The night is always darkest before the dawn, they say. Is that true for crypto, too? Well, last week the Chinese crack down (again) and for Bitcoin et al the end seemed nigh (again). One week on and the BTC prize not only recovered its losses, no, there is also some evidence that the Chinese government actually has an interest in cryptos thriving, but we get to that in a minute. We’ll also cover that the real money is elsewhere and that only technology can solve one of the biggest problems in finance. Here’s the latest FinTechnologist Weekly:
The Future of Bitcoin and If You Really Don’t Want to Pay Taxes
Calling the Shots on BTC
Once more it looked like the beginning of the end for cryptocurrencies when China’s regulators declared all transactions of Bitcoin and other crypto-currencies illegal. There are a number of reasons why the Chinese did what they did and the continuous blackouts across the country are only the most visible manifestation of the country’s energy problem. Still, the mechanics of financial markets are seldom black and white and cryptocurrencies (once more) are no different. Following the news, I came across a tweet, which in turn took me to an interesting overview of who holds all the Bitcoin. The title is slightly misleading since the overview is far from being comprehensive despite the apparent transparency Blockchain is known for, but still quite an achievement and some interesting stuff here. For instance, the fact that the Chinese Government holds billions in Bitcoin and other cryptocurrencies. The table shows holdings of 194,775 BTC. At the current rate of $48,239 per bitcoin, that stake has a value of $9,410,943,675 but given the highly volatile it isn’t more than a snap-shot. More interesting is its percentage of the total of BTC in circulation, which is at least 0.928%. I say at least, because if you check out the respective source, you’ll find that the holding comes from seizing of $4.2 billion cryptos as part of the PlusToken Ponzi crackdown. That means that China recovered not only the 194,775 BTC during this operation but also 833,083 ETH, 1.4 million LTC, 27.6 million EOS, 74,167 DASH, 487 million XRP, 6 billion DOGE, 79,581 BCH, and 213,724 USDT. Hence, China might actually hold more than that since it hasn’t been the only law enforcement action where it recovered cryptocurrencies. Having said that the stake could, however, well be lower than that since this particular crackdown happened almost a year ago. If you like conspiracy theories, you will certainly deduct that this is all part of a Chinese scheme profiting from price fluctuations in bitcoin. Personally, I think that goes a bit far and I’m not really sure how much Chinese regulators take into account how big their own stake is when they take these decisions. The current energy crisis possibly might indeed a more important element, but who knows?
Big Money in Real Finance
$10bn might sound a lot to you, but to understand how much money circulates elsewhere in finance, check out the report this week on the FT that investment bank fees soar past $100bn on M&A boom in the first nine months of 2021. It says that top banks and leading boutique advisors have benefited from the boom in mergers and acquisitions as well as red-hot equity capital markets. These are record numbers and outstrip any other year since the start of the millennium. M&A has seen a real frenzy and fees are worth more than $60bn so far. Add to that the $52bn lenders have made underwriting loan and debt offerings and you are well past the hundred billion mark. The biggest profiteers of these record numbers are five American banks with JP Morgan and Goldman Sachs being the frontrunners hauling in a combined $18bn in fees. And talking about frontrunners, the biggest deal so far has been merger of Discovery and Warner Media and that in itself is a tale worth reading (apparently it all started when the CEO of Discovery couldn’t play golf, felt bummed and instead contrived the idea with his golf pal from AT&T). You see, it takes a lot of experience and connections to pull of deals of that size and you might be tempted to say that they earned the money, but, still, that’s an awful big number. Before we all turn to communism for the apparent solution, I’d suggest we move on to the next item on the agenda.
The Money Laundering and Tax Evasion Economy
I have to admit that I hadn’t thought this through since the next and possibly biggest piece of news this week is the publication of the Pandora papers. If you missed last night’s breaking news and haven’t had a chance to look at any paper it is nothing less that “the largest investigation in journalism history exposes a shadow financial system that benefits the world’s most rich and powerful”, according to the International Consortium of Investigative Journalists. The ICIJ investigation shows links to about 35 current and former national leaders, and more than 330 politicians and public officials in 91 countries and territories. There are also a number of celebrities among those denounced as shareholders, directors and beneficiaries of offshore companies that were used to evade taxes, launder money or abuse public funds. For instance,
Jordan’s King Abdullah was reported to have used offshore accounts to spend more than $100 million on luxury homes in the United Kingdom and the United States. The Czech prime minister and the chairman of India’s biggest conglomerate, too, were among global figures denying wrongdoing on Monday, after the leak of what major news outlets called a secret trove of documents about offshore finance.
The network of journalists say that the information comes from a 2.94 terabyte data trove exposes the offshore secrets of wealthy elites from more than 200 countries and territories. The publication is based on the work of more than 600 journalists from 150 media outlets in 117 countries. In a statement the ICIJ said that “the investigation is based on a leak of confidential records of 14 offshore service providers that give professional services to wealthy individuals and corporations seeking to incorporate shell companies, trusts, foundations and other entities in low- or no-tax jurisdictions. The entities enable owners to conceal their identities from the public and sometimes from regulators. Often, the providers help them open bank accounts in countries with light financial regulation“.
In many cases, the jurisdictions in question that are used to create a chain of entities that successfully hide the flow of money are countries that have a certain repuation like the British Virgin Islands or Cyprus. However, the report also showed that many U.S. states are among those that provide vehicles like shell companies.
It’s a mess and confirms what most of us were already believing, but it remains to be seen whether it will be of any consequence and while I’d like to remain optimistic, I cannot help but be rather sceptic in this case. But, hey, sometimes wonders do happen, don’t they?
To conclude on a more positive note and not to leave you questioning everything and anything, I’d like to recommend listening to my conversation with Arunkumar Krishnakumar. It started out as a conversation about his latest book, Restart Up, but turned out to be a conversation about much more and #QuantumComputing, #Entrepreneurship, #Blockchain, and #MentalHealth are only some of the keywords we cover. Check it out!
And that’s all for this week but if you have an interesting story, please connect on Twitter. And if you would like to join me on the new FinTechnologist podcast, the same applies, of course. So, make sure you get in touch and in the meantime, have a good week!
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