CRYPTOCURRENCIES & BITCOINS
“Congratulations, if you made it this far on my website, you are going in the right direction. I will assume you are either an investor in cryptocurrencies, someone who is thinking of investing in cryptocurrencies, or you are a lawyer who represents an investor who has lost a lot of money investing in cryptocurrencies. I should be able to help all of you. There are numerous places on this website that talk about my experience and expertise, and you also can find a number of accolades and references from investors and lawyers I have worked for during my 30 years of helping lawyers and investors. In addition to being a registered and licensed stockbroker, I was also a registered and licensed commodities broker. This is useful because cryptocurrencies are now covering both professions. In my professional career, I have personal extensive experience in both securities and commodities with both the speculative trading side and various hedging strategies. Call for a free consultation.”
RISK & DANGERS FOR Cryptocurrencies
INVESTING IN BITCOINS CAN BE DANGEROUS TO YOUR FINANCIAL HEALTH!
There are all kinds of adjectives that can be used to describe the incredible surge in interest in bitcoins in just the past year: bubble mentality, foaming at the mouth, excessive exuberation, out of control and off the charts, just to mention a few. At the young age of 64, I have witnessed personally previous bubbles which have been disastrous for investors. And as a securities expert, I have studied extensively bubble driven investment fiascoes.
There was the tulip bulb mania in the early 1600’s in Europe, which is often considered one of the first financial speculative bubbles in history. In the United States, one of the first bubbles was the railroad stocks and bonds, where Americans lost millions. There was the Hunt brothers silver crash in 1980, started and orchestrated by the Hunt brothers who tried to corner the market in silver. As the Hunts tried to corner the market on silver they drove the price of silver up. Thousands of investors jumped on the bandwagon only to lose millions when the market crashed. More recently, we had the telecom and technology bubble and stocks that fizzled in 2001. And of course, we all remember firsthand the “subprime” debt related real estate bubble/bust in 2007.
Despite this, everyone is jumping on the bitcoin bandwagon. The CFTC recently approved trading futures on bitcoins. And now there is a discussion of opening the first bitcoin ETF. It is this last item that concerns me the most. Opening an ETF to every single American who has a brokerage account is going to expose millions to this very dangerous, speculative and volatile market.
I am not condemning the cryptocurrency of bitcoins or any other related product. And I am not questioning its use as a currency. I am only warning investors about utilizing these instruments as investments, albeit speculative ones. I will be researching and writing about bitcoin in the near future, but for now keep in mind that a very large percentage of the people who are buying and speculating in bitcoins are in Southeast Asia. The Southeast Asian investment markets are known for unregulated and excessive bubbles. The mere fact that bitcoin and cryptocurrencies have had phenomenal run ups in value in just the last two years alone should give investors cause for concern from an investing standpoint.
The mere fact that some lucky investors made millions because they were on the front end of many of the cryptocurrency startup operations does not mean you should jump on the bandwagon. There is an age-old warning for investors who chase ever increasing investments; “don’t be the last man in.” At some point in the future, some of the remaining cryptocurrencies may become legitimate investment vehicles. At this point, as trading vehicles, they are nothing more than speculative investments.
October 2019 Dear readers,
The article below is once again another example of what I've been telling investors for over a year; the Cryptocurrency craze is more a fad than anything. I am not predicting that it will never work, but investors need to be incredibly cautious for jumping on the bandwagon because it is fraught with risk. Take a look, even some of the largest financial institutions in the world, pulled the plug on the Zukerman's Facebook Cryptocurrency gambit. And additionally, in mid-October 2019, and additionally, in mid-October 2019, the securities exchange commission SEC, filed a lawsuit for another Cryptocurrency offering, that breached US securities regulations.
Inside Facebook’s Botched Attempt to Start a New Cryptocurrency
Major partners bolted after Washington challenged the social-media giant’s foray into finance
David Marcus gathered a team inside Facebook ’s headquarters in May to toast a skunk works project a year in the making: a bitcoin-like payments system that the social-media giant figured would upend the global flow of money.
“We’re going to change the world,” Mr. Marcus, a Facebook executive and the project’s architect, told employees as they sipped Champagne, according to a person familiar with the matter.
Turns out, changing the world isn’t so easy.
Five months later, the libra project is on life support after high-profile backers dropped out of the network under pressure from lawmakers and regulators. President Trump, Federal Reserve Chairman Jerome Powell and Rep. Maxine Waters, the Democratic chairwoman of the House Financial Services Committee—three people who agree on little—have all criticized it. European officials are trying to halt its launch.
With libra, Facebook barreled into the world of finance with techno-utopian bravado, then found itself caught in a tangle of regulatory skepticism and entrenched interests. Lawmakers, already uncomfortable with how Facebook handled privacy around users’ photos and posts, have drawn the drawbridge on users’ money.
The Treasury Department said it was concerned that libra could be misused by money launderers and terrorist financiers. Payment companies played down their role in libra in private meetings with regulators and lawmakers’ offices, and big banks approached by Facebook declined to sign on.
Facebook executives seemed unsure how to navigate the bureaucracy of finance, once showing up to a meeting at the Treasury Department and another at the Federal Reserve with brief overviews of libra that left unanswered questions.
Facebook’s plan to release its own
currency, called libra, has sparked a range of concerns among lawmakers. WSJ’s
Paul Vigna explains. Photo: Andrew Harrer/Bloomberg News
To achieve its grand ambitions to mint a new currency, Facebook leaned on a loosely knit alliance of companies, many of whom signed up amid wariness of the tech giant treading on their turf. When libra came under fire, partners including Visa Inc., Mastercard and PayPal Holdings Inc. quickly jumped ship.
Libra’s bumpy rollout is a big setback to Facebook’s efforts to reduce its near-total reliance on targeted advertising. It is also a warning to technology giants that are expanding into financial services. Apple Amazon.com and Google are each working on payments projects of their own, which could give them access to sensitive personal financial data at a time when public trust in Silicon Valley is eroding.
“Do you really think people should trust Facebook with their hard-earned money?” Sen. Sherrod Brown (D., Ohio) asked Mr. Marcus during a congressional hearing in July.
Facebook shows no signs of abandoning libra; representatives from its remaining backers met Monday in Switzerland to move the project forward. Chief Executive Mark Zuckerberg has agreed to answer questions about it at a congressional hearing next week.
“The core of the financial system hasn’t changed in 50 plus years. There’s a reason for that,” Mr. Marcus said in an interview. “This is hard change.”
When Facebook went public with thinly sketched plans for libra in June, it hoped to delegate the details to a coalition of partners, the Libra Association, and position the effort as more of a public utility than a corporate land grab. It was envisioned as a digital alternative to government-backed currency, widely accepted by merchants world-wide and capable of being sent instantaneously across borders at low cost.
Still, the loss of key corporate partners—payments startup Stripe Inc. and online vacation site Booking Holdings also have dropped out—makes a planned 2020 launch a challenge. Some of the companies were supposed to provide the technical wherewithal to get users’ money into the system. Remaining partners include Uber Technologies several venture-capital firms and PayU, a European payments processor.
Mr. Marcus said that he would have preferred it if the big payments companies stayed in the Libra Association, but that they can still choose to enable consumers and merchants to use the new coin without being official members.
“The nice thing about the way we’ve designed this, all of them can still do that. My bet is they will,” Mr. Marcus said.
Facebook has been experimenting with consumer payments for more than a decade. The company introduced its own coin, Facebook Credits, in 2009 that could be used to buy virtual goods inside videogames and from its online gift shop. A Facebook subsidiary has licenses to transmit money in 48 states.
Mr. Marcus joined Facebook five years ago from PayPal to run its Messenger unit. In May 2018, he took on a new role exploring how Facebook might use the blockchain technology that underpins bitcoin and other cryptocurrencies.
The strategy he landed on was more ambitious than what any U.S. tech company had tried in financial services. Facebook would create its own digital wallet that would enable libra to be used to buy things online and off, pay bills and send money domestically and overseas to friends and family members. A user would spend dollars to buy libra coins from authorized resellers, hold them in a digital wallet and then spend them on purchases at libra-friendly retailers or send them to others.
The company sees the product as a way to keep people plugged in to Facebook longer, and have it travel with them around the web and offline. It also said its goal is to make financial services more accessible to people world-wide, especially those without access to the regular banking system.
In Mr. Marcus’s telling, dozens of other companies, eager to reach Facebook’s massive user base, would join the Libra Association, contribute $10 million apiece to build out a global payments network and build their own apps to interact with it. To overcome the volatility that had undermined bitcoin, libra’s value would be pegged to a pool of currencies and government-backed assets.
Mr. Zuckerberg, who has led Facebook into one new area after another—advertising, hardware, original TV shows—greenlit the project. Others had a less optimistic view. Finance chief David Wehner asked Mr. Marcus how libra would recoup its costs and make money. Staff at WhatsApp, a messaging service owned by Facebook, viewed integrating libra into the app as a low priority.
Facebook began lining up partners, targeting incumbent payments giants whose support would help underpin the project and ensure they wouldn’t publicly criticize libra from the sidelines.
In pitches to Visa, Mastercard and PayPal, Mr. Marcus’s team played to their fear of missing out as people started conducting their financial transactions in the same online social spheres where they hung out with friends (Facebook), shared messages (WhatsApp) and interacted with their favorite brands (Instagram). Already in China, hundreds of millions of consumers shunned credit cards in favor of WeChat Pay, a digital wallet built into one of the country’s biggest messaging platforms.
Those companies faced a dilemma familiar to many that find themselves in the way of Silicon Valley’s ambitions: Join or risk being left behind. Attaching their names to libra and making a small investment—the $10 million Facebook wanted is about one-third of Visa’s profit in a day—would earn the card networks access to billions of potential customers. Even though libra transactions would take place outside their systems, credit and debit cards could be used to load money into libra wallets, which could earn fees for the card networks.
PayPal was among the first to join. The project was championed by Bill Ready, PayPal’s chief operating officer. He and Mr. Marcus had been close allies since 2013, when Mr. Marcus, then PayPal’s president, negotiated a deal to buy a startup led by Mr. Ready for about $800 million.
From there, Facebook moved on to online merchants interested in cutting their card processing bills. Uber, Lyft and Booking Holdings signed on. Visa and Mastercard were among the last to lend their support, doing so after hearing about others already on board.
Mr. Marcus’s team spent relatively less time with regulators before the libra announcement in June. When Facebook executives met with officials of the U.S. Treasury, they responded to many questions by saying details would be ironed out later, concerning officials.
Mr. Marcus said that Facebook was taking a consultative approach with regulators and wanted to hear any “profound concerns” they had early on. He added that answers to some questions could only be provided after the Libra Association had been formed and members agreed on an approach.
“In early meetings we didn’t have all the answers, but that was by design,” Mr. Marcus said. “For something that at that point in time was a white paper with an idea to launch in 2020, I think that’s fairly normal.”
In June, Facebook unveiled the currency by publishing a conceptual document that explained how the currency would work and naming 27 other “founding members” as diverse as streaming-music service Spotify Technology and telecom giant Vodafone Group PLC. The goal was to build a financial system that didn’t rely on central bankers or Wall Street middlemen.
Washington, which has had Facebook in its sights for some time, wasn’t impressed. Rep. Waters asked Facebook to declare a moratorium on libra’s launch and members of her committee drafted the “Keep Big Tech Out Of Finance Act” to limit Facebook and other Silicon Valley giants from expanding deeper into financial services. Lawmakers grilled Mr. Marcus over two days of hearings in July, and he promised libra wouldn’t launch until regulatory hurdles were overcome.
Around that time, representatives from several companies in the Libra Association hopped on a conference call to coordinate their responses to the growing backlash. A cacophony of voices drowned out potential solutions: A glitch in the call-organization software turned on many people’s microphones at once.
The social-media giant positioned itself as just one member of the association that, on its own, didn’t have the power to dictate how the network would function. It asked some other partners to publicly lobby for the project. They demurred.
Meanwhile, some of Mr. Marcus’s allies were sidelined. PayPal announced in June that Mr. Ready was stepping down as the company’s chief operating officer, removing a key voice of support for libra.
Frustrated, regulators and lawmakers began asking Facebook’s partners for answers. Over the summer, the Treasury Department sent a letter to companies including Visa, Mastercard, PayPal and Stripe asking for an overview of their money-laundering compliance programs and how libra would fit into them. Some of the companies felt hamstrung in responding without more clarity from Facebook.
As the pressure grew, Facebook tried to rally its partners. It invited Libra Association members to an Oct. 14 meeting in Geneva to review the group’s charter and to pick a board of directors.
Association members hadn’t yet ponied up the $10 million per partner that Facebook was seeking. They had signed a nonbinding letter that allowed them to walk away from the project if they changed their minds.
Some companies thought Facebook overstated their involvement when it announced the project in June and resented being described as “founding members.”
“It’s important to understand the facts here and not any of us get out ahead of ourselves,” Visa Chief Executive Al Kelly said on the company’s earnings conference call in July. “No one has yet officially joined.”
The invitation to the Geneva meeting called the partners “initial members,” instead.
But by early October, support from several partners was crumbling. At a meeting for Libra Association members in Washington to prepare for the Geneva summit, attendees were asked to voice their concerns. Mastercard and Visa executives said they were likely to remain members but hadn’t made final decisions. PayPal skipped the meeting and pulled out of libra the next day.
Lawmakers turned up the heat. Sens. Brown and Brian Schatz (D., Hawaii) warned the CEOs of Visa, Mastercard and Stripe that if they stayed involved, they could “expect a high level of scrutiny from regulators not only on libra-related payment activities, but on all payment activities.”
The association then distributes through authorized sellers.
—an independent organization created by Facebook —mints the currency.
The authorized seller exchanges the currency with , which then burns, or destroys, the currency.
A consumer downloads a digital wallet from a new Facebook subsidiary called , then purchases Libras from an authorized seller’s site.
Spotify then exchanges the Libras that it received for dollars via a reseller.
The user uses Libras to make an online purchase, such as a subscription to , one of the corporate partners of the currency.
Visa and Mastercard sent executives to meet with the senators’ staffers. Soon after, they announced they were dropping out of the project, as did Stripe. Booking Holdings, eBay and Mercado Pago, an Argentine payments provider, also withdrew.
The loss of Visa and Mastercard’s support threatened to remove one of the main ways users would have moved money into and out of the libra system—a potentially crippling blow.
“As far as Visa and Mastercard were concerned, I have to commend them for having the boldness and willingness to explore something that’s that radically different,” Mr. Marcus said. “Given the pressure they all got, it’s hard to blame them [for leaving].”
Tensions have grown within Facebook. Senior executives have asked Mr. Marcus why a new cryptocurrency—with all the baggage that comes along with one—is necessary to advance Facebook’s finance ambitions. Couldn’t the company work with dollars or bitcoin, they asked?
Mr. Marcus, undeterred, has been reaching out to major U.S. banks about joining libra, according to people familiar with the matter, which could allow consumers to load money into their libra wallets from their checking accounts.
JPMorgan Chase & Co. and Goldman Sachs Group however, had rejected Facebook’s invitation back before the June announcement. Both declined in part because they worried a cryptocurrency could be used for criminal activities that would violate strict money-laundering and sanctions rules.
On Monday in Geneva, 21 companies, including Facebook, committed to the libra project and elected five board members to oversee the Libra Association. Mr. Marcus said the next task is hiring a full-time managing director for it.
Despite Mr. Marcus’s pronouncement of changing the world at the May celebration, libra is expected to start small, by helping friends and family members send money to each other at a low cost.