Category Archives: operational risk

I can’t resist making a bit of noise about this

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The second largest Bitcoin exchange is shutting down (possibly to reopen elsewhere).

Bitcoin experienced a rough night on Monday as TradeHill, the second-largest Bitcoin exchange, announced that it was closing its doors. In a statement, CEO Jered Kenna cited regulatory problems and the loss of $100,000 in a dispute with one of its payment processors as major factors in the decision. He has pledged to open a new site once these issues have been resolved.

So apart from the problems with Bitcoins, it turns out the security and marginal attractions of the construct are a little tarnished too.

Narratives vs facts

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I don’t usually write about The Final Frontier, but this article has a great parallel to what I do write about.

It’s worth reading the entire article, but the main message is that we cannot use the dream or story or fairy tale of imminent migration into space and other planets as an excuse not to deal with the very real problems we have on Earth right now. The misconceptions, Hollywood induced and otherwise, about the ease of space travel or even the extent of our current capabilities, are massive.

As with so many things, the stories that fill our society can be very different from the harsh reality.

So many more reasons Bitcoins will fail

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Most of the comments on this Slashdot article about fraud and crashes with Bitcoin are insightful. Some are funny too. Most telling for me is that one of the primary Bitcoin exchanges Mt Gox started life as “Magic The Gathering Online Exchange” – an exchange to trade collectable cards for a fantasy game. Should I leave Bitcoins alone for a bit?

Doesn’t have two Bitcoins to rub together

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Prediction:  Bitcoins will be irrelevant by 2013 and will never emerge from a very small niche market.

In fact, they are already irrelevant today. This is what happens when open source supporters, crypto experts and privacy nuts think an understanding of C++ and maths equates to knowledge of economics and monetary systems. Oh, and add in an unhealthy dose of paranoia and persecution complexes.

The technology and theory is interesting – bitcoins are effectively a peer-to-peer currency with various controls around their creation, existence, trading and (lack of) tracking.

From a monetary system perspective they are irrelevant. To show the extent of the problem, just read this nonsense article “explaining” why Bitcoins will always have value. The article includes how the “Federal Reserve rescued the dollar in 2008″. I must have missed that. Anytime supporters of a particular idea have completely incoherent arguments for it, that’s a pretty good sign there are no coherent arguments for it.

The author also states as a fact that a South African mobile operator is integrating Bitcoin support.

Prediction: None of MTN, Cell C or Vodacom will ever officially support Bitcoin.

I can’t begin to explain how many different ways this is a bad idea.  Good news is several people already have. Much of the hype about Bitcoins and other cryptocurrencies stems from a lack of appreciation for the devastating impact of deflation, misunderstanding of what the money supply really is and the role of the Federal Reserve in this crisis and the Great Depression.

Now I just need to find a way to short Bitcoins.

How government really sees the important new Companies Act

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BusinessLive (I’m sure they’re not alone this morning) has a story about the non-implementation of the new Companies Act on the scheduled 1 April 2011 date.

Some key snippets:

Manoko said that, while the new Companies Act was meant to be implemented tomorrow (Friday, April 1), he was “uncertain when it will go through”, based on processes still underway.

However, he urged all stakeholders to be ready for implementation “at whatever time or date”.

Exactly the point really – being read “at whatever time or date” is bad for business, bad for our economy and therefore, bad for employment.

The newspaper added that Minister of Trade and Industry Rob Davies was travelling outside the country and had not yet signed the regulations that accompanied the new act.

“And it appears that President Jacob Zuma’s office has not yet received all of the relevant documents that have to be signed by him before the new act becomes effective.”

But several days ago we were told that it would be effective 1 April 2011 when very, very clearly it was not going to be.  Being late is one thing – it happens. But not communicating clearly to stakeholders is not only bad manners, it incurs a cost to the country.

However, Manoko told BusinessLIVE he anticipated that the regulations would be published today.

The sad thing is that many people will be holding their breath. This is important and the governments lack of appreciation for the impact this has on business climate is telling.

Our government frets about a New Growth Path and complicated methods of increasing employment. I have two simpler ones:

  1. Stop kidding yourselves that our education system is working.
  2. Start doing the basics right, even if they aren’t as sexy as all the fancy Plans and Gears and Paths.

 

 

Too Small To Succeed

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According to a Fin24 story this morning, the FSB is probing smaller unit trusts.

The economics of a fund manager depends entirely on growing funds under management so that revenues (based on assets under management) grow to be larger than costs (significantly fixed and at most semi-variable). Details of performance fees and the second order impact of investment performance aside, a successful fund manager must attract positive net client cashflow, and lots of it.

Half the 960 available unit trusts have less than R100m in AUM. Some of these may be rapidly growing new funds, but many have been stagnant with slow growth for several years.

The FSB’s attention presents opportunities for consolidation between funds and should place larger funds in a stronger position competitively. Total Expense Ratios (TER) for these funds with significant scale should already be lower than smaller funds. Maybe it’s time the larger funds made more if their size and cost efficiencies. If they are going to take the heat for being too large to be nimble, they might as well reap the benefits too.

It will be interesting to see what this means for white labelled funds and whether the economics of these convince the regulator that they should survive.

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