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Rose Report: Keeping Watch on Bitcoin

Binyamin Rose

Rise of crypto-currency Bitcoin puts financial watchdogs on guard

Wednesday, December 20, 2017

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T he average sticker price for a car in America is around $35,000, although economy-conscious buyers can still choose from a few dozen models under $20,000.

Or about the price of one Bitcoin.

You can’t drive a Bitcoin, or kick the tires. Despite the pictures you see in the media, it’s not a real coin you can put in your pocket. But unlike a new car, which depreciates the second you drive it off the dealer’s lot, Bitcoin’s price has defied gravity, rising this year alone from $985 to almost $19,000. Daily price fluctuations of 20% are common.

Bitcoin was invented by a computer programmer bearing a Japanese pseudonym after the 2008 financial market collapse. The idea was to create an alternative to global currencies such as the dollar, euro, or yen, backed by governments and central banks who had fallen into disrepute due to their economic mismanagement.

Will Bitcoin one day become a competitive global currency and store of value, or is it merely a newfangled speculative trading vehicle lacking intrinsic value that will eventually crash and burn?

Even if you belong to the crash-and-burn school, the Chicago Board of Options Exchange decision to launch futures trading in Bitcoin last week conferred an undeniable legitimacy to the electronic currency.

And that decision is attracting the watchful eye of the same financial market regulators that Bitcoin was built to bypass.

The heads of the US Securities and Exchange Commission and the Commodity Futures Trading Commission announced last week their agencies would consider regulating trading in Bitcoin, and warned investors of the risks.

In Israel, a task force nominated by Shmuel Hauser, chairman of the Israel Securities Authority, is scheduled to issue a report in the next two weeks with specific regulatory recommendations.

“Today there is an entire world of very risky investments that are more akin to gambling, yet pretend to be legitimate investments,” Hauser said at a recent financial technology conference in Tel Aviv, singling out both Bitcoin and binary options. “Bitcoin is a digital payment method whose value seems to be out of control. Its price has characteristics of the dot-com bubble at the beginning of the millennium.”

 

Not that the regulators are always right. In 2008, the guardians of the financial markets fell asleep at the wheel, allowing the financial world to implode in a minefield of subprime mortgages and other derivative financial products.

Perhaps mindful of this, Hauser said the regulators should take a paternalistic approach, because some people will be tempted to invest money they can’t afford to lose, no matter what the risks.

“And when they lose money, they will ask, ‘Who was there to protect us?’ ” said Hauser.

Trump Talk

Mainstreaming Trump

The headline in the British newspaper the Telegraph was, well, typically tabloid British: “Too many journalists were fooled by Steve Bannon. He’s not a revolutionary, he’s a charlatan.”

The headline followed the defeat of the Republican candidate Roy Moore in Alabama’s special Senate election. Former Trump advisor Steve Bannon, who supported Moore’s deeply flawed candidacy, persuaded the president to back him. The Republicans’ defeat in Alabama, after their loss in the Virginia gubernatorial election in November, clearly puts the GOP on the defensive as America enters 2018, when every House seat and one-third of the Senate is up for reelection.

Republican candidates will have to decide whether they are running with Trump or away from him. For his part, Trump will have to decide whether he will go along with Bannon’s tack of antagonizing the Republican establishment, as he did in his failed effort to repeal Obamacare; or emulate his successful approach on tax reform, where the president relied on the mainstream expertise of Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan.

Bannon may have a following, but Ryan’s got the cash. The Speaker’s super PAC, known as the Congressional Leadership Fund, has a $100 million stash to spend on some 50 key districts they need to win to keep the House of Representatives in Republican hands.

According to political pollster Larry Sabato’s “crystal ball,” of the 83 House seats considered to be “competitive” in 2018, 63 are held by the Republicans.

In the Senate, the Republicans should still be favored to maintain control. Of the 34 seats up for grabs, 26 are held by Democrats, including ten in states Trump won in 2016.

In one respect, the Telegraph headline is a bit extreme. Bannon is neither Che Guevara, nor Bilaam. But his goal of remaking the Republican Party in Donald Trump’s image has been derailed. And that might work to the party’s advantage in the midterms, if Republican voters continue to reject the Roy Moores of the world in favor of honorable and talented men and women who can get things done in Washington. (Originally featured in Mishpacha, Issue 690)

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