A CRIME SCENE
BOOM strongly recommends a lead article this week titled “A Banner Year For Crypto Theft, Raking In $1.2 Billion”, published at the Safehaven website. The article describes how US$ 1.2 Billion has been misappropriated in the first 3 months of this year and US$ 1.7 Billion during the year 2018.
BINANCE EXCHANGE HACKED
$ 40 MILLION STOLEN
The leading Crypto exchange, Binance, was hacked last week and $ 40 Million worth of Bitcoin was stolen. The crime scene that is the world’s unregulated Crypto markets was again shown to be a very dangerous place for anyone leaving Bitcoin on any exchange’s online wallet. Paradoxically, after so much early hype surrounding the phenomenon of Bitcoin as heralding the arrival of a new wonderful, “trustless” financial world, it is now painfully obvious that you have to always be very careful about where you place your trust.
Despite this significant display of Crypto crime, the price of Bitcoin surged during the week to US $ 7,000. In regard to total market capitalization of the entire Crypto market, Bitcoin is rapidly becoming more and more dominant over other forms of Crypto. Bitcoin is now 58.3% dominant according to the Coinmarketcap website. In January 2018, Bitcoin dominance fell to just above 32%. So it seems that people are steadily trading out of other Cryptos and switching over to Bitcoin. Bitcoin’s price rise this last week has been exponential, rising 23% in just 7 days trading.
The obvious next step is for those dominant Bitcoin holders to hold and hold until they can see no further prospect of price gains then perhaps there may be a rush for the door. It would seem obvious that they will probably not head back to the other Cryptos, they will likely head for the Fiat currency door this time. Why? Because it is becoming more and more apparent that Bitcoin’s value can only be reflected in what it can buy in the Fiat currency world. And if the holders cannot buy much else with Bitcoin, then they will ultimately buy Fiat. If this were to happen quickly, the selling of Bitcoin could then be very dramatic indeed and a severe price collapse could happen.
A Ponzi scheme is a form of fraud that lures investors in by paying profits (“dividends”) to early investors from the capital that is still coming in from later investors. The early investors tell everyone they know about the wonderful returns being generated by the “genius” promoters of the scheme. They proudly announce — “It’s legitimate, I have the returns deposited into my bank account every month”. This all works until the criminal promoters disappear with the capital they have accumulated over and above the funds they have returned as “dividends”.
From Wikipedia: “The basic premise of a Ponzi scheme is “To rob Peter to pay Paul”. Initially, the operator pays high returns to attract investors and entice current investors to invest more money. When other investors begin to participate, a cascade effect begins. The schemer pays a “return” to initial investors from the investments of new participants, rather than from genuine profits.”
This form of financial fraud is named after Charles Ponzi who became notorious for using the technique in the 1920s in the USA. He was an Italian swindler and con artist in the U.S. and Canada. He became known in the early 1920s in North America for his money-making schemes. He promised clients a 50% profit within 45 days or 100% profit within 90 days. Plenty fell for it. The law caught up with Ponzi eventually and he spent about 14 years in and out of prison for various Ponzi Schemes and was then deported back to Italy in 1934. He became poverty striken and died in 1949 in Brazil.
BITCOIN CASH (BCH) SURGE
Bitcoin Cash also surged in price during the last week, moving from below $ 280 to $ 348. This represents a 24% rise. This rise occurred in just 3 days, twice as fast as Bitcoin’s price rise.
There have been reports that a single address has been responsible for more than half of the Bitcoin Cash (BCH) transactions in the past month. According to those reports, more than 670,000 transactions have been made from one account since it became operational just one month ago. Many of the transactions are for fractional amounts of BCH and they were made with great regularity according to the media reports, with three to four new transactions occurring every second. This sounds suspiciously like a large scale manipulation of the market for Bitcoin Cash.
While we are on the subject of financial crime, it would be remiss of me to not mention George Parker. Parker was a Con Man Extraordinaire in New York in the 1920s with the Gift of the Gab. He sold property he did not own to gullible immigrants, just arrived in the Big Smoke. And he repeatedly sold the rights to levy tolls on the Brooklyn Bridge. It is reported that the police removed several of his victims from the bridge as they tried to erect toll booths. In addition to his Brooklyn Bridge scam, other public landmarks he sold included the original Madison Square Garden, the Metropolitan Museum of Art and the Statue of Liberty. He produced convincing forged documents as evidence that he was the legal owner of whatever property he was selling.
George Parker is responsible for the popular saying –“and if you believe that, I have a bridge to sell you”.
In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research. BOOM does not offer investment advice.
Return to the BOOM Main Website – BOOM Finance and Economics at http://boomfinanceandeconomics.com/
EMAIL: gerry [@]
HOW MOST MONEY IS CREATED
BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR
(but they always need a Borrower to do so)
THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY
How is Most New Money Created ?
LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).
From the Bank of England Quarterly Bulletin Q1 2014 —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.“
“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.
Quarterly Bulletins Index
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —
“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans”
“In the first instance, the process of money creation requires a willing borrower.”
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
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