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The Future Belongs to the Blockchain

The Future Belongs to the Blockchain
(Dmitry Volochek/Dreamstime)

By    |   Wednesday, 24 January 2018 12:37 PM

We just attended the North American Bitcoin conference in beautiful Miami Florida. Over 4000 people attended.

There were more millennial billionaires in one place then we’ll ever see again in my life. 30 plus companies/block chain purveyors presented at a cost of $20,000 per 15 minutes. Our good friend Jeff Berwick was present preaching his anarcho-capitalist way of life, and was very well received.

Everyone presenter had a similar story to tell/sell. The block chain is revolutionizing commerce, law, banking, investing and any other sector of the life that you can think of. Whether you’re looking for AR (augmented reality) glasses, looking to invest in ultra expensive supercars, or you’d like to put your money into an advanced alt currency trading platform, this was the place to be.

No doubt that a number of these people were pitching ideas that wouldn’t fly. The difficulty was separating the scams from the brilliant ideas. They all seemed so sincere and enthusiastic that you would have to be a fool not to invest your life savings in block chain and crypto/klepto currencies. Needless to say the vibe at the show was quite similar to the 2000 dot com bubble.

However, one thing is absolutely certain, much of the world’s problems, and its inability to deal with them, can be effectively addressed by the blockchain.

Like any other innovation, the blockchain can be used for good or for evil. When properly executed the blockchain itself is incorruptible and immutable. The ability to keep track of things such as ownership rights, title and interest in intangible and tangible property is truly being revolutionized.

Everyone wants a piece of it. There were people of all levels of sophistication and understanding attending. They came from all walks of life, all religions and all races. The blockchain is truly colorblind. The real question is how do you capitalize upon the opportunities thus presented.

Unfortunately there is no clear answer. Of most interest was a group of attorneys who discussing numerous blockchain legal issues. Of particular concern was the practice of painting the tape. That happens when big market actors conduct a series of trades to manipulate the price, making it go up or down. The attorneys were quite conversant and well schooled in the ways of the blockchain and appeared to believe the practice to be quite prevalent. And it makes total sense that it would be. For all the hype about Bitcoin and its valuation, the fact is that Bitcoin is very lightly traded compared to things such as FX, stocks, bonds etc.

Because the markets for crypto wannabe currencies are really very shallow, bordering on illiquid, big players are presented with an opportunity to cash in on these divergences through computerized arbitrage. In addition, the alt coin marketplaces and other venues in which to purchase tokens are not synchronized. Instances of mis-valuations and mispricing are rampant. Therefore sophisticated traders, with platforms unavailable to the ordinary alt currency investor, have the ability to reap huge rewards with virtually no risk.

In fact it would not be a surprise if there were many of the so-called Flash Boys who have given up high-frequency stock trading and instead switched to high-frequency klepto-currency trading. Regulation is in its infancy. I’m not sure that there’s any thing known as insider trading in the crypto currency space. Rules against price manipulation are non-existent. Therefore large actors can band together and manipulate prices at will without fear of accountability, regulatory action or jail.

To libertarians, this is not such a bad thing. When we look back at the history of the SEC, from passage of the Securities Act of 1933 to present, many frauds have been perpetrated in spite of stringent disclosure mandates. While disclosure, sunlight and transparency should be the hallmark of any financial market; in many ways the US regulatory schema has failed miserably to protect unsuspecting investors.

This problem is further aggravated, by the opacity of Crypto markets. In addition, prices have done almost nothing but go up since their inception. This has led to a common investor misconception that Bitcoin only goes up. Unfortunately these naïve speculators are finding out that markets go both ways, often quickly and violently.

These words are only meant as a warning sign to the unwary. The future is indeed bright for the blockchain and blockchain applications. However, the market must mature and unfortunately regulation will become commonplace. Whether this regulation can actually protect marketplace participants is an open question. To give an example, I interviewed a principal in an offering called Bitcar. Their goal is to tokenize exotic car investing. Over the past several decades, this asset class has been a stellar performer. One example, a 2005 McLaren worth $1.5 million at that time, fetched $15.3 million this year at auction. Their initial coin offering or ICO isn’t being sold to US investors. Maybe it was just too hard to comply with US securities laws. However, once the token is in distribution, investors from all over the world will be free to purchase it on the secondary market. This is a clear end run around countries with strict regulatory systems that hinder or hamper both legitimate and sketchy promoters.

Blockchain related tokens and alt currencies are a global market. The world is ill prepared to manage the implications and risks these markets present. Governments are either unwilling or unable to effectively regulate these markets. And many countries are loath to interfere in what is shaping up to be the next gold rush. Scams are commonplace and there’s very little being done about it. This is perhaps the greatest challenge over the long run.

Kerry Lutz has been a student of Austrian Economics since 1977. While attending Pace University, he stumbled upon an extensive cache of Austrian Economic Literature in a dark, musty, abandoned section of the school’s library. After graduating from The New York Law School, he became an attorney and life long serial entrepreneur. His diverse career has included: running a legal printing company, practicing commercial law and litigation and founding a successful distressed asset investment company.

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There were more millennial billionaires in one place then we’ll ever see again in my life. 30 plus companies/block chain purveyors presented at a cost of $20,000 per 15 minutes. Our good friend Jeff Berwick was present preaching his anarcho-capitalist way of life, and was very well received.
future, belongs, blockchain, bitcoin
Wednesday, 24 January 2018 12:37 PM
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