Here are this week’s headlines:
- The dark side of Bitcoin
Reported by Spencer Yap
The famous cryptocurrency, Bitcoin, needs no introduction. Its price action in recent months has been unprecedented, jumping as much as 10% in valuation on multiple occasions. To add to this, in mid-October, Bitcoin’s total valuation was worth more than the combined market capital of Goldman Sachs and Morgan Stanley. Yet there is some serious concern about the legitimacy of bitcoin. Where does Bitcoin’s value derive from?
Supporters of Bitcoin would argue that it is a new form of currency, one that transcends borders and jurisdictions, allowing for a single unified payment system for everyone. Yet as Warren Buffet puts it, Bitcoin isn’t really a currency. It is pegged against a real currency and fluctuates according. For example, when buying a flower that is worth £1 and the valuation of a single Bitcoin is £1, you simply pay 1 Bitcoin. But as the valuation of Bitcoin drops to £0.50, you would have to pay 2 Bitcoin. As Buffet would say, its like trading with barrels of oil and paying according to the valuation of oil rather than the actual currency.
Furthermore, proponents of Bitcoin would say that since Bitcoin practically exists in everyone’s computer, it would be impossible to hack. The very nature of Bitcoin would prevent it from being stolen. Hence your “money” would be more secure than having it in a bank where all the information is stored. But supporters of Bitcoin ignore the fact that Bitcoin still have to be transacted through a cryptocurrency exchange and subsequently those exchanges have to be connected to a certain payment system (euro / dollar / any type of real currency). Hence their Bitcoin would still be open to hacking at these points. Just recently in December, nearly $64 million worth of Bitcoin was stolen. Back in 2014, Mt Gox, the biggest Bitcoin exchange lost “approximately 850,000 Bitcoins”. Furthermore, in an effort to mimic the limitation in quantity of gold, Bitcoin is capped at 240,000,000 coins. With the lost of coins, who is going to replace the lost coins?
Furthermore, the lack of Bitcoin regulation stands to question its legitimacy. Jim Rickards, in a recent interview, explained that every market in the world is open to manipulation, hence the need for regulators. The lack of regulation in Bitcoin, therefore, allows for individuals to “paint the tape”, a process whereby a group of traders trade the same Bitcoin repeatedly at increasing prices to increase the valuation of Bitcoins without any extra cost. Subsequently, side liners would look at the increase in valuation and invest in the over-valued product, pushing the price even higher. With regulators, this would have been caught under market manipulation or securities fraud. With the unregulated nature of Bitcoin, however, it is impossible to identify any manner of fraud at this stage. It then stands to question where the real value of Bitcoin comes from. The factors mentioned and others are causing commentators to call the Bitcoin market a bubble and the price action simply “speculative mania.”
For the time being, we should endeavour to learn from history, as Bitcoin is currently showing all the traits of Tulip Mania.
Watch the interview with Jim Rickards here.
- Walt Disney buys Fox
Reported by Anna Flaherty
Walt Disney has bought Fox from Rupert Murdoch in a landmark deal for the industry. The deal includes Fox’s stake in Sky as well as the 20th Century Fox film studio. The other elements of Fox, its news and sports, are not part of the deal and will form a new company.
Many have been surprised by Murdoch’s decision to sell, as it was expected that he would hand over the business to his sons. There are rumours that Rupert Murdoch’s son, James, will be given a senior role at Disney. However, Disney chief Bob Iger has been vague as to whether or not this will be a reality.
The reason for which Disney has acquired the company is that they plan to become a competitor of Netflix, streaming content directly to viewers at home. Analysts expect there to be a “flurry of deals” in the aftermath of this agreement, with consultants calling it “an all-out war on the content front”, with other media giants needing to keep up with the scale of content they own. Potential studio targets for acquisition include Lionsgate, MGM and Sony.
- The FCC scraps Net Neutrality rules
Reported by Nathan Gore
Net Neutrality has been repealed this week in the US, when the FCC voted this Thursday (three to two) to dismantle the rules that prevent internet service providers (ISPs) from charging websites more for delivering services or blocking people from accessing content.
The rules were in place in order to keep internet regulations in line with that of other utilities, such as phone services or electricity, and had been set by the same agency during the Obama administration in 2015. This decision reflects the belief that the unregulated internet market will be more open to innovation and expanded business development, which in return will provide an economic boost to the whole country.
This move has proved to be an extremely controversial one, and was subjected to many protests before, during, and after the crucial meeting. Numerous legal challenges are also likely to be spawned, such as from the Internet Association and other public interest groups. Several Democrats are also in the process of drafting up various bills that would overturn this new rule.
An indication of the public anger about this can be gleaned from looking at the comments submitted to the FCC pre-vote. The FCC received 22 million comments, with the vast majority in favour of keeping the rules as they were. Millions were also submitted in favour of overturning these rules, but they have since been found to be probably fake, and likely to have been submitted by Russian trolls.
The fight for net-neutrality in the US can be compared to similar concerns about ‘Zero-Rating’ in the EU.