Friday, 19 April 2019

A Analysis

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This is a FinTech panel I joined yesterday with Barry Silbert (SecondMarket, the company that facilitated trading Facebook's private stock, see also Facebook on SecondMarket) & Katina Stefanova (partner at Bridgewater Capital) on Bitcoin Volatility and the Opportunity/Threat to Money Center banks at the 2014 FinTech Startups Conference.

One interesting question that was asked of the panel, but not captured in this video, was...

Where do you think we are today in terms of the state-of-the-union of cryptocurrencies, in terms of acceptance, stability, and reliability as a form of value retention and value transfer in the economy?

 

Acceptance is increasing.

Stability is increasing.

Reliability as form of value retention asks the wrong question. What we need to do is redefine the concept of currency. The static store of value made plenty of sense with the “dumb” fiat model. Now, with the advent of these new inventions, we can “program” the money and create smart contracts that redefine the concept of value. I query, “Is the value in the currency’s embedded contract, or is the value in the currency itself.” More importantly, where is the line of demarcation between the two.

Example, with a “smart” currency, you can  embed bitcoin with the value qualities of any fiat, asset, or even index, thereby further blurring the line.

Monday, 31 March 2014 00:00

What Is UltraCoin?

The Elevator Pitch - straight to the point!

UltraCoin is programmable money that allows counterparty risk free transactions. Create loans without banks, trades without brokers and contracts without lawyers - all available through your own personal digital wallet.

The Long Walk version...

Bitcoin, the media frenzied digital currency that has gathered so much mindshare and pop culture attention, holds untold promises in the decentralization of money and the power that controls said money. Yet, for all of its untold promise, it's current form is riddled with problems that prevent it from being the practical replacement for the dollar or the euro,,, That is, until now!

Reggie Middleton's UltraCoin is a derivative layer that rides on top of Bitcoin, allowing Bitcoin users to perform heretofore undreamt of tasks such as:

  • Making your money intelligent, thereby causing it to act on your behalf even when your are not present! UltraCoin programs bitcoin to allow you to pay someone yet prevent that person/company from spending that money until the purpose of that payment has been fully consummated and satisfied.
  • Creating digital (as differentiated from legal) contracts. With UltraCoin, you can program your money to create escrow contracts, swaps, options, loans, letters of credit, futures, bonds, equity-like investments, etc. built directly into the money itself!
  • Zero trust arrangements - UltraCoin allows you to do business with total strangers with confidence, and more importantly allows you to do business with competitors whose interests directly oppose yours without risk of fraud, non-performance or breach of (digital) contract for UltraCoin digital contracts do not require trust from either party but instead embeds the terms of the deal directly in the money itself, thus taking the ability to break the contract away from the contracted parties.
  • Hedge volatility, market risk and credit risk
  • Micropayments - receive payments so small as to be practically impossible with current payment processors. These micropayments enable totally new business models that weren't even conceivable before now, ex. paying people to allow you to move ahead of them in traffic or cue in line; selling written content by the line or paragraph of page, etc. 
  • Near zero cost money transmission - UltraCoin easily configures Bitcoin to send value to the person standing in front of you just as easily as the person completely around the world, quickly effortlessly, securely and at any time. Oh yeah, and the comparative cost advantages...

If you like what you've read thus far, please look to the right to contribute and receive - or continue reading to get the heavy dose of UltraCoin!

The Long Form Version - rich in information for those ripe for an education on money.

For those of you who are either well versed in applied economics or simply don't wish to subject yourselves to my philosophical rant, scroll down to the heading "UltraCoin: About the Application".

The Story of Money

In Order To Comprehend the Future of Money, We Must Understand It's History...

Money has, throughout human history, been about the development of various means of carrying out transactions involving a physical medium of exchange. This has been the case throughout the vast majority of the history of money itself, alas, I'm already getting ahead of myself. 
Money should be easily defined, and actually is easy to define despite many academics attempts to obfuscate and cloudy the matter. According to Wikipedia, it is 'any "clearly identifiable object of value" that is generally accepted as payment for goods and services and repayment of debts within a market'  or 'which is legal tender within a country.'

From the days of sacks of cereal to be bartered (hence the origin of the Shekel) to pretty shiny things such cowry beads and gold from Africa, to silver dollars and gold Krugerands, money has primarily been physical identifiers of the transaction of physical goods and services. 

This changed right about 1966 with the advent of the debit card, and even that heralded the use of "Digital money" that didn't have a physical form yet still commended physical goods and services. 

This digital money was controlled by the big middlemen, the grand intermediaries of commerce and much of human life... the banks! Through server-centric, highly centralized systems, the banks served as both the middlemen and the lenders to almost every financial transaction made since 1966, and for hundreds (if not thousands) of years before that as well.

Then, a pseudonymic man known as Satoshi Nakamoto released into open source a protocol for a new form of money known as Bitcoin. Now, anyone who's browsed through the code knows that this is too much high level thinking for one man, no matter how smart. Satoshi Nakamoto is pseudonym for a group of technology companies whose businesses would benefit if the hegemony of the big money center banks were shaken some. While this is all conspiracy theory, I'm a conspiracy theorist who loves to eat the breadcrumbs he finds lying around. Let me sprinkle some back down for you... SA(msung)TOSHI(ba) NAKA(michi)MOTO(rola)! Well, anyway... This invention called Bitcoin was exquisitely elegant in the way it both provided for a very efficient digital currency that also comes with its high speed, low cost delivery system that itself comes part and parcel with its own high level security system.

The most elegant part of the new money? It doesn't require banks or any of the traditional middlemen! This is Bitcoin!

 

As elegant a solution as Bitcoin is, it still has some serious issues. One of the biggest issues is volatility. It's price is literally all over the place. Of course, this doesn't invalidate Bitcoin as a money alternative for the precursor to the US dollar (the continental note) was even worse. Alas, it does make Bitcoin's use as a standard medium of exchange cumbersome. I set out to solve this, among other problems because I see Bitcoin to finance as the Internet was to media!

 

UltraCoin - About the Application

UltraCoin is a crypto-currency (the group of money that Bitcoin belongs to) derivative application and management system. It is a one of a kind solution that is literally the most revolutionary thing to hit finance since the printing press. It allows its users to create zero trust (meaning the two sides to a deal do not have to know or trust each other), smart contracts governing the behavior of the underlying currencies, securities and assets. It allows exposure to be given back and forth between Bitcoin and traditional fiat currencies (conventional sovereign money, ex. USD or EUR), as well as hedging, speculation and capital mobility opportunities for its users.

One UltraCoin, One bitcoinOne UltraCoin, One bitcoin

Zero Trust Currency SWAP Contracts 

A currency swap contract is an agreement to make a currency exchange between two parties. With this application one can create digital swap contracts between traditional fiat currencies like (i.e. USD, EUR, CNY) and crypto-currencies such as Bitcoin at zero interest. In addition, there is no need to physically exchange the currencies. The contract are entered into, and settled in cash. – denominated in the crypto-currency of choice (currently the system is set to only settle in Bitcoin, but that can change i the future). Most importantly, this transaction takes place on a Peer to Peer basis, meaning that the participants of the swap trade with each other directly, without the intermediation and accompanying counterparty risks and conflicts of interest that go along with it.

 

Zero Trust Contracts 

The swap contracts created using UltraCoin are called zero trust because the user is not required to trust the other party on the other side of the contract – or even know who the other party is. This is made possible by requiring the user to put collateral margin equal to 100 % of the principal amount when entering into the contract, thus eliminating any credit risk present in traditional swap contracts. This has profound implications in the way things are currently done. 

UltraCoin Client Application SnapshotUltraCoin Client Application Snapshot

 More About Bitcoin 

Bitcoin is the world’s first decentralized (no central authority or single point of weakness to be attacked, compromised or disintermediated) digital currency. By design, there is a known, immutable, fixed supply of bitcoins, similar to gold being available in limited quantity on earth. Bitcoins are digital, therefore you can instantly transfer them to anybody across the world. Finally, there is no financial institution, or bank, or company operating Bitcoin, just like there is no company in charge of "operating gold". 

 

There is also no internet server to shut down to terminate Bitcoin. It exists merely as a distributed protocol likely running through an application on your computer, smart phone, tablet or (Google) glasses - which communicates with other Bitcoin users over the internet. A pure, Peer to Peer network of financial and data communication. How is this significant? UltraCoin, through Bitcoin and other digital currencies, allows one to totally sidestep banks in day to day financial operations. This means we cut out the middleman and you get to share his cut of the pie, while all the while circumventing the most inefficient and unnecessary bank rules and restrictions, i.e. inconvenient banking hours, onerous fees and ridiculously expensive charges. 

Send $100 to your sister on the other side of the world on a Sunday afternoon for less than a penny, in near real time. No wire, PayPal or Western Union fees, no 3rd parties whatsoever – not even us! No banking hours, and no nonsensical restrictions on what you can do with your own money. As a small businessman/woman, or larger corporation, accept micropayments down to a fraction of a penny, thereby creating totally new business models that weren’t possible before due to extravagant processing, distribution and licensing fees. 

 

This application to Kickstarter was unusually ironic, for Kickstarter forces you to use Amazon's payment system to clear payments from contributions and Amazon charges between 3%-5%. That means if we're wildly successful in raising funds here, Amazon will scrape up to $50,000 from every $1,000,000 that we raise. $50,000 is a lot! View the video above to see how much this Kickstarter campaign would have costs if I ran it through a Bitcon/UltraCoin setup. Hint:You'd need a calculator to figure out the zeros BEHIND the decimal point!

How the UltraCoin Application works

 UltraCoin, as mentioned previously allows its users to create “zero trust” swap “smart contracts” for Bitcoin with traditional fiat currencies and vice versa, thus allowing hedging and speculation opportunities for its users. The application is a quick 1 minute download on even relatively slow connections and must be installed on the computer of the users. Below is a snapshot of the dialog box for registering the swap request (creating an ask) on the UltraCoin client. 

 Advantages of the UltraCoin Application

With bitcoins gaining more popularity and acceptance among global business communities, the future of the currency is expected to witness Bitcoin being labeled as one of the leading globally accepted trade currencies. However bitcoin is a very volatile currency. As such there exists a very strong incentive to hedge its value relative to more established and stable currencies. 

As of today, bitcoin continues to coexist with many conventional currencies like dollars, euros, yen, etc. Naturally people & organizations will be required to preserve the money value of bitcoins in terms of other conventional currencies. UltraCoin will allow businesses as well as individuals to effectively hedge their positions in bitcoin against conventional currencies and vice versa. The application will also offer users to speculate on market movements, i.e. if one believes that Bitcoin is about to rise/decline in value against USD he can enter into a swap to give/receive the bitcoin side of the contract and monetize their outlook of the currency movement. 

How and whom UltraCoin can benefit?

Businesses accepting/paying payments in bitcoin, individuals and almost everybody with current and expected exposure to bitcoin. This diagram depicts how any merchant receiving bitcoins can use this application to hedge its bitcoin exposure. 

 Other Benefits:- Businesses or individuals can also utilize the UltraCoin for exploiting differential interest rates prevailing in different geographies. 

Similarly one can also use this application to take advantage of high yield investment opportunities available in other parts of the world by remitting money from low yield geographies to high interest rate geographies. As Turkey has recently near doubled its rates, with many emerging market economies poised to do the same (here’s to you, China) - Argentina, Puerto Rico, et. al., and even the bankrupt city of Detroit. These will not be the only environment prepared UltraCoin users to speculate. 

Darest I say this is the age where individuals bailout out the state, and do so on their own terms? My, how things have changed!

Capital flight/mobility & Banking System Bail-in protection

Parties who are domiciled in free flowing capital hostile states that have tight capital controls, ex. China, India, and now France with its 75% effective wealth confiscation scheme, etc. that have banned or limited BTC trading by banks and/or individuals can take advantage of the UltraCoin Zero Trust contracts to gain multi-currency exposure without violating the law (this is not legal advice, and the counsel of an attorney is strongly recommended).

Take note that the systems with the tightest capital controls have been the one’s exhibiting the most aggressive stance to bitcoin. Unfortunately, they don’t seem to understand what Bitcoin is and what it can do. Cyprus banks closed on a Friday and announced confiscation of bank assets over the weekend. UltraCoin contracts could have been used to move monetary value outside of the Cyprus banking system assuming the participants had a store of Bitcoin (it is rumored that this is how some of the Russian money was removed over the weekend). 

Let’s assume a small businessman would like to purchase $1M euro worth of bitcoin, yet is concerned that the BTC volatility may cause more of a loss than the Cypriot capital controls. He buys the BTC then hedges his large BTC position into EUR. He proceeds to do that with a quarter of his monthly cash flows, building up a sizeable, fully hedged position in cyberspace and on the blockchain (thus, effectively offshore) and outside of the fragile Cyprus banking system. 

The Cyprus banks pull the trigger to confiscate funds and the Russian bank depositor has significant funds mobile and ready to deliver anywhere in the internet connected world within minutes, even on a Sunday afternoon. 

 Another example of dealing with a country with tight capital controls would be India. India has extremely tight capital controls that have (IMHO) hampered its economic progress relative to China, despite having similar populations and the significant advantage of a large indigenous English speaking population stemming from British occupation (easier to do business with the larger capitalist nations when more of your constituents speaks the native tongue).

India has effectively outlawed trading in bitcoin, but Indians can still participate in the evolution of money by taking advantage of the liberalized remittances scheme of the Central Bank of India; a person can remit up to 75,000 USD offshore annually. These monies can end up in a Bitcoin friendly jurisdiction (amazingly enough, like the US), and be used to purchase BTC hedged, via UltraCoin ZeroTrust contracts, back into rupees or the currency of choice. This can also work the other way around, which would actually be quite advantageous to the Indian government and potentially make them rethink the real world practicality of capital controls. 

Even in a country that has capital controls and fears Bitcoin may threaten its banks, a decentralized near friction free currency exchange would be beneficial solely due to international remittances from expats in foreign workers. A real world example are Indians that I know who lose significant money because of PayPal and Western Union fees (not to mention bank wire fees). Indians can send UltraCoin ZeroTrust contract rupee locked BTC home on a deferred basis. 

The registered exchange or ATM in India however could only be one-way so that it only accepts BTC from the Indian general public in exchange for rupees and not the other way around. 

 UltraCoin For Traders 

 

By executing swaps against various fiat, UltraCoin allows users to trade in a pure P2P fashion, completely by passing centralized exchanges as well as the counterparty risks, costs and redemption delays that go along with them. By borrowing money before the trade is made, users can even lever up to gear returns. In addition… 

There are a plethora of built-in trading tools available only from the UltraCoin client...

Besides the above mentioned benefits, the application could also help in facilitating:  Peer-to-peer investment / finance (instantaneously and at extremely low cost)  Smart contracts (contracts enforced by software)  Binding arbitrations  Enforcement of non-financial transactions  Investments across regions (without restriction) A list of parties (not exhaustive) that can benefit from the application:

 Available on nearly all popular platforms, from desktop to mobile, to ultra mobile!

 We are developing UltraCoin clients/wallets for Glass, Android, Desktop and iOS.

 Reggie Middleton is pervasive through international media, and he's dragging UltraCoin with him!

Reggie Middleton is widely recognized in international media (both mainstream and fringe) as a maverick at the intersection of finance and technology...

Risks and challenges

 

What unique challenges might we face AFTER the project is successfully funded?

Well, to begin with, this is software development. Software development rarely comes in on time AND on budget - at least not in my experience . With that being said, I have tied up a material and significant amount of my own capital in this project. It is my baby, and I am watching over it like a hawk. What makes it unique is that it is not only a software development project, but a financial analysis and global macroeconomic theory venture as well. To make things even more “Star Trekkish”, it’s akin to a real time R&D experiment that’s slated to go into production next month. There are no historical references to learn from, not precedent to guide us. We are treading on new ground here ladies and gentleman. This leads to another pointed risk - ...

Programming talent... 
Guys and girls (who are even harder to find) are quite scarce at this level and and in this knowledge sphere. Nobody really has any experience because this stuff is all brand spanking new. If we lose a key programmer or two it can set development back for weeks. Trust me, I know from experience! Alas, I am keeping my finger on the pulse of the Bitcoin community and have gained a small modicum of notoriety in the same. I'm confident I will be able to attract competent expertise, although a learning curve may ensue. After all, we’re on the bleeding edge – and on that note, we are brought to the next material risk…

The law, compliance and legislation… 
The laws and the politicians/regulators/courts who legislate/regulate/adjudicate have not moved nearly as fast as the technology has, and the technology has moved so fast that it can’t even keep up with itself! Thus, where there is uncertainty, there is risk. Alas, where there’s risk there’s opportunity. I plan to take any excess funds and spearhead an effort to lobby and set a clear framework and risk free precedent for Bitcoin businesses to operate within. Negative repercussion from politicians/regulators/courts will stem from a lack of information, for if the true merits of Bitcoin and its derivatives are actually known, then these actors will welcome the efficiencies that it will bring both our country (the US) and other capitalistic countries abroad.

Speaking of capitalism, which brings us to the next major risk, and that is competition. My major competitors will be/are those very same actors who stand to be disintermediated, either in part or in whole, by this new technology. Just as the typewriter was walloped by the PC, and the postal service was sideswiped by email, the financial services industry will feel the pain of the Coins! This is a very powerful, very well connected, and last but not least… very aggressive industry. They will not take such an affront laying down. Of course, the bane of large industry is the swift, innovative risk takers that these large industrial giants once were themselves when they usurped power from their predecessors. Beating the banks at their own game is not only possible, it’s likely given the momentum and direction of technology.

It’s simply the Titans, the Greek gods and Prometheus recast, retold and relived once again – but this time with a different twist as fire is given to the common man and he wields it to defend himself and UltraCoin comes to the rescue as Hercules!

Biography: Who is Reggie Middleton?

Reggie Middleton, as told through Wikipedia...

Reggie Middleton as told through BoomBustBlog...

With all of the brouhaha over Bitcoin and the downright irresponsible reporting by the mass media, I've decided to reveal the progress of my "UltraCoin: The Future of Money!!!" venture. What you see in the next few paragraphs should elucidate even the most blinded to the prospects and potential of the Bitcoin protocol and why I've always said that the price of the actual cryptocurrency is absolutely irrelevant (much as the price of AOL was highly irrelevant to the prospects of the Internet in 1993).

 thumb Slide1

 I know I said the MSM has simply butchered accurate coverage of Bitcoin, but this piece in Fortune Magazine was right on the money: 

 "[UltraCoin] is a shot directly across the bow of the financial industry. Still in early development, BTC Swap is planned to facilitate a variety of what Middleton calls "Zero-Trust Digital Contracts," which recreate financial functions in software code by matching offered and desired transactions between parties without the need for intermediary institutions. Because these contracts are automated, instantaneous, and executed with assets already represented in the Bitcoin blockchain, Middleton says they eliminate counterparty risk while also subtracting conventional banking and brokerage fees.

The most immediate function Middleton envisions for his system is for hedging bitcoin against existing national currencies. With bitcoin's valuation still showing huge volatility, Middleton claims the availability of distributed hedging will both ensure the value of bitcoin for individuals holding the asset and provide systemic stability. (Given persistent skepticism, there should be plenty of takers to short bitcoin against the dollar.) And the entire system relies on decentralization for its security and integrity: "My contracts are peer-to-peer," says Middleton. "If you hack my servers, there's nothing to get."

Find it hard to believe? Even children can do it...

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So, how does this work? Well, let's start from the beginning.

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The vast majority of the world does their spending out of a wallet like this, or using currency-like instruments such as these (both physical and digital) contained in the wallet. The problem is all of these devices are "dumb" and rely on central authority figures (government, servers, banks, etc.). So...

Along comes Bitcoin with its decentralized currency that solves many of these issues. Bitcoin is also kept in wallets, like these...

thumb Slide3

These Bitcoin wallets give you considerably more freedom with your money, sending it faster, cheaper and with more privacy than the conventional wallet above. Of course, the typical Bitcoin wallet hasn't even scratched the surface of what's possible with this new technology. As a matter of fact, the tech is so over-encompassing and transformative that the mass media and even much of the specialized media simply CANNOT wrap their minds around what's about to happen to the worlds of money, finance and investment!

I've taken a radical step with this tech that makes even the newest Bitcoin wallets look old hat in comparison. What makes UltraCoin different from everything else?

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So, what is UltraCoin?

thumb Slide8

Unlike Bitcoin wallets, it allows you to literally take control of both your money and gain exposure to financial assets such as stocks, bonds, forex, options, futures, oil, gas, commodities and precious metals. 

thumb Slide10

You can even design your own "smart contracts" directly within the wallet itself.

thumb Slide11thumb Slide12thumb Slide13thumb Slide15

This stuff above is a pretty big difference from... this, eh?

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And that's how we come round robin back to that first graphic with my kids trading currency exposures.

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Of course, Wall Street is fearful. Why shouldn't they be? If the public realized the extent of the middleman markup they pack into otherwise low value-add services and product margin, there would be a mass revolt. When you create these products and services on a peer to peer basis, it's extremely hard to overcharge to the extent a recent MBA recipient with little to no real world experience can recieve 7 or 8 digit compensation. Don't believe me and my proclamations of fear? Witness the drivel that comes out of the the analyst's reports:

Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing

Does the Mainstream Media Assist Wall Street In Hypocritical Hypothesis For Fear Of The Next Paradigm Shift?

I'm looking for:

  1. Financial Capital
  2. Intellectual Capital
  3. Active and prolific traders to help beta test my wallets. 

If you are or know of any of the above, hit me up with a link to your LinkedIn and/or Wikipedia profile via reggie AT ultra-coin.com. You can also join me to trade live Bitcoin and currency exposures at 40 Broad Street, Friday at 6 pm if you wish. Equities, Silver and Gold exposures will be available next week and possibly by Friday as well. 

I've worked hard to establish a strong reputation - not only in terms of competence but in terms of integrity. For those who don't know of me, you can view my media apearances and calls as well as my Wikipedia page. You see, my mommy and daddy raised me to appreciate both aspects of success - not only one. With that in mind I'd like to address the recent report from JP Morgan slamming Bitcoin. Just so most know my viewpoint, the typical Bitcoin enthusiast and entrepeneur is primarily technologist leaning, thus may or may not see all of the aspects of the financial side of this new... "thing". In addition, and because of that, the financial guys often get away with some outrageous bullshit that they'd never even try under different circumstances. Let's apply this perspective to JPM's latest FX strategic outlook report, "The Audacity of Bitcoin". I will refute this report, point by point, and in the process make the managing director whose name is on the report look downright ignorant and uneducated. This is not a personal attack or an attempt at sleight (hey, he may be a downright stand-up guy), I am simply calling it as I see it.

Before we get to the report though, I want to address the foolishness of following these "reports" from the big name brand money center banks. Since JP Morgan is the name du jour, let's focus on that one shall we? On Wednesday, 27 April 2011 I penned a piece called There's Something Fishy at the House of Morgan wherein I pointed out quite a few inconsistencies and made an educated extrapolation (my way of saying prediction without having to sound like a guruConfused). One of them was a marked spike in JPM's legal costs, despite a marked drop in the rate of reserving said legal expenses, to wit:

 


I have warned of this event. JP Morgan (as well as Bank of America) is literally a litigation sinkhole. See JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling Now Wednesday, March 2nd, 2011.

Traditional banking revenues: manifest destiny as forwarned - Weakening Revenue Streams in US Banks Will Make Them More Susceptible To Contingent Risks

 Was I right? Well, here's a list of JP Morgan's fines PAID (yes, paid) over just the last 6 months (this would be $31 billion on an annualized run rate, but whose counting?). Actually, I may be counting - after all you (the taxpayer) paid $30B to bailout Bear Stearns (bought by JP Morgan with US guarantees and financing, remember I warned about Bear Stearns in explicit detail months before the fact- Is this the Breaking of the Bear?) as well as JP Morgan to the tune of at least $12B more. Oh well, back to that list...

  1. January 8th Scandals cost JPMorgan $1 billion in fines (various intergovernmental agencies)
  2. January 7th: OCC Assesses a $350 Million Civil Money Penalty Against JPM 
  3. January 7th UNITED STATES OF AMERICA DEPARTMENT OF THE ... -vs JP Morgan
  4. October 16th JPMorgan to Pay $100 Million Fine on CFTC London Whale Claim
  5. September 19th SEC.gov | JPMorgan Chase Agrees to Pay $200 Million and Admits ...
  6. September 18 $221 million - UK FCA
  7. Septembe 17 $300 million - OCC
  8. September 18CFPB Orders Chase and JPMorgan Chase to Pay $309 Million
  9. September 18 $60 million - OCC
  10. July 30 JP Morgan penalized $285 million for manipulating California electricity prices
  11. July 30 JPMorgan to Pay $410 Million in U.S. FERC Settlement - Bloomberg
  12. Plus that $13 billion dollar WHOPPER!

This is just the last 6 months!

Go to 12:28 in the video and realize why JP Morgan is a bit more desperate than many believe...

 Better Markets summarizes the past ten years of JP Morgan credibility better than I ever could, as follows: Highlights From A Decade of Illegal Conduct by JP Morgan Chase

  1. United States v. JPMorgan Case Bank, NA, No-1:14-cr-7 (S.D.N.Y. Jan 8, 2014) ($1.7 billion criminal penalty); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-13-109 (Jan. 7, 2014) ($350 million civil penalty); In re JPMorgan Chase Bank, N.A., Dept. of the Treasury Financial Crimes Enforcement Network Admin. Proceeding No. 2014-1 (Jan. 7, 2014) ($461 million civil penalty) (all for violations of law arising from the bank’s role in connection with Bernie Madoff’s Ponzi scheme, the largest in the history of the U.S.);
  2. In re JPMorgan Chase Bank, N.A., CFTC Admin. Proceeding No. 14-01 (Oct. 16, 2013) ($100 million civil penalty); In re JPMorgan Chase & Co., SEC Admin. Proceeding No. 3-15507 (Sept. 19, 2013) ($200 million civil penalty); In re JPMorgan Chase & Co., Federal Reserve Board Admin. Proceeding No. 13-031-CMP-HC (Sept. 18, 2013) ($200 million civil penalty); UK Financial Conduct Authority, Final Notice to JP Morgan Chase Bank, N.A. (Sept. 18, 2013) (£137.6 million ($221 million) penalty); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-2013-75, #2013-140 (Sept. 17, 2013) ($300 million civil penalty) (all for violations of federal law in connection with the proprietary trading losses sustained by JP Morgan Chase in connection with the high risk derivatives bet referred to as the “London Whale”);
  3. In re JPMorgan Chase Bank, N.A., CFPB Admin. Proceeding No. 2013-CFPB-0007 (Sept. 19, 2013) ($20 million civil penalty and $309 million refund to customers); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-2013-46 (Sept. 18, 2013) ($60 million civil penalty) (both for violations in connection with JP Morgan Chase’s billing practices and fraudulent sale of so-called Identity Protection Products to customers);
  4. In Re Make-Whole Payments and Related Bidding Strategies, FERC Admin. Proceeding Nos. IN11-8-000, IN13-5-000 (July 30, 2013) (civil penalty of $285 million and disgorgement of $125 million for energy market manipulation);
  5. SEC v. J.P. Morgan Sec. LLC, No. 12-cv-1862 (D.D.C. Jan. 7, 2013) ($301 million in civil penalties and disgorgement for improper conduct related to offerings of mortgage-backed securities);
  6. In re JPMorgan Chase Bank, N.A., CFTC Admin. Proceeding No. 12-37 (Sept. 27, 2012) ($600,000 civil penalty for violations of the Commodities Exchange Act relating to trading in excess of position limits);
  7. In re JPMorgan Chase Bank, N.A., CFTC Admin. Proceeding No. 12-17 (Apr. 4, 2012) ($20 million civil penalty for the unlawful handling of customer segregated funds relating to the bankruptcy of Lehman Brothers Holdings, Inc.);
  8. United States v. Bank of America, No. 12-cv-00361 (D.D.C. 2012) (for foreclosure and mortgage-loan servicing abuses during the Financial Crisis, with JP Morgan Chase paying $5.3 billion in monetary and consumer relief);
  9. In re JPMorgan Chase & Co., Federal Reserve Board Admin. Proceeding No. 12-009-CMP-HC (Feb. 9, 2012) ($275 million in monetary relief for unsafe and unsound practices in residential mortgage loan servicing and foreclosure processing);
  10. SEC v. J.P. Morgan Sec. LLC, No. 11-cv-03877 (D.N.J. July 7, 2011) ($51.2 million in civil penalties and disgorgement); In re JPMorgan Chase & Co., Federal Reserve Board Admin. Proceeding No. 11-081-WA/RB-HC (July 6, 2011) (compliance plan and corrective action requirements); In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-11-63 (July 6, 2011)($22 million civil penalty) (all for anticompetitive practices in connection with municipal securities transactions);
  11. SEC v. J.P. Morgan Sec., LLC, No. 11-cv-4206 (S.D.N.Y. June 21, 2011) ($153.6 million in civil penalties and disgorgement for violations of the securities laws relating to misleading investors in connection with synthetic collateralized debt obligations);
  12. In re JPMorgan Chase Bank, N.A., OCC Admin. Proceeding No. AA-EC-11-15, #2011-050 (Apr. 13, 2011) (consent order mandating compliance plan and other corrective action resulting from unsafe and unsound mortgage servicing practices);
  13. In re J.P. Morgan Sec. Inc., SEC Admin. Proceeding No. 3-13673 (Nov. 4, 2009) ($25 million civil penalty for violations of the securities laws relating to the Jefferson County derivatives trading and bribery scandal);
  14. In re JP Morgan Chase & Co, Attorney General of the State of NY Investor Protection Bureau, Assurance of Discontinuance Pursuant to Exec. Law §63(15) (June 2, 2009) ($25 million civil penalty for misrepresenting risks associated with auction rate securities);
  15. In re JPMorgan Chase & Co., SEC Admin. Proceeding No. 3-13000 (Mar. 27, 2008) ($1.3 million civil disgorgement for violations of the securities laws relating to JPM’s role as asset-backed indenture trustee to certain special purpose vehicles);
  16. In re J.P. Morgan Sec. Inc., SEC Admin. Proceeding No. 3-11828 (Feb. 14, 2005) ($2.1 million in civil fines and penalties for violations of Securities Act record-keeping requirements); and
  17. SEC v. J.P. Morgan Securities Inc., 03-cv-2939 (WHP) (S.D.N.Y. Apr. 28, 2003) ($50 million in civil penalties and disgorgements as part of a global settlement for research analyst conflict of interests).

Now, how many bankers went to jail during this entier ten year period?

Then there's the actual financial fidelity of the bank itself, which so few call into question... JP Morgan's Derivatives Portfolio Was (and STILL MAY BE) VASTLY Inferior To That of Bear Stearns AND Lehman Brothers Just Before They Collapsed!!!


JPM Lower Grade Derivatives

The oft used chart below was created in the 4th quarter of 2009. I'm sure it's worse now!

JP Morgan's Chart

So, have I demonstrated the nature of the entity that has issued said report "The Audacity of Bitcoin" and clearly contrasted it to thine humble author (media apearances/calls & Wikipedia page)? This is not a credible institution. The same institution that penned and distributed "The Audacity of Bitcoin" also files patent for Bitcoin-style payment system but JPMorgan's "Bitcoin-Alternative" Patent Was Rejected (175 Times)

The Sheer Audacity!

JPM Audacity of Bitcoin pg 1

JP Morgan's John Normand says:

"Unlike other asset markets, FX rarely welcomes newcomers for the simple reason that launching a widely-used currency traditionally required creating a sovereign or supra-sovereign entity with a central bank to issue the unit and manage its supply over time.

Hence the audacity of bitcoin: it is a stateless, virtual and peer-to-peer currency, so exists only digitally and is associated with no sovereign, central bank or bank payments system. It is also incredibly illiquid extremely volatile and often caricatured."

Ignorant statement correction #1: Bitcoin is not a currency. It is a bifurcated system consisting of:

  1. Bitcoin - an open source peer to peer protocol that enables a fully distributed ledger of data (and not just financial data) that is agreed upon by networked consensus, thus eliminating the need for trust. No fiat currency can come remotely close to doing what it can do;
  2. and bitcoin - a stream of data traveling along the fully distributed ledger mentioned above, manifested as a virtual currency that has an inherently native scripting language that fully qualifies it as a smart, programmable currency in stark contrast and direct contravention to "dumb" fiat currencies which have no programmable features whatsoever.

Mr. Normand/JP Morgan also state: "virtual and peer-to-peer currency, so exists only digitally". This patent nonsense. Here is a physical bitcoin right here, compared to two other very popular physical manifestations of digital money:

digital currencies

Mr. Normand and JP Morgan then go on to state: "For corporates, bitcoin’s appeal is two-fold: no or low transaction costs from a peer-to-peer payments system, and the potential brand recognition from trialing a new technology. These advantages must be weighed against extreme illiquidity and volatility, both of which impede risk management. All-in transaction costs may also be higher once the fees from transferring bitcoins to fiat currencies are included."

Well, that's exactly what we're working on at UltraCoin. If you simply do the math you can find out exactly how much using Bitcoin will cost. What JP Morgan forgot to mention was the inherently safe risk management attributes that can come with using UltraCoin over bitcoin. UltraCoin effectively hedges and isolates the user from both credit risk and market risk, if the user is willing to pay the hedging costs. This makes the UltraCoin enabled bitcoin deal multiples safer than doing a similar deal with JP Morgan itself as the counter party. As a reminder, see the two charts above which illustrate JP Morgan's holdings then glance down to the flowchart below.

BTC swap  conversion cost flowchart1

Tell me, would Greece have been better off dealing with me through UltraCoin and Bitcoin or JP Morgan and Goldman Sachs through their opaque swaps. As a reminder I bring you the BoomBustBlog article I penned a couple of years ago - Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

The Greeks (again)...

    1. According to people familiar with the matter interviewed by China Securities Journal, Goldman Sachs Group Inc. did as many as 12 swaps for Greece from 1998 to 2001, while Credit Suisse was also involved with Athens, crafting a currency swap for Greece in the same time frame.

        Under its "off-market" swap in 2001, Goldman agreed to convert yen and dollars into euros at an artificially favorable rate in the future. This helped Greece to use that "low favorable rate" when it recorded its debt in the European accounts-pushing down the country's reported debt load.

      Moreover, in exchange for the good deal on rates, Greece had to pay Goldman (the amount wasn't revealed). And since the payment would count against Greece's deficit, Goldman and Greece came up with another twist: Goldman effectively loaned Greece the money for the payment, and Greece repaid that loan over time. And the two sides structured the loan as another kind of swap. So, the deal didn't add to Greece's debt under EU rules. Consequently, Greece's total debt as a percentage of GDP fell from 105.3% to 103.7%, and its 2001 deficit was reduced by a tenth of a percentage point in GDP terms, according to people close to Goldman.

      Another action that smacks of Hellenic manipulation, at least to the staff of BoomBustBlog: for years it apparently and simply omitted large portions of its military-equipment spending from its deficit calculations. Though, European regulators eventually prevailed on Greece to count everything and as a result, in 2004, there was a massive revision of Greek deficit figures from 2000 (a budget deficit of 2.0% of GDP in 2000 to beyond the 3% deficit limit in 2004), by then Greece had already gained entrance to the euro. As in my trying to prepare for the coming sovereign debt crisis, timing is everything, isn't it???

You see, these shenanigans are not possible when the swap is implemented with UltraCoin (the derivative layer that we overlay on top of Bitcoin). Remember "Ignorant statement correction #1": Bitcoin is not a currency. It is a bifurcated system consisting of Bitcoin - an open source peer to peer protocol that enables a fully distributed ledger of data (and not just financial data) that is agreed upon by networked consensus, thus eliminating the need for trust. No fiat currency can come remotely close to doing what it can do;...

Because everything is accounted for in the Blockchain, you cannot double count, double deal, lie, cheat, steal or deceivingly overleverage - in other words the typical Wall Street bank business model is fractured!

 

This means my potential inability to write artciles such as these: Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! or Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?

To think, all of this wording... and I'm just getting to the bottom of the first page of this report! If you want me to address the rest, simply give me the heads up in the comment section below - and...

If you want to contribute to the further education of Mr. Normand and JP Morgan, contibute to the UtlraCoin crowdfunding effort here. As you can see from this article, Reggie Middleton's UltraCoin is no mere alternative cryptocurrency. I fully intend to disintermediate the typical Wall Street bank through this technology by elimintating them as the unnecessary, full friction, inefficient and costly (where do you think those $20 million bonuses come from?) middlemen that they are. Remember, THEIR profit margin is MY business model! Click here to crowdfund the disintermediation of Wall Street!

Oh yeah, Mr. Normand, if you ever want to debate Bitcoin in public, I'm game. Let's dance! 

 ultramini

This crowdfunding project ended up on the UltraCoin site because it was rejected by Kickstarter, with the stated reason being that it was outside of their scope - reference the email below.

kickstarter rejection email

This "rejection" opens three new possibilities which I have capitalized upon:

  1. To bring the entire crowdfunding operation in house in order to save dramatically on fees. Kickstarter will apply a 5% fee to the funds raised, and Amazon will apply credit card processing fees (between 3-5%). If funding isn't successful, there are no fees. Through the UltraCoin site, you will pay 5% to the admin and 1% flat rate to the payment processor (if you choose to pay in Bitcoin).That is a 2% - 5% savings - or $20,000 to $50,000 (or up to a junior programmer) savings for every million dollars raised!!!;
  2. To demonstrate how disruptive UltraCoin can be as a disintermediator to all things financial. I suggest readers view my video "UltraCoin Subjects PayPal to Margin Compression" for an example;
  3. To open up the UltraCoin site as a alt.coin and related digital currency-freindly crowdfunding platform to all of those who may wish to raise money in this fashion without the restrictions placed upon you by sites such as Kickstarter.com.

So, UltraCoin, the great disintermediator, even disintermediates its funding sources. Eliminate the middleman and save. Anyone interested in viewing my UltraCoin crowdfunded project, click here. Anyone interested in crowdfunding their own (serious) cryptocurrency related project can do so here.

Cryptocurrencies have been on a tear over the last 2 years, both in terms of mindshare and returns. This is particularly true of the last year, in which Bitcoin (the de facto proxy for cryptocurrencies) has heaved from $13 to $950, making a pit stop at $1200 along the way. This 7,308% return looks to be outrageously delectable to many a speculator and has even caught the eye of an institutional fund or two. The problem is, and what many novice investors have a problem conceptualizing, that astute institutional “investment” funds actually have a problem dipping their toes in the wilding appreciative yet hyper-volatile world that is cryptocurrencies.

The reason is because “investment funds” as opposed to beta chasing “trading” or “hedge" funds seek a measured return on investment. The raw returns that you see spouted for Bitcoin and the various alt.coins are actually not what the smart institutional money is looking for.

Put another way, you tend to get what you pay for. Risk is the price of reward, with risk being defined as deviation from expected return. You nearly never get a reward without bearing some risk to attain said reward. On the flip side, you should always demand a commensurate reward for the risk that you take. Measuring reward without taking into consideration the risk paid to attain such reward is akin to jumping out of the top floor of a 50 story building to revel in the exhilaration of the drop without taking into consideration what happens when you reach ground level. All in all, it tends to end ugly.

My clients are told that if you assumed $1 of risk to reap $1 of reward, then you effectively made nothing from an economic, risk adjusted reward perspective. This is difficult for the layperson to understand since those who reaped said dollar are left holding one dollar of nominal returns which looks, smells and spends like a dollar. They don't seem to get it until that third or fourth go around when they get 30 cents back for the dollar they invested (versus an amount over a dollar, hence a negative return). You see, probabilistically, you can reap more than you sow over the short term simply out of dumb luck. Realistically, the law of averages will catch up to you and eventually (and most likely close to immediately) you will reap what you sow, or... you get what you pay for!

Similarly, if bitcoin investors/traders believed they are doing well when bitcoin jumps from $13 to $950, they may be mistaken. The reason? Bitcoin has a modified beta of roughly 673! That means that it is volatile. Very volatile! More volatile than practically any basket of currencies or stocks you can think of. This volatility means that in a short period of time it's just as easy to be on the losing side of the trade of this asset as it is to be on the winning side. So, you're lucky if you bought at $500 and rode it to $950, but you could have just as easily bought at $1,200 and rode it down to $500.

With these concepts in mind, you should always adjust for risk before attempting to measure reward. By doing that you will find that you can compare disparate assets, ventures and opportunities that have different reward propositions and even different horizons by measuring the risk (or the economic cost) of the investments and then adjusting the actual or expected reward desired to compensate for said risk commensurately.

Notice how, if one were to take this approach, one can see the different risk adjusted returns between the top two cryptocurrencies by market value. Bitcoin is the most popular, but Litecoin is the most profitable - even when fully adjusted for risk.

ridk reward

The UltraCoin team has run these calculations, among many other currencies, on every cryptocurrency with a market value over $1 million. In addition, these currencies have been aggregated to form what we have coined as the "UltraCoin Cryptocurrency Composite Index" - a basket of cryptocurrencies upon which our custom UltraCoin derivatives can trade, hedge, invest and speculate.

These indices and calculations (not to mention a bevy of other calculations to assist in trading) are part and parcel of the UltraCoin client.

CryptoCurrencyComposite Index

The graph below depicts the outrageous raw returns had by holders of bitcoin. It also denotes the extreme volatility experienced therein, particularly from late 2013 onward.CryptoCurrencyComposite Index graphIf one were to place a hurdle rate of required return to compensate for said volatility, the return curve will look somewhat different.CryptoCurrencyComposite Index graph - adjusted

As you can see, all that glitters is not necessarily gold! I will be pushing for the beta release of the UltraCoin client quite soon, quite possibly at the Berlin Bicoin conference. In the meantime, for those of you who have not had a chance to play with the software, here are a few screen shots.

currency transalation errortest 

thumb Fortune Front CoverA few days ago I was waxing poetic over the abilty of David Z. Morris' ability to grasp rather complex, intangible concepts and loquaciously lay them forth in the written word via the pages of Fortune magazine. After all, what creative destruction advocate wouldn't get all mushy after reading "Reggie Middleton, currently building a client called BTC Swap. Middleton, gravelly voiced, dapper, and businesslike, doesn't fit the stereotype of woolly young bitcoin developers. But he slyly describes himself as "not quite an anarchist," and BTC Swap is a shot directly across the bow of the financial industry"...

Or "Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that "what I'm doing right now is a direct threat to fiat merchant banking." For him, excitement over value fluctuations in the bitcoin currency is missing the point: "It's not a threat as people sit there and ponder whether bitcoin is a bubble or not. But if people go through the protocol and use their imagination, the existing system is threatened."

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