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).

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 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...

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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?

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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. 

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

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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. 

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Citibank

About two weeks ago I answered what was at the time one of the most amateurish reports coming out of the bit money center banks in some time in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing. Well, it appears that there's a contest for the hypocritical hypothesis and Citibank intends to go for the gold, likely toppling JP Morgan's lead. In a nutshell, we have a gaggle of US based banks that have exhibited horrendous risk management, business judgement and trading/investment acumen nearly topple the global financial system, demand (as in ransom money) trillions of dollars of welfare (which they recieved and are still recieving) from the US taxpayer, and still pay out billions of dollars in bonuses and salaried compensation - all the while the US dollar is still safe and sound as the worlds deepest, most liquid currency market not to mention still being the world's reserve currency.

Now, a much, much, much smaller Bitcoin exchange fails after flashing obvious warning signs for months and does not require bailing out by the tax payer or the Federal Reserve (how can I emphasize how big a plus this is for Bitcoin), and bitcoin dips in price for a single evening - rebounding nigh immediately! Citibank and JP Morgan's incompetence through the entire world into a near depression - and that's with globally collaborative ZIRP, trillion's of dollars of bailouts and the clandestive changing of accounting rules and the morphing if simple  math to make it look like the insolvent were really not so.

Re: Mt. Gox failure -  Would Mt. Gox still be in business today, like JPM and Citi if the Federal Reserve dropped rates to a negative level, FASB authorized the changing of accounting standards to minimize Gox's liabilities and no one at the exchange was held liable for what appeared to be outright fraud, as claimed by the SEC? would there be analysts in Mt. Gox writing silly papers overflowing with hypocritical hypothesis about how XYZ the dollar was dead because a US bank went bust? Probably!

Remember, I turned JP Morgan's alleged research upside down in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing, to wit:

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 canview 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.

Mainstream media entities such as the Wall Street Journal and Business Insider take the conflicted interest ridden drivel from these investment banks as actual legitimate analysis and actually base their reporting on it. That really gives me pause! Now on to addressing what Citibank claims as espoused through Business Insider, and I quote:

In a new note, Citi currency strategist — and the bank's defacto Bitcoin analyst — Steven Englander basically asks: What's the point of Bitcoin now?

Many of his comments echo our take in the week leading up to Gox's shutdown about how huge a setback this was not only for mainstream Bitcoin adoption, but also for the central tenets that got Bitcoin off the ground in the first place.

But for Englander, the technical glitch that hit not only Gox but other exchanges "seems to have been known for years without the Bitcoin developers instituting a complete fix,"... "So one question is whether the decentralized structure, which is the attraction to many, makes it too cumbersome to enact essential fixes."

"Bitcoin transactions [were] thought to be impregnable and turned out not to be," said Englander. "Earlier security questions had centered around everything except the possibility that there might be a fraudulent transactions record. The imperviousness to fraud was one the big attractions of Bitcoin and the surprise exploitation of a known defect is a setback. Now it looks like just another payments system that has to worry about fraud."

Where am I to start with this? Long story short, this is plain old simple ignorance! Bitcoin is open source software. That is why you get it for free! It's not as if the core Bitcoin development team ran a company and Mt. Gox bought a commercial software package from them with a warranty and represenations. Mt. Gox relied on an open sourced code base and refused to both contribute back to the community and even keep abreast of what was going on in the community. The end result? A problem that was recognized and solved 3 years ago went unseen by Mt. Gox until they were bled of hundreds of million of dollars worth of bitcoin.  JPM acts as if it is the open source communty's responsibility to instruct Mt. Gox on how to write and maintain software when in actuality it was Mt. Gox's responsibility to give back to and monitor the open source community!!! Notice how entities that were paying attention and playing by the open source communities rules were unscathed by this so-called "defect". If I say there is a hole in the ground and I send out a report that there is a hole in the ground, but you don't read that report and continue to walk until you fall into the hole - all the while knowing you gained access to the ground for free, are you going to blame the ground for being imperfect or yourself for ignoring the community that gave you free access when the warned you about the hole and even gave you instructions on how to avoid the hole?

"Bitcoin's market cap on paper by far exceeds that of the competition and that are many Bitcoin holders heavily invested in Bitcoin, so it has a first mover advantage. However as a store of value, its only value is reputational, and recent developments have shaken that reputation."

Go to 1:25 in this video for an answer to the statement above...

 

Business insider goes on to warn of the following risk: "That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts". Actually, the banks will implement bad parts and junk all the good parts. You see, this is all relative. In general, what's good for you and me is generally bad for the banks, and vice versa. Why do Citibank and JP Morgan harp on the pitfalls of decentralization? It's because the banks are the guys with the centralized servers!!! If you eliminate the need for centralized servers you eliminate the need for banks! 

Why harp on the dangers of peer to peer? Because bank branches will disappear in a heartbeat, as will centralized exchanges and the ability to pack in massive fees and charges unbenknownst to the client, the same fees and charges that fund those oh so many decimillionaire annual bonuses. It means a paycut for Wall Street and Wall Street is known to be vociferous in its attempts to avoid paycuts.

Reference UltraCoin: The Future of Money!!! for a long list of reasons why the banks fear and loathe Bitcoin, and by extension, UltraCoin!

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Citibank

About two weeks ago I answered what was at the time one of the most amateurish reports coming out of the bit money center banks in some time in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing. Well, it appears that there's a contest for the hypocritical hypothesis and Citibank intends to go for the gold, likely toppling JP Morgan's lead. In a nutshell, we have a gaggle of US based banks that have exhibited horrendous risk management, business judgement and trading/investment acumen nearly topple the global financial system, demand (as in ransom money) trillions of dollars of welfare (which they recieved and are still recieving) from the US taxpayer, and still pay out billions of dollars in bonuses and salaried compensation - all the while the US dollar is still safe and sound as the worlds deepest, most liquid currency market not to mention still being the world's reserve currency.

Now, a much, much, much smaller Bitcoin exchange fails after flashing obvious warning signs for months and does not require bailing out by the tax payer or the Federal Reserve (how can I emphasize how big a plus this is for Bitcoin), and bitcoin dips in price for a single evening - rebounding nigh immediately! Citibank and JP Morgan's incompetence through the entire world into a near depression - and that's with globally collaborative ZIRP, trillion's of dollars of bailouts and the clandestive changing of accounting rules and the morphing if simple  math to make it look like the insolvent were really not so.

Re: Mt. Gox failure -  Would Mt. Gox still be in business today, like JPM and Citi if the Federal Reserve dropped rates to a negative level, FASB authorized the changing of accounting standards to minimize Gox's liabilities and no one at the exchange was held liable for what appeared to be outright fraud, as claimed by the SEC? would there be analysts in Mt. Gox writing silly papers overflowing with hypocritical hypothesis about how XYZ the dollar was dead because a US bank went bust? Probably!

Remember, I turned JP Morgan's alleged research upside down in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing, to wit:

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 canview 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.

Mainstream media entities such as the Wall Street Journal and Business Insider take the conflicted interest ridden drivel from these investment banks as actual legitimate analysis and actually base their reporting on it. That really gives me pause! Now on to addressing what Citibank claims as espoused through Business Insider, and I quote:

In a new note, Citi currency strategist — and the bank's defacto Bitcoin analyst — Steven Englander basically asks: What's the point of Bitcoin now?

Many of his comments echo our take in the week leading up to Gox's shutdown about how huge a setback this was not only for mainstream Bitcoin adoption, but also for the central tenets that got Bitcoin off the ground in the first place.

But for Englander, the technical glitch that hit not only Gox but other exchanges "seems to have been known for years without the Bitcoin developers instituting a complete fix,"... "So one question is whether the decentralized structure, which is the attraction to many, makes it too cumbersome to enact essential fixes."

"Bitcoin transactions [were] thought to be impregnable and turned out not to be," said Englander. "Earlier security questions had centered around everything except the possibility that there might be a fraudulent transactions record. The imperviousness to fraud was one the big attractions of Bitcoin and the surprise exploitation of a known defect is a setback. Now it looks like just another payments system that has to worry about fraud."

Where am I to start with this? Long story short, this is plain old simple ignorance! Bitcoin is open source software. That is why you get it for free! It's not as if the core Bitcoin development team ran a company and Mt. Gox bought a commercial software package from them with a warranty and represenations. Mt. Gox relied on an open sourced code base and refused to both contribute back to the community and even keep abreast of what was going on in the community. The end result? A problem that was recognized and solved 3 years ago went unseen by Mt. Gox until they were bled of hundreds of million of dollars worth of bitcoin.  JPM acts as if it is the open source communty's responsibility to instruct Mt. Gox on how to write and maintain software when in actuality it was Mt. Gox's responsibility to give back to and monitor the open source community!!! Notice how entities that were paying attention and playing by the open source communities rules were unscathed by this so-called "defect". If I say there is a hole in the ground and I send out a report that there is a hole in the ground, but you don't read that report and continue to walk until you fall into the hole - all the while knowing you gained access to the ground for free, are you going to blame the ground for being imperfect or yourself for ignoring the community that gave you free access when the warned you about the hole and even gave you instructions on how to avoid the hole?

"Bitcoin's market cap on paper by far exceeds that of the competition and that are many Bitcoin holders heavily invested in Bitcoin, so it has a first mover advantage. However as a store of value, its only value is reputational, and recent developments have shaken that reputation."

Go to 1:25 in this video for an answer to the statement above...

 

Business insider goes on to warn of the following risk: "That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts". Actually, the banks will implement bad parts and junk all the good parts. You see, this is all relative. In general, what's good for you and me is generally bad for the banks, and vice versa. Why do Citibank and JP Morgan harp on the pitfalls of decentralization? It's because the banks are the guys with the centralized servers!!! If you eliminate the need for centralized servers you eliminate the need for banks! 

Why harp on the dangers of peer to peer? Because bank branches will disappear in a heartbeat, as will centralized exchanges and the ability to pack in massive fees and charges unbenknownst to the client, the same fees and charges that fund those oh so many decimillionaire annual bonuses. It means a paycut for Wall Street and Wall Street is known to be vociferous in its attempts to avoid paycuts.

Reference UltraCoin: The Future of Money!!! for a long list of reasons why the banks fear and loathe Bitcoin, and by extension, UltraCoin!

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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 

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This is a very educational show put on by Kim Greenhouse of "It's Rainmaking Time". She is one of the very few who eschew the soundbite driven media economy and chooses the long format, deep dive approach. While it may be too long for ADD crowd, it digs deep into a not so simple subject to foster understanding and comprehension. This was a pretty good show with an interesting cast of guests:

  • Reggie Middleton - brash blogger, entrepenurial investor and founder of UltraCoin ZeroTrust financial contracts
  • RootEleven founder, visionary, and Bitcoin programmer Andreas Antonopolous, who will explain why Bitcoin is like "the internet for money".
  • Bitcoin trader and programmer Dave Scotese will provide deep thinking about what makes Bitcoin so important, and why the public should be involved in its development.
  • Sam Guzik, one of the most sophisticated and knowledgeable SEC lawyers regarding crowdfunding and investment, will cut through the hype, misinformation, and wrong perceptions surrounding equity crowdfunding to highlight current SEC conditions and real opportunities in the crowdfunding arena.

This show is over an hour and a half long and I don't want the contet to be avoided simply because of its length, so I have included a hyperlinked menu below to assist in navigating to the topcis of your individual interests.

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Bloomberg reports Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, is on track for its largest pretax loss since 2008 after setting aside 3.1 billion pounds more ($5.1 billion) for legal and compensation claims. We will delve into this report in detail, but first a little background so we're all viewing 20/20.

I've been spending a lot of time rebuilding the banking system as software over a cryptocurrency framework. Basically, I'm building a more efficient, more "Trustworthy" financial system. Many are doubtful of these endeavors. I say, don't underestimate the effort. For one, a more efficient, more trustworthy system is sorely needed. Here we are, 7 years after the start of the great financial trainwreck that I'm known for predicting, and I'm still at it doing the same thing to the same industry. This is only possible when there's a structural problem in the industry. A problem that rapid advancements in technology are ripe to solve.

On Thursday, 11 April 2013 I penned, I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets! wherein I clearly illustrated that RBS is materially understating its liabilities AND even went so far as to include links to the SEC and the UK banking regulator so that US/UK taxpayers and investors can notify our erstwhile regulator(s) to the potential of financial shenanigans. The root of the problem is that RBS has materially under-reported its liabilities (in my oh so humble opinion.) Those that stress tested RBS (the same erstwhile professionals that allowed the Irish banks to pass their stress tests 3 months before they started collapsing) apparently overlooked humongous swaths of liabilities. 

The amount of evidence that I produced to back my claims was prodigous...

What happened behind closed doors?

Ulster Bank gave a first floating charge in favor of the Central Bank of Ireland (an arm of the European Central Bank) and the Financial Services Authority of Ireland. U.S. investors would have had to rely on the contents of The Royal Bank of Scotland's 2008 Annual Accounts which apparently (in my opinion) concealed the existence of the CRO registered charges to the Bank of Ireland.

Ulster Bank RBS charge doc 2 Page 1

Now, back to the Bloomberg article...

The provision includes 1.9 billion pounds for lawsuits and fines tied mostly to the sale of $91 billion of mortgage-backed securities from 2005 to 2007, the lender said yesterday. It follows agreements Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG (UBSN) struck with U.S. regulators to settle claims they didn’t provide adequate disclosure about mortgage-backed debt sold in the housing bubble that preceded the 2008 financial crisis.

Are they referring to claims similar to the ones I made that RBS  bought Ulster Bank full of unrecognized mortgage crap, levered up off it and hid the debt? I strongly suggest my readers brush up on how The Irish Banking Cancer Spreads to the UK.

More than five years after giving RBS the biggest bank bailout in history, the government still hasn’t been able to cut its 80 percent stake.

... “When the crisis broke, the bank was involved in a number of different businesses in multiple countries that have subsequently faced heavy scrutiny by customers and regulators,” McEwan, 56, said in yesterday’s statement. “The scale of the bad decisions during that period means that some problems are still just emerging.”

... The charges led the bank to cut its forecast for its core Tier 1 capital ratio, a measure of financial strength. RBS expects the ratio will be about 11 percent at the end of 2013, or as much as 8.5 percent under the latest rules set by the Basel Committee on Banking Supervision. That’s down from the company’s estimate of 11.6 percent and 9.1 percent in November.

“Fronting up to our past mistakes is very expensive, but RBS is a much stronger bank that can deal with these costs on its own while running a good capital position,” McEwan said on the call. “Dealing with these litigation and conduct issues is essential if we are to move the bank forward.”

Well, I still haven't noticed them come clean on the Ulster Bank charge issue. If they really are going to "Front[ing] up... past mistakes" then they really need to address this, no? If the Ulster Bank charges are included in the Basel capitalization guidelines, then RBS needs a bailout, and needs one Now! It doesn't end their though. On Monday, 20 May 2013 I queried Who is RBS? Royal BS... or the Royal Bank of Scotland, to wit:

"An independent Scotland would have an exceptionally large banking sector compared to the size of its economy - with banking assets of more than 1250 percent of Scottish [gross domestic product] - making it more vulnerable to financial shocks and the volatility of the sector," the Treasury report said on Monday.

The report pointed out Scotland's banking exposure would dwarf that of Iceland and Cyprus, two countries that faced severe banking collapses in recent years. Iceland's banks, for example, had assets equivalent to 880 per cent of GDP, while Cyprus, which faced a banking crisis in March, had total banking assets of around 700 per cent of GDP.

The report as cited by the article then goes on to make more direct comparisons to Cyprus, not unlike I did two months ago, but with Ireland (see As Forewarned, The Irish Savers Have Just Been "Cyprus'd", And There's MUCH MORE "Cyprusing" To Come). 

"At the end of September 2012, the two largest banks – the Cyprus Popular Bank and Bank of Cyprus – had assets in the region of 210 per cent and 175 per cent of Cyprus's GDP respectively."

"It is worth noting that, if Scotland became independent, its banking sector would be similarly concentrated (with two large players, Bank of Scotland and Royal Bank of Scotland and a number of smaller firms), and that an independent Scotland's domestic banking sector would be likely to be significantly larger than that of Cyprus (assuming no change to firms' domicile arrangements)."

I penned, I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets! wherein I clearly illustrated that RBS is materially understating its liabilities AND even went so far as to include links to the SEC and the UK banking regulator so that US/UK taxpayers and investors can notify our erstwhile regulator(s) to the potential of financial shenanigans. The root of the problem is that RBS has materially under-reported its liabilities (in my oh so humble opinion.) Those that stress tested RBS (the same erstwhile professionals that allowed the Irish banks to pass their stress tests 3 months before they started collapsing) apparently overlooked humongous swaths of liabilities. The charge documents referred to in the aforelinked article are definitively not apparent in the recent bank stress testing’ conducted by the European Banking Authority, at least not in the summary results that the EBA have made available. For those who are still skeptical, I beg thee reference the RBS Stress Test download.

To think, there are actually many who query as to why I seek to make a more efficient financial system...

With the latest advances in technology, I can literally replace large swaths of bank functions with software. Software that doesn't lie, cheat, steal, or screw you for a bonus! Zero Trust software...

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If the RBS/Ulster Bank mortgage-backed secutities would have been traded through UltraCoin, rehyppthecation, double-spending, over-leverage, and thrice pledged assets would have been a thing of the past. These contracts are overollateralized (200%) and use no leverage, yet still hold the promise of significant return, not to mention a mere fraction of the cost of the big bank stuff. Will the dawn of this technology herald the end of fractional reserve banking as we know it?

Let it be known, Wall Street banks' profit margin IS my business model!!!

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Here is the next segment in the presentations given at the North American Bitcoin Conference in Miami Beach.

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My Twitter followers know that I attended the North American Bitcoin Conference in S. Beach Miami last weekend. Here are some keepsakes from the visit as well as a video answer to the new media pop financial pundit, Peter Schiff's assetion that Bitcoin has no intrinsic value.

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The proprietors of a Bitcoin ATM, due to appear in the states next month.

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thumb Fortune Front Cover 

A 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."

Alas, nothing lasts forever. Fastforward 72 hours and Fortune publishes... 

thumb Icahn on PayPal

As exerpted:

FORTUNE -- Carl Icahn, the billionaire activist investor, has been interested in technology lately. Wednesday, he made several TV appearances to reiterate his call for tech giant Apple (AAPL) to engage in a massive $150 billion share buyback. As usual, he demonstrated that he was willing to put his money where his mouth was, revealing that he had upped his stake in the company by $500 million to $3 billion, causing Apple's stock to jump 1%.

Well, my subscribers (click here to subscribeknow where I stand on Apple, reference:

Then, after the bell, eBay (EBAY) revealed that Icahn had built up a stake in the online auction retailer and was pushing for some radical changes. But in this case, though, Icahn wasn't interested in buybacks -- he was looking for a breakup. Ebay said Icahn wanted the company to spin off its online payment arm, Paypal, and had requested two seats on eBay's board. eBay rejected both of Mr. Icahn's proposals.

... Paypal has grown from its roots as a small payment processor helping buyers and sellers of Beanie Babies feel safe to do business on eBay, to a full-on payment alternative for thousands of merchants with millions of members. Its advantage in many cases is simply speed and convenience -- how many times have you clicked the Paypal button while checking out of an e-commerce store just because you didn't want to get off the couch to grab your credit card?

Does the author mean like this?

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...eBay is also lagging when it comes to valuation. The company as a whole trades on a multiple of nine times next year's enterprise value divided by earnings (or ev/ebitida), which measures a company's return on investment. Meanwhile, the payment operators, like Visa and Mastercard (MA), trade roughly at 15 to 17 times next year's ev/ebitda, or around 40% higher than eBay. E-commerce sites also trump eBay's numbers with Amazon trading at around 33 times next year's ev/ebitida and Groupon (GRPN) trading at around 17 times.

But Visa and Mastercard are about to face the same double whammy that PayPal is staying at. Let me show you with video...

or pretty pictures...

You see, the payment processors are very soon to be subject to...

Disintermediation 

Why? Because P2P solutions such as UltraCoin easily allow for such, and at dramatically lower prices to boot...

  send payment costs 

If we were to look at this graphically, it would be comical to compare...

  send payment costs visual

On the commercial macro payments side...

macropayments

So, what happens when your competitors offer a competitive product for between 1/1000th and 1/3rd the price? 

margin compression

Now, back to the Fortune article and the apparent strawman argument...

... As a part of eBay, Paypal is run by people who know tech and know retail, not by people who necessarily know payment networks. As such, Paypal's growth beyond the web may not be as successful as it could be if it was led by people who worked at a credit card company like American Express (AXP) or a global payment provider like First Data Resources.

Again this seems to ignore the coming wave, alas... I digress...

... eBay's aggressive international expansion is helping to grow PayPal's global presence, especially in countries like Brazil and Russia, where eBay is taking off. If the cord is cut too early the fear is that PayPal's international growth may stall.

Stall or stagnate? 

As my readers recall, I've developed a cross currency swap system that allows holders of BTC to dance around two dozen or so sovereign fiat currencies with ease. Combine this with dramatically lower costs and ease of transmission and I see either a material change in business model or... Margin Compression!!!

 This really makes one think... Is eBay a short play in and of itself? I know Carl Icahn would likely get a large bang for his investment buck backing UltraCoin than he would calling for a PayPal spinoff. Then again, what do I know? Those who wish to discuss the merits of an UltraCoin investment by Icahn can feel free to ping me at reggie at ultra-coin.com. 

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I'm rapidly unveiling what's been brewing in the BoomBust labs over the last few months - UltraCoin an intelligent derivative layer of smart financial contracts that sit on top of the Bitcoin architecture. In short, the recreation of the banking industry in software - without the trust and counterparty risk issues!

For those of you who are still skeptical re: cryptocurrencies, I please read the most excellent article by David Z. Morris, which also happens to grace the front page of Fortune magazine today.

Fortune Front Cover

I'll excerpt some choice snippets:

Some still doubt bitcoin's usefulness and durability, but 2014 may leave skeptics even further behind -- developers and entrepreneurs are already hard at work building features on top of the Bitcoin protocol that will allow for the decentralized execution of financial services, from currency hedging to loans to stock issuance to rental and purchase contracts...

In the long term, peer-to-peer finance threatens to weaken banks and other financial agents just as peer-to-peer file sharing did the music industry -- and some of the architects of this financial Napster seem gleeful about the possibility.

Ya damn skippy!!!

 That means loans without banks, contracts without lawyers, and stocks without brokers, executed and recorded across hundreds of servers at all corners of the earth.

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Independent entrepreneurs are also working to build this infrastructure. One of these is Reggie Middleton, currently building a client called BTC Swap.

This will be marketed as UltraCoin! Wasn't completely ready for the interview, but will be shown live at the North American Bitcoin Conference in Miami Beach this weekend!

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.

Believe it!

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.

David was correct in that it was in early development when he saw it, but we've been busting our collective asses (analysts, financial engineers, software engineers, programmers, website designers, the whole crew) and we'll not only be demonstrating live but will be trading risk down in Miami, right in front of your eyes!

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." Somebody call Target (TGT).

Somebody? Anybody? Target, drop me a line at reggie.middleton at ultra-coin.com if you want my assistance in getting in on this distributed, peer-to-peer bitcoin thingy. My next post will show how my UltraCoins can add 15% to Overstock.com's bottom line. That's pretty damn good if you ask me! As a matter of fact, it's pretty damn good even if you didn't ask me :-)

Such hedging functions have particularly unique promise because of the extremely low transaction costs of peer-to-peer currency. Bitcoin makes microtransactions ranging down to fractions of a cent viable, but Middleton says that "right now, if you do micropayments, the volatility of bitcoin can really take you out." Because of the low cost of Middleton's swaps, "I can let [payees] manage risk and decrease volatility at the micro-level."

Please pardon me for the heavy excerpts taken from this article, but it is really... just.. that.. good!!! And it gets even better. Check it out:

The functions that advocates say could be automated through the Bitcoin network seem nearly endless, including peer-to-peer investment funds, Kickstarter-like crowdfunding, binding arbitrations, and even non-financial transactions such as naming rights management and encrypted communication.

I actually have much of this stuff oven already. All I need is the funds to help accelerate development becuase "you know who" is likely to get their bonus pool panties in a bunch and start coming after me :-)

And all could be executed without a cut for intermediaries. Bitcoin partisans, from developers down to rank-and-file users, often seem to revel in the idea that they are threatening the control and profits of Wall Street institutions, who they see as rent-seeking fat cats. If it were limited to the loss of fees on payments and transfers, bitcoin's threat to existing financial institutions would still be substantial. But with a full array of commission-free financial services on the horizon, there is even more reason to take heed.

Oh, and I love this part...

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."

And here comes the rain on the parade :-(

However, there is a substantial obstacle to this coming revolution. Despite the emergence in 2013 of entities like Coinbase that have drastically streamlined the process, it is still difficult to exchange bitcoin for national currencies in a quick, reliable manner. It's unclear how Middleton's automated dollar-bitcoin hedging will work without a lightning-quick and reliable dollar-bitcoin exchange platform.

UltraCoin was in early beta stage when David saw it. It'll be ready to strut much of its stuff in Miami, making things much clearer.

So, the true "automation" of bitcoin functions that integrate with the economy as a whole may require a reconciliation with existing trading platforms.

Oh, I wouldn't bet the farm on that one.

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