto | Mises Wire

That the first forays into state-backed cryptocurrency comes from two countries with a history of restricting a free and open internet is not surprising. While Bitcoin originated as a way to opt out of government control of money supply, increasingly governments see the underlying technology as a way to increase their control of the economy.As Xiong Yue explained:For example, if the government plans to subsidize certain farms, say some corn farms, to support this sector of agriculture, they can directly add a certain amount of money to the wallets of some farms, for instance 100 million dollars and program this money to be sent to certain fertilizer merchants at a certain time, and that each can only spend maximum of 10 million dollars per year, and in this way, they can make sure that the farmers won’t squander the windfalls, and that this money won’t flow to other sectors, for instance, the stock market or real estate market.Even though this kind of monetary policy is bound to fail, from the perspective of government officials, CBDC provides them a better tool. For them, with the help of the CBDC, they can plan and manage the economy better.

Source: The Next Generation of Currency Wars: Private vs. State-backed Crypto | Mises Wire

Mario Draghi: European Central Bank Has ‘No Power’ to Regulate Bitcoin – CoinDesk

Mario Draghi, president of the European Central Bank (ECB), has indicated that his institution does not have the authority to regulate cryptocurrencies.Making his statements to the European Parliament’s Committee on Economic and Monetary Affairs, Draghi said that “it would actually not be in our powers to prohibit and regulate” bitcoin and other digital currencies.The comments came in response to a question from the committee over whether ECB intends to issue a regulatory framework or an all-out ban on cryptocurrencies, and whether Draghi felt that higher capital requirements for fintech were required to protect the banking sector.Draghi revealed that the ECB has yet to discuss the potential impact of cryptocurrencies, but likely areas of analysis include the risk posed by cryptocurrency due to its scale, usage and economic impact.”We have to ask what effects cryptocurrencies have on the economy,” Draghi stated, adding that they are still too immature to be considered a viable method of payment.The primary concern for the ECB surrounding cryptocurrencies, and digital innovation more generally, is cybersecurity, he went on, stressing that protecting against cyber risks is central to the ECB’s agenda.Earlier this month, Draghi also criticised the proposed initiative by Estonia’s e-Residency project to launch a national cryptocurrency called “estcoin,” reportedly stating: “I will comment on the Estonian decision: no member state can introduce its own currency. The currency of the Eurozone is the euro.”Draghi is not the only senior ECB official to comment on cryptocurrencies in recent days.The central bank’s vice president, Vitor Constancio, made headlines last week when he stated that cryptocurrencies were a purely speculative asset, and compared them to “tulip mania” – the 17th century trading bubble experienced in the Netherlands. Constancio stated that the ECB doesn’t see the technology as a “threat to central bank policy.”Mario Draghi image via Shutterstock

Source: Mario Draghi: European Central Bank Has ‘No Power’ to Regulate Bitcoin – CoinDesk

Ryan Bubb – Overview | NYU School of Law

Ryan Bubb joined the NYU School of Law faculty in 2010. He was formerly a senior researcher for the Financial Crisis Inquiry Commission and a policy analyst at the Office of Information and Regulatory Affairs at the Office of Management and Budget. He earned a JD from Yale Law School and a PhD in political economy and government from Harvard University. Bubb’s research focuses on regulatory policy, financial institutions, business organizations, and law and economics.

Source: Ryan Bubb – Overview | NYU School of Law

NYU Stern – David Yermack – Albert Fingerhut Professor of Finance and Business Transformation

David L. Yermack is the Albert Fingerhut Professor of Finance and Business Transformation at New York University Stern School of Business. He serves as Chairman of the Finance Department and Director of the NYU Pollack Center for Law and Business. Professor Yermack teaches joint MBA – Law School courses in Restructuring Firms & Industries and Bitcoin & Cryptocurrencies, as well as PhD research courses in corporate governance, executive compensation, and distress and restructuring.

Source: NYU Stern – David Yermack – Albert Fingerhut Professor of Finance and Business Transformation