Capital Markets Veteran Gavin Smith Calls for Better Security Standards for Bitcoin Traders

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“Blockchain fintech companies can not only provide better security for bitcoin traders we can also solve the problems that plague conventional capital market companies.”

November 15, 2016    London

This is the opinion voiced at the Blockchain Money Conference in London last week. Speaking to an audience of investors, entrepreneurs, and experts including Jon Matonis, Michael Parsons and Roger Ver, First Global Credit’s CEO Smith proposed that companies needed to take a more pragmatic view of risk. During his talk he highlighted specific areas of risk that were being overlooked by bitcoin companies.

“In the conventional capital markets we have many metrics used to measure risk. They are not great; they are not foolproof, but they are a decent framework that [start to] measure where the risk comes from. In the cryptocurrency world, we don’t yet have that.” — Smith asserted.

His statement came in response to ongoing security threats that challenge bitcoin  exchanges. There is not a single year that has gone without reports of online bitcoin wallets being hacked. Many speculators turn to bitcoin trading in hopes of making easy profits from its trademark price volatility. Exchanges such as BitFinex further attract traders by offering leveraged trading based on loans being made by bitcoin holders who are not skilled traders but still want to make a return on their crypto-assets.

Are these practices — and whatever returns they promise — worth the risk if the exchange cannot provide investors with insurance during a security breach? Even the most respected Bitcoin exchanges are not able to protect their customers from hacks that have led to over $80 million worth of losses in last two years.

“BitFinex was one of the largest and most respected Bitcoin exchanges and they still got hacked,” Smith stated. “It clearly illustrates how vulnerable our funds are in absence of adequate risk management protocols.”

 Minimising Risks

Exemplifying his own company that allows bitcoins to be used as collateral margin to trade against fiat currencies, world-wide stock markets, precious metals and ETFs, Smith described what his company does to effectively reduce risk especially counterparty risk.

“First we actively grade bitcoin exchanges based on a weighted set of criteria including whether the exchange is domiciled in a respected jurisdiction, the transparency of their management structure and finally the longevity of the exchange. Once we have identified acceptable counterparties we spread assets across multiple exchanges. We need to be in a situation where we keep operating and continue to provide our customers with service even if one of our counterparties fail. So we don’t risk more than 15% of reserves on any one bitcoin exchange.”

“We further control risk by minimising the time that we have funds out of our control. We do this by continuously moving funds out of exchanges when not actively being used to trade.”

Exchanges are Centralising Bitcoin

“One of the benefits of bitcoin is that it should cut away middlemen from financial settlements, but bitcoin exchanges have failed to follow the vision themselves by acting like centralised authorities.” Smith highlighted these points and didn’t shy away from identifying that his own company was subject to the same issues. He then pointed to current and upcoming developments that are steps in the right direction of combating counterparty risk.

“I believe the real challenge over the next 2 years – for companies who operate in the cryptocurrency capital markets – is to move beyond this model of us holding client funds and being ourselves, a point of risk for the customer assets.”

“We’ve already seen some attempts to deal with this problem, but thus far these have failed because they do not cover the security of funds over the full trade lifecycle. They protect funds when they are initially placed on the exchange, but as soon as funds are committed to an active trade they are subject to the same risks as they are on a conventional bitcoin exchange because they are pooled with other trades. So while protecting inactive funds provides a partial solution, this benefit is counteracted as soon as you open a position and start trading. This is not a particularly useful innovation for funds lodged with First Global because we are actively moving dormant money out of the control of the exchange anyway. So a solution that only protects funds when there is no active trade does not really add value.”

“The second area is using smart contracts to replicate trading. Again, this is a move in the right direction but the problem with the practical use of smart contracts at the moment is lack of liquidity. There is a real challenge of creating a solution that provides good liquidity and real security through the full lifecycle of a trade including point of settlement. To my mind that is where the real benefit and the future lies; If we can create a solution that achieves this we have not only provided value in the cryptocurrency capital markets, we’ve created something that actually leapfrogs existing mainstream capital market risk.”

“All counterparty risk management strategies in existing capital markets are based on allowing banks to transact business securely. Allow bank A to trade with bank B in a way that keeps them from having counterparty risk. Nobody considers the last step in the cycle, the piece that covers the transfer of funds to the end customer. That customer is still expected to assume all the counterparty risk of working with a bank or broker or other institution. If we can create an environment that allows customer A to trade with customer B without any added counterparty risk from working with an institution in the middle, that’s where I think the public blockchain can add real value to the whole finance industry and our market will pull ahead of conventional markets in what we can offer our customers. So in the next two years not only will counterparty risk become actively managed in the cryptocurrency space, I can imagine ways blockchain tech can be adapted for mainstream markets counterparty risk management as well.”

Double your chance at profits and a prize with Currency Switch!

This is a question that came to me from a player in The Competitive Edge Competition so I thought I’d share this tip with everyone playing.

The question was, “if I have 100 bitcoins in my competition account and the collateral in my account is being 48% utilised, how much currency can I trade?”

The answer is that while stock and futures trading commits your collateral to securing trades.
Currency Switch IS based on movement of collateral. The full amount of your collateral can being moved from cryptocurrency to fiat and back again. Regardless of what trades that collateral is securing!

So you are not eating into your collateral when you place Currency Switch trades. You are getting another bite of the profit apple. Clever traders can move collateral around taking advantage of currency moves the whole time they are stock / futures trading.

Most people tend to trade one thing, stock, futures or currency, so this elegant functionality is underutilised. But Currency Switch makes it possible to place 2:1 currency trades – BTC / USD, BTC / GBP, BTC / EUR and BTC / CHF.

The Infamous Black Swan

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By Marcie D Terman – Communications Director
September 6, 2016    London

No not the character in that painful ballet movie played by Natalie Portman, but the meme that drifts by just beyond our next trade. Everyone is convinced they can see her coming. But in actual fact, no one can.

Notice that almost all of the brokers offering mainstream stock trading into the bitcoin market support only a dozen or so markets. The reason for this is that they do not place trades into the market on behalf of their customers and charge a commission. Instead, to make a profit they make a bid / offer spread on the market being traded that is roughly around the live price in the market at that point in time. And that spread is much wider than the actual market.

For instance, I’m looking at the S&P future which you can trade on our platform. Right now it has a bid / offer spread of 25 ticks. That’s the live market. Having a peek at one of the bitcoin CFD brokers at the same time I can see a bid / offer spread was 80 ticks. First Global charges a fixed commission. They change their spread based on market volatility.

But if you bear with me for a moment I will point out something even more off putting at play.

Let’s say their trading customers have 5,000 shares of the S&P that are long and 10,000 shares of the S&P that are short. The 5000 longs and 5000 shorts cancel each other out. If the market goes up, the longs make the money the shorts lose. Well, what happens to the extra 5000 shorts? They’re losing money right? But there is no actual trade in the live market, so when the shorts close their positions at a loss the broker pockets that money.

What happens in the same situation if the market goes the other way? There are 5000 extra longs making money. From where does that money come from? It comes from the broker’s proprietary account. And that’s ok. It mostly works out because they work on the premise that most traders lose money. (Sucks doesn’t it?) They only hedge in the market when they perceive that volatility is rising and therefore there is something to worry about. This makes their business very cost efficient because they have practically no cost of service delivery…

Because there are no real trades out there.

And that’s why they can only offer a limited number of contracts. They need to aggregate trading around a limited number of markets, so their customers are trading against one another.

And that works most of the time, but…

This is what happens when THE BLACK SWAN swims by…

And just to be clear, let me provide a hypothetical scenario that might help you understand the point I am making which clearly shows that market prediction is not possible.

Let’s say everyone is bearish of Tesla and Elon Musk secretly plans a trip to the moon and tragically dies during the launch of his personal mooncraft. (Do these brokers even offer Tesla? Not sure, but it is just as possible with any company where an unexpected event pushes the market beyond what people expect.) But let’s say there are 10,000 Tesla shorts and everyone buys back their shares at once to cash in on the big win concerning Mr. Musk’s untimely demise. And each one makes 10,000 USD on their trade. That’s a loss of 100,000,000 dollars or 172,413 bitcoins (at Friday’s prices.) Do you think the bitcoin CFD broker is sitting on that kind of war chest? Even at 500 times leverage, that represents a loss of 200,000, Would they be able to cough that sum up and continue to meet their other market obligations? Who knows?

Over time they have put some protections in around this issue. But there is a reason mainstream brokerages do NOT do this and this practice is illegal in many jurisdictions.  Ultimately I believe this is the real reason that most brokers in the bitcoin space do not say who they are. If something goes terribly wrong, they will slip away and their customers will pay for it.

I know my customers and my customers know me…

Common sense kicks in following the Bitfinex hack

By Marcie Terman, Communications Director, First Global Credit and XBT Corp Geneva

Those of us involved in the cryptocurrency space right now are all certified early adopters and we wear that badge with great pride. We are individualists, a bit edgy and a bit libertarian.  Because of this, companies like First Global Credit that take a hard line on the Know Your Customer rules withstand a lot of criticism. Cryptocurrency aficionados do not like the fact that we are legally compelled by international convention to understand who we do business with. But I will tell you from a life-long responsible relationship with my money (crypto or otherwise), it makes sense knowing who is on the other side of monetary transactions.

That is why when First Global Credit was founded in 2014 we published the identity of everyone on our management team. It seemed only fair if we demanded transparency from our customers that we in turn would be equally transparent with them. It would seem that in the aftermath of the Bitfinex hack the sentiment of the rest of the bitcoin market are suddenly in step with our own as the numbers of customers signing up and immediately KYC’ing their live trading accounts on our bitcoin backed, stock, futures and FX trading platform have increased four times the usual level over the past 7 days.

At a cursory inspection it may seem eminently fair that Bitfinex’s founders have taken the view to spread losses over their entire pool of customers. But if you think about this critically, it wasn’t the customer’s fault that permitted an automated, unchecked process at BitGo to release funds to points unknown. And given that the identity of Bitfinex’s management is not generally known, it makes it much easier for the culpable to hide until the heat dies down. Perhaps giving the go ahead on ill-conceived policies like this would have been deliberated on with greater care if the decision makers knew they would be identified as responsible?

My thinking is that these issues with Bitfinex have raised the question of what kind of accountability you can expect from vendors that use their customers’ penchant for anonymity as a cloak that they themselves can hide behind? (Doubly bizarre since Bitfinex follows the KYC conventions for their customers to reveal their identities.) This kind of thinking is logically followed by the realization that platforms offering anonymity or exchanges that automate withdrawals (a thing you NEVER see in conventional online brokerages) are perhaps not the most trustworthy place to store capital. With anonymity not only is it very easy for a financial service business, its website and its founders to disappear if things suddenly go wrong, it also makes it much harder to make a bid to reclaim capital yourself after a hack if you have no way of proving that it was your money stolen in the first place!

We cryptocurrency advocates consider the sanctity of personal information inviolable but the standard for company founders is and should be different. If you choose to do business with companies that hide the identities of their founders creating an opportunity to avoid responsibility, you, yourself are equally as culpable. I believe strongly, as many in crypto do in the principle of personal responsibility which is why I know that people who do not stand behind what they are selling are looking to avoid the consequences of poor decisions.

Having recognised that anonymity is not desirable in a business where client assets are involved I would suggest substituting the goal of anonymity with the selection of business partners that show a high regard for the personal privacy of clients as we do at First Global Credit. Choose business partners domiciled in jurisdictions that share your values. Make sure that the jurisdiction follows rule of law and the concept of search and seizure as it existed before the panics of the last decade. A blanket request for all customer data is simply not acceptable. If a government feels that there is criminal activity associated with an account, the proper course of action is to obtain a warrant through an objective legal system only after due process has been exercised.

Customers have a responsibility as well where the security of their assets are involved. Do not complain if your financial service company uses manual processes for withdrawal.  Consider multiple layers of validation for transactions over a certain level simply a cost of doing business that is there to protect you as well as your service partner. Restrict your financial dealings to companies that you have vetted to make sure that they have a serious approach to not only maintaining security but validating processes regularly to make sure your service partner stays as far ahead of thieves as humanly possible. But at the core of all these measures lies transparency which should do much to facilitate trust between customer and service provider.

Those of us involved in the world altering cryptocurrency markets are absolutely ahead of the curve. We are doing exciting things, making the fiscal world more equitable, creating opportunities that will remove money from the hands of bankers and put it back in the hands of people who worked for the assets in the first place. Bringing opportunity to populations that have been abused by their governments for far too long. That’s pretty exciting stuff! But these paradigm changes do not mean that the sensible precautions that are part of the conventional financial markets should be ignored.

DAO you see it, DAO you don’t

Looking critically at the aftermath of the great DAO heist of 2016

Dao heist artJune 23, 2016    Geneva / London / Hong Kong

By Gavin Smith, Chief Executive, First Global Credit

Anyone interested in cryptocurrency and innovative use of the Blockchain cannot help having heard about the most egalitarian expression of this technology, Ethereum. And anyone interested in the progress of Ether as a DIY cryptocurrency must be familiar with how Ethercoin is being used as the basis of DAOs or decentralized autonomous organizations. DAO is a method for making investment decisions where choices are made by collective agreement not by fund directors.

There already have been a few DAOs but the first one with any traction has been created by German startup, slock.it. Slock.it has members of the Ethereum project team Simon Jentzsch and Stephan Tual on its board. The DAO concept is based on a set of smart contracts that represent investment opportunities presented to the DAO ‘collective’ of investors. Along with buying tokens to the DAO comes the right to vote on which opportunities the DAO takes a position in. The view being that decisions made by consensus will be more profitable as the intelligence of all the investors is behind the selection. Investment utopic dream?

That dream turned into a nightmare last Thursday with news that of the $150m invested in the slock.it DAO at least $60m has been withdrawn by a “hacker” who exploited a vulnerability in the script that governed distributions from the DAO.

The flaw that is at the root of the DAO security problem is based on what first appears to be the strength of the Ether model with its embedded scripting language. Ether permits individuals or organizations to develop powerful smart contracts with complex behaviours. Unfortunately, this flexibility goes hand in hand with the risk that the implementation of a particular solution is not well thought through. This leaves customers of the smart contract (or in this case DAO) at risk of faulty contract implementation with weak security.

This risk has always been played down by the prime movers of the Ethereum project but the fact that the management of Slock.it is also made up of some of the core development talent of the Ether project proves that this risk is not only valid but also not easily overcome – after all, if these developers can’t get the security model right how are others supposed to?

This issue, however, pales into insignificance when compared to the much larger concern … what happens now that the hack has been discovered?

One proposed response to the hack is to roll back the Ether Blockchain – while appearing attractive at first, this route, if taken, has far reaching consequences for Etherium’s future.

Nobody condones the siphoning of funds from the DAO but it should be remembered that this project was highly experimental and participants took part in something that was largely untested with significant risks.

The strength of a public blockchain, which Ether claims to be, has always been the irreversible characteristic of any transaction. Once a transaction has been confirmed it cannot be unwound by any individual or group – this is the very strength of Bitcoin and why attempts to replicate Bitcoins’ benefit structure using private blockchains is a flawed premise – while private blockchains provide benefits of efficiency for member organisations to transact business together without holding counterparty risk, they are by nature limited in their scope, not designed to ‘include’ but exclude participants. In other words they are designed to benefit the “elite few” who run the private blockchain, for instance a select number of banks who wish to extend their cartel with greater efficiency but no benefit to the greater public.

If the Ethereum Project decides to roll back the Ethereum blockchain they simply confirm the charge that is often levelled at Ethereum – it is not a public blockchain at all but a private blockchain developed to move control of the financial industry from one set of hands into another, benefiting Vitalik Butterin and his buddies.

While many would argue that there is no harm in rolling back transactions that were a deliberate exploitation of a weakness in Slock.It’s implementation of the scripting language. You don’t have to dig too deeply to recognise the flaw in this logic.

Is the Ethereum Project going to roll back all future hacks – or just those involving members of the inner circle? What constitutes a hack? One of the proposed uses of Ether smart contracts is an exchange (say for Bitcoin) – If the smart contract incorrectly makes multiple sales at a low price which people identify and exploit – will those transactions be rolled back as well?

Perhaps a smart contract takes place between 2 organisations, one of which is inside the favoured circle of the Ethereum Project – let’s say they decide they don’t like the terms and want it rolled back – does their request get actioned while the other organization foots the bill?

What quickly becomes apparent is that once you lose the irreversible characteristic of the transaction; When it is no longer an independent network that confirms transactions you no longer have a trustless P2P network – you have crony capitalism and you are  simply perpetrating the worst characteristics of the old world financial industry order.

This event represents a critical decision point in Ethereum’s evolution. Do they go down the route of a distributed P2P network with irreversible transactions (which probably means abandoning proof of stake in favour of proof of work) or do they go down the route of a private blockchain with control retained by the select few?

For our part the First Global Credit company will continue to allow holders of Ethereum to use it as collateral for stock and futures trading but, for the time being, our Smart Contract work will remain focussed on Bitcoins’ capabilities. Ethereum, for us, is still a work in progress which we will continue to monitor with interest.

Fantastic Four – Winner Announcement

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The success of the First Global Credit Trading competitions is due to the ingenuity and persistence of the people who choose to take part. We have old friends who have traded with us from almost the beginning. These people have profitable live accounts, who like the challenge of pitting themselves against others. We have other people who have never traded with us before.

Each competition is different, not only because the people taking part are different but because live market conditions are always in flux, always presenting new challenges. This time, traders who made the bulk of their money trading bitcoin FX were going to have a hard time making headway. The only thing in their favour, it’s a level playing field and all the bitcoin fx traders were going to have a hard time making a profit. But in the Fantastic Four Competition a higher number of players used bitcoin FX to try to increase their competitive edge.

It is also interesting to note that of all the people taking part in the competition, over half of the traders playing were at least somewhat in profit. But among those traders who were profitable 1.2% of them made over 70% of the profits. Since there could be only 4 winners, I think it should be noted that people really made an effort to aggressively trade a wide variety of strategies. And for so many people to be profitable during very difficult trading conditions speaks to the quality of the people taking part. So without further delay, I’d like to introduce you to the diverse and interesting group of traders who have won the Fantastic Four Trading Competition.

Winner – Futures Trading Category

Alvarez

Name: Alejandro Alvarez
Day Job: Serial Entrepreneur, Computer and Network Security Expert
Location: Malaga, Spain
Specialty: Futures Trading

 

Interviewer: What was your strategy that let you do so well in the competition?Alejandro is a serial entrepreneur and father of 4 who not only enjoys futures trading, but a rich and active lifestyle as well. He has not taken a position in bitcoin but observes several groups. He has seen several of First Global’s competitions advertised, but his interest was piqued when he saw that this time we had added futures to the roster of available markets.

I have learned not to trade the noise. I risk enough to maximize my available capital though I was a little overinvested several times during the competition. But I have learned to be patient, waiting for the right moment to enter the market. Once I am in a trade, if I’ve got the direction right, I hold onto it and add to my position. When I believe the conditions are about to change, then I exit. To judge the market conditions for a trading decision I analyze interrelated markets.

Interviewer:  Which futures did you trade to win the competition?

I only traded the S&P, 10 Year US Treasury Notes and Gold. I did not use currency switch to move out and into bitcoin.

Interviewer: When you start trading the winning account, what are your plans for the profits you will make?

I plan to start immediately. I’m not interested in using the profits. I plan to leave them in the account to let the capital increase.

 Interviewer: Did you discover or learn anything during the competition you’d like to tell us about?

I learned that you have to be aware that anything can happen. You need to be ready for unexpected things.

Interviewer:  Is there anything you might have done differently in hindsight.

Yes of course, always. But asking that question is not useful because in real time you never know what will happen. Hindsight is 20/20.

Interviewer: Tell us about any memorable trades you made during the competition?

I remember one long S&P trade where I went long at 2030. I added to the position several times and exited at 2080. In hindsight I exited too soon as the market eventually reached 2105!

Winner – Stock Trading Category

perica1
Name: Perica Vukelj
Day job: Software developer
Location: Montenegro
Specialty: Stocks and options

 

Perica is a happily married software developer living in the beautiful country of Montenegro. He has a daughter who is very important to his happiness. While he works in development, he is also a bitcoin holder who likes to occasionally trade stocks and options. We interviewed him to find out how he did so well in the stock trading category and to learn a bit more about his trading style.

I first learned about the Fantastic Four competition on the NewsBTC website. “I said to myself, this is great! Exactly what I needed. Now my bitcoin can be put to work. Because it was always annoying to me that the capital I have in bitcoin is just sitting there ‘only in bitcoin’. It is time consuming and expensive (trading fees and the time for international bank transfers) to be in bitcoin when I am bullish and when I am not so content with bitcoin to need to get fiat from a bitcoin exchange and put it somewhere else. And if I’m wrong and pull out of bitcoin, (which I am very often) I may miss big move and later get less bitcoins for the same money.

I love competitions and competing. After all, trading is, itself, a sort of competition, (In my humble opinion). So I decided to try for myself in the Fantastic Four Competition. I didn’t think I could get to the top of the list but with a bit of luck I did.

It was great experience. When you are competing there is always pressure to trade. During normal trading you might pass on some opportunities because you are not so confident. But in a competition you have to give it a try – after all the other competitors probably won’t pass on it. Also, you never know how close the other traders are behind you and how far away are the ones ahead of you!  This pressure kept me trying to give my best every day. Keep looking for new trades all the time. It was fighting market moves and fighting with other competitors at the same time.

Winner – Bitcoin Fx Trading Category

Eric Stein

 

Name: Eric Stein
Day job: Entrepreneur, Master trader, guitarist and Search Engine Optimization specialist
Location: Chicago, USA
Specialty: some stocks, some futures, bitcoin

 

Eric is a true Renaissance man who at age 35 has been involved in the bitcoin ecosystem since 2013. His most recent accomplishment is the launching the ‘bitcoin drudge report’ at http://Bitcoins.sx. He obtained many of his own bitcoins through mining. We caught up with Eric during a break in his hyper busy schedule to ask him about his opinions about the trading competition and the bitcoin market in general.

Interviewer:  Do you use bitcoins to buy things?
Sure! When I can. I love supporting the bitcoin ecosystem.

Interviewer: What was the strategy that let you do so well in the competition?

I traded some stocks, had some good runs. Also traded a few futures but I did not have much luck in futures. Then I moved all my profits into bitcoins.

Interviewer:  Do you have an opinion on why bitcoin has started to rise recently after having traded in a range for so long?

Yes, I believe it is due to increased mainstream adoption, increase in news exposure, increased blockchain believers, etc. I believe it is still way under priced.

Interviewer:  Do you have any ideas about what will move bitcoin towards mainstream acceptance? Large merchants like paypal and amazon directly accepting bitcoin will help – or when they start using some kind of blockchain technology.

Interviewer:  What do you think the price of bitcoin will be a year from now?

$999,999 per coin!

Interviewer:  Would you like to build a career based on trading?

Yes. I want to be the worlds’ greatest cryptocurrency trader.

Interviewer: When you start trading the winning account, what are your plans for the profits you will make?

I will grow my portfolio to be holding millions of dollars’ worth of bitcoin.

Interviewer: Did you learn anything during the competition you’d like to share?

Yes. I learned a ton.  Go big or go home. Stay focused, stay non-objective and stay fearless!

Interviewer:  Is there anything you might have done differently in hindsight.

Stay focused and don’t jump into moves without the proper due diligence. Look at charts at different time scales.

Interviewer:  Is there anything else you would like to say about bitcoin or the trading.

Yes. Bitcoin TO THE MOON!

Winner – Overall Trading Category

lodi

 

Name: [let’s just say] Entheogenism
Day job: Full time trader/gambler/ Entrepreneur
Location: Somewhere in the USA
Speciality: Stocks and currency

 

 

Here’s a cross section of his comments about the competition and cryptocurrency in general.I originally ran into Entheogenism on the bitcointalk.org forum and invited him to join the competition. He did join and by the end had achieved a top rank. Entheogenism is full of strong opinions and is absolutely another Renaissance man with a huge number of diverse interests. Among these accomplishments he is a self-styled crypto enthusiast and decade-long FX and stock trader. A transhumanist-futurist, creative writer, ambitious person interested in space colonization & human enhancement. His twitter profile is @Entheogenism for those that want to connect more directly with him.

I use Bitcoin & Ethereum to gamble on dice & gaming sites. I would use btc to pay Lyft, AirBNB and Expedia if I needed to, but this hasn’t come up yet. I also use bitcoin to buy on Steam or buy Amazon / Walmart gift cards & turn to fiat to pay bills.

Thoughts On himself

I belong and am active in transhumanism/futurism groups a lot more than crypto-related ones. However, I’ve been an active BitcoinTalk forum member since Feb. 2014 and have been on some other crypto forums as well, though sparingly. I’ve used bitcoin faucets since 2014. I use them even now, though much less than years ago, of course. I believe free or ad-based crypto/wealth distribution to unbanked and/or poor people is extremely valuable because otherwise they cannot participate online.

Thoughts on the competition and the FGC platform

During the competition I did not use the currency switch system. As far as I am concerned it would be simpler, more elegant & convenient to simply add FX currency pairs trading instead. I found your platform intriguing in that though it lacked FX, it did offer individual stocks. A ridiculously broad amount of them, in fact, far more than any FX broker or bitcoin site you’ll find (and I’ve reviewed almost all of them, for years). The ETFs & bond/Index Futures you offer are intriguing, however, they don’t seem practical except for a several-months/years even, style of trading, as those instruments take eons to manifest (finally) some macro price moves, compared to individual stocks. So, I focused my trading on the DOW (DIA), NASDAQ and the biggest IT Tech stocks exclusively. I made most money with NASDAQ by far.

Thoughts on bitcoins

BTC/USD price dynamics in 2009-2013 reflected the fact this was a new technology that changed the world dramatically, with unknowns as fundamental as ‘Gregory Maxwell in 2011 thought he would go to jail for working on bitcoin’ and ‘Satoshi was so uneasy about being a bitcoin dev/founder that he eventually disappeared in 2010, leaving matters to Gavin Andresen.

So, here you had something that the world had never seen before, suddenly creating a gold rush, yet with ginormous precedents worrying people about ‘going all-in’ on this: Liberty Reserve, 2012-2013 legal troubles. MegaUpload. Napster. eGold. There were so many internet projects that were similar in a lot of ways, that had got shut down, before BTC, that people were afraid, the whole way, until in November 2013, the US Congress, widely expected to eyebrow negatively BTC if not outright try to ban or illegalize it – Instead, acclaimed that crypto/bitcoin was a positive invention!!!! They were happy people would use it!!!! WHAT?? REALLY? So of course the price went ballistic in mid-Nov-2013 up to late December, by which time China’s involvement had come to a serious stopgap due to their central bank forbidding any big finance institution from using BTC (as it was deemed too risky/destabilizing).

These 2 giant BTC price bubbles in 2013 deflated dramatically in early 2014, helped even more by Mt. Gox’s final collapse. Crypto then took 1.5 years to recover from this drop, even as institutional & corporate investment flooded the scene. In late 2015 after the August stock market global scare (from China), wealthy Chinese were extremely worried about capital controls being imposed. So, they rushed to BTC, for the first time in such numbers again, since 2013. This was in addition to the russian MMM ponzi’s need for a useful utility vehicle to move funds around – bitcoin was perfect for this. When these inflows pumped BTC’s price in Oct 2015, people took notice. They had long awaited the signs of the ‘pump’ which should come from nearing the July 2016 block reward halving btc event. So, as soon as they saw this rise, they jumped in. This pyramid effect is what caused the price, relatively stagnant / hitting bottoms throughout 2014-2015, to finally rise & maintain such higher floors, during late 2015 & all of 2016 so far.

Winner prize accounts will be opened tomorrow. You’ll be able to follow the winners and watch their returns climb on the FGC blog or by following us on @firstglobalcredit on Twitter.  and future articles on performance.

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Heads we Win – Tails You Lose, Business as Usual if you Buy into RSCoin

Finance-Mag-Guest Voince

Why bitcoin and public blockchains trump trusting the banks

This article was published on the April 11, 2016 on the Finance Magnates website

By First Global Credit CEO Gavin Smith

Government and commercial banks have been using both overt and covert strategies to devalue and if possible halt the adoption of public blockchain technology. The outward face ranges from the cautious acceptance of digital currencies by the UK and Hong Kong to the downright protectionist strategy of New York State through the Bitlicensing laws.

The covert strategies are typified by a three pronged approach: (1) Exploit any opportunity to denigrate bitcoin regardless of accuracy usually based on the stability of bitcoins or legitimacy of use. For instance, linking bitcoins to terrorism or drug purchase.  (2) Broadcast generalised statements supporting the idea that private blockchains have all the benefits of the public blockchains and that banks are better custodians of the public’s welfare than the inexperienced organizations driving public blockchain development. (3) Then into this framework, publicize specific initiatives like RSCoin, a centrally controlled digital currency created by the Bank of England. The claim is being made that RSCoin is a panacea that will solve all the problems that have shadowed banks over the past decade.

While RSCoin does show some incremental improvements to the transaction flow currently in use in the conventional banking industry, it lacks many of the benefits offered to the public by a genuine, independent digital currency. However, this is not what is being broadcast by the media, who in all probability lack an understanding of the relationship between central and commercial banks, which is why RSCoin does nothing to change what has gone on in the banking industry over the past decade. For instance, in a recent article published in the Business Section of The Telegraph it has been claimed that RSCoin will “erode the exorbitant privilege enjoyed by commercial banks of creating money out of thin air under a fractional reserve system.” The same article also claims that RSCoin would allow Central Banks to “turn the money tap on and off with calibrated precision.”

The problem with these arguments is that, if examined critically, they are in direct conflict. How exactly is it proposed that RSCoin would facilitate the Central Bank “Turning On” the liquidity tap? By pumping money into the hands of the public? Of course not – it would be pumped (as happens now) into the coffers of the Commercial Banks in the form of government subsidized loans which would enhance their ability to make loans with their customers’ money. This is the very definition of fractional reserve banking and what the supporters of RSCoin claim it will prevent. It is the collusion (for want of a better word) between the Central and commercial banks that is created through the current use of the ‘money tap’ that should be at issue, not the precision of that ‘tap.’

RSCoin is new technology being built to support a flawed system that ultimately burdens the tax payer and distorts saving and investment markets (ask any pensioner who has been forced to survive on near zero interest rates over the past 10 years). It is policy, not precision or technical superiority that is the problem that needs addressing to dis-intermediate commercial banks. It is therefore no wonder that commercial banks are jumping on board to support RSCoin which can be viewed as a wonderful way to maintain the status quo while showing a public face that appears to support a new ‘fairer’ type of banking.

The information cited in the paragraphs above can be verified through a variety of sources for instance: https://en.wikipedia.org/wiki/Fractional_reserve_banking#Criticisms_of_fractional-reserve_banking. That is why it is the duty of those of us who have an in-depth understanding of the relationship between central and commercial banks to make that information available to the general public to encourage a dispassionate assessment of initiatives like RSCoin.

Public Digital Currency, such as bitcoin, has no tap for the Central Bank to turn on or off. Commercial Banks would be forced to manage their affairs more in line with their customer’s best interests because there is no Central Bank spigot to pump liquidity into an organisation that has behaved imprudently with their customer’s funds.

The very fact that this is the case would force banking regulators to ensure that banks had sufficient short term capital to meet customer demands and disengage from risky business areas which, because the public purse can be called upon to bail out the banks, are nothing more than “Heads we win – Tails you lose” speculation with customer money.

Who can tell if fiat currencies will continue to dominate regular day to day transactions?  But the fact that there is an alternative store of value for customers that is independent of Central Bank / Commercial Bank influence is a positive factor and something that is completely lost with centrally controlled digital currency.

These are some of the touchpoints that having public blockchains will affect:

  • Central banks will no longer have the flexibility to manipulate money supply in a way that disadvantages the tax paying public.
  • Central banks will no longer be able to force interest rates to zero; there is a growing bitcoin money market that enables savers to achieve a return on their bitcoins even when fiat interest rates have been driven into negative territory.
  • Commercial banks will no longer be provided with a free pass to borrow from the tax payer at 0% while charging those same tax payers 7% to 39.9% on retail borrowing.

Public blockchains will have the ultimate effect of forcing banks to behave as genuine commercial entities instead of being part of a monopolistic, protected industry as is currently the case.

About Gavin Smith:

With a financial service background that spans almost 3 decades and a career that covers both options market making in the pits of London’s LIFFE Exchange to managing the hedging strategies of one of the world’s largest metal traders, Gavin Smith bring vision as well as hard won expertise to the digital currency markets. Gavin’s in-depth understanding of financial markets coupled with a commitment to becoming a driving force in the creation of the digital currency capital market give him a unique voice in the debate about the development of public blockchains and the bitcoin capital market.

About First Global Credit:

First Global Credit is the world’s first Finance Company that brings the profit opportunities existing in mainstream markets within the reach of digital currency holders. With a presence in Geneva, London and Hong Kong, the company has been founded by risk management specialist Gavin Smith and Financial Data Security Company Director Marcie Terman. Smith and Terman head a team with over 35 years’ collective experience building and managing trading and back office systems for world-class trading companies and banks operating in London and Geneva.

The objective is to become a market leader in the Bitcoin Capital Market by providing services that accept bitcoin as a valuable asset that can be used to generate a return. We deliver these services with a focus on customer care not generally found in digital currency companies. First Global is committed to assisting our customers meet their financial objectives for their digital currency portfolios. Our systems are built using bank grade technology and security and are housed in Financial Grade Tier III Data Centres with failover capability. Our processes are designed to assure the privacy of our customers alongside the security of their assets.

To sign up for an account go to: https://www.firstglobalcredit.com/register.aspx

Shortest Month Yields New Trading Highs of $2.2m for First Global Credit

March 3, 2016    Geneva / London / Hong Kong

First Global Credit, the first company allowing bitcoin holders to trade mainstream stocks announced that in February $2.2m worth of stock and currency trading took place on the website. This represents a new high in the amount of trading handled through the site which set its last record in November of 2015 when $1.8m worth of stock trading took place on the site.

“There is no doubt that the number of trading opportunities in the stock market right now has helped stimulate trading,” stated First Global Communications Director Marcie Terman. “But the number of people using the site to increase the value of their bitcoin holdings has been steadily increasing over the past 6 months as well. That has also contributed to First Global’s performance in February.”

Following on from the news about achieving new highs with stock market and currency trading, First Global will be add commodity futures trading to the website on Monday, March 7th. “This will be another first for the digital currency market,” says Terman. “We are committed to bringing the same kinds of choices fiat currency investors have to the digital currency marketplace. I am really looking forward to seeing how people utilize the platform in the coming months. Whether we will end up with people who are skilled only in stock or currency trading or if the majority of our customers will trade across the full range of market choices.”

Also In March the company will start promoting a new trading competition which is designed to not only introduce new traders to the platform but also to reward the best players with positions in the coveted Private Trading Group. The Private Trading Group is a network of talented traders that are either given access to fully funded trading accounts (in the case of competition winners) or a part funded account for those accepted by CV into the trading program. The Private Trading Group is one way for talented traders to start generating a live track record so that they can be included when we open the Star Trader Tracking Portal later in 2016. “Star Traders will be able to publish their live results in a portal designed to introduce profitable traders to people who hold bitcoin but lack trading ability.” Continues Terman. “The Star Trader portal is another example of how First Global adds value to the digital currency market.”

Bitcoin and “The Big Short”

Can the blockchain avert the next financial meltdown?

By Gavin Smith, CEO First Global Credit

February 29, 2016    Geneva / London / Hong Kong

As this year’s Academy Awards celebration draws to a close, it seemed an opportune time to take a closer look at the dysfunction on display in one of the nominees for Best Picture, “The Big Short,” which was based on Michael Lewis’ book of the same name.  Lewis’ book, and the movie it inspired, related the story of the subprime mortgage crisis in the United States.  Essentially, a series of opaque and illiquid financial instruments were sliced and diced into a series of increasingly complex derivatives, the notional value of which ended up being many times greater than the size of the underlying mortgages.  When homeowners, who were the people responsible for paying the underlying mortgages, defaulted on those mortgages, investors in these derivatives (collateralized debt obligations (CDOs), CDOs-squared, synthetic CDOs, credit default swaps, etc.) lost a lot of money.  Those who sold these derivatives short (Michael Burry et al) made a lot of money.

To understand this at a very high level, consider a pivotal scene in the movie: Steve Carrell’s character goes to see a contact at S&P (played by Melissa Leo).  In the course of speaking with her, he learns that S&P basically gives an investment bank whatever rating it wants for a CDO issue, because if S&P did not cooperate with the bank, the bankers would simply go down the street to one of S&Ps competitors.  The system was rotten to the core, and was intermediated by humans doing very human things.

So what could have prevented this?  One theory is that had blockchain-enabled smart contracts been used in the financial system, there would have been fewer opportunities for misbehavior by market participants.  Now, this is a fairly bold claim, and a robust analysis of why this might be the case is beyond the scope of this brief article.  Nonetheless, let’s review what smart contracts are:

  • Smart contracts are pieces of computer code, the logic of which replicates the logic of contractual clauses. If I sign a contract with you in which I agree to sell you 10 apples at $1 per apple, and you refuse to pay me, then I have to seek redress through the courts.  A smart contract, on the other hand, could contain code which, should the payment terms not be complied with, would automatically penalize you.
  • This kind of self-enforcement reduces transaction costs. In the example above, the transaction costs include the cost of litigating through civil courts to seek redress and compensation in the event of a contract breach.
  • Smart contracts reside on a blockchain, which if correctly implemented, would allow a real-time auditing of who owns what side of a given trade.
  • Smart contracts would allow for real time pricing of even illiquid securities, since all of the transactions (including those transactions that create derivatives from underlying assets) would be fully auditable: you would know who owned what tranche of a CDO, who issued which mortgages that made up the AAA, AA, A, etc., tranches of the CDO, and, even, if the system were designed well, which homeowner signed which mortgage documents.

Perhaps most importantly, since all of this would be software-based, you would have no middlemen (or women) looking to create ever more complex derivatives.  Creating derivatives of derivatives (so-called CDOs-squared or –cubed, etc.) does two things: (1) it makes the financial system more complex and opaque, and (2) it creates more income potential for bankers and traders.  Since people aren’t good at policing themselves, in the absence of any system which prohibits people from making more money, complexity, opacity, and illiquidity are the result.

As long as people keep paying their mortgages, this system works more or less OK.  But, as Burry and others suspected, just because housing prices went up for a while, didn’t mean that they would go up forever.  Borrowers got overextended, lost their jobs, and defaulted on their mortgages.  Because those mortgages were then packaged into CDOs, which themselves were packaged into other derivatives, no one knew what anything was worth and banks couldn’t unload their positions in these derivatives very easily.

So smart contracts seem to be one possible solution to the problem of misaligned incentives and opaque financial instruments.  By removing much of the human element, and replacing people with code, we are presented with an opportunity to create a clear, objective framework for the pricing of financial assets and enforcement of contractual obligations.

In fact, in January 2016, American Banker, which is a trade paper for the financial services industry, published a short article[1] discussing this very issue.  Quoting from the article:

…what if you could program [bitcoin] transactions to occur at preordained times, under set circumstances, and even involving a preregistered group of multiple counterparties?

And what if you could use similar technology to preprogram transactions such as the payout of a derivative or other security, all done through a public ledger system such as blockchain without the risk of intervention or the inefficiency created by the involvement of an intermediary counterparty agent?

To make this a bit more concrete, here’s an article from CoinDesk[2], which demonstrates how a smart contract would work.  Essentially, the contract is a series of IF-THEN-ELSE statements, which are familiar to anyone with a rudimentary knowledge of programming.  In the example given in this article, we have the following logic rendered into computer code:

IF payment of 1000 USD in bitcoin is made to BobbyRick by Term 1’s expiration date, THEN Term 1 is completed AND is recorded as completed in the blockchain. If those clauses are met, then the counterparty’s (walkerdavefun) escrow is released. OTHERWISE, Term 1 FAILED, AND is recorded as failed in the blockchain.  THEN the escrow is released to BobbyRick.

All of this is obviously much more efficient than standard contract breaches, which, as discussed earlier, need to be remediated through human-controlled and –operated civil or criminal courts.  Thus, software-based smart contracts provide a compelling and exciting opportunity for those interested in making a fairer and less opaque financial system.

[1] http://www.americanbanker.com/bankthink/smart-contracts-are-the-future-of-blockchain-1078705-1.html

[2] http://www.coindesk.com/new-blockchain-startup-brings-contracts-digital-age/

First Global Trader’s Update

Here are the latest additions to the market list. Fifteen interesting new stocks to monitor and trade. Good luck.

Stock Market Selections

New Stocks for 22 February 2016
APA Apache Corporation Energy Oil & Gas Exploration & Production Apache is an independent energy company, which explores for, develops, and produces natural gas, crude oil, and natural gas liquids.
APC Anadarko Petroleum Corporation Energy Oil & Gas Exploration & Production Anadarko Petroleum is an independent exploration and production company engaged in the exploration, development, production, and marketing of natural gas, oil, condensate, natural gas liquids (NGLs), and anticipated production of liquefied natural gas (LNG).
BBY Best Buy Co., Inc. Cyclical consumer goods & services Computer & Electronics Retailers Best Buy is a provider of technology products, services and solutions in the United States, Canada and Mexico.
CAT Caterpillar, Inc. Industrials Heavy Machinery & Vehicles Caterpillar Inc. is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.
CMG Chipotle Mexican Grill Cyclical consumer goods & services Quick Service Restaurants Chipotle Mexican Grill restaurants serve a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads.
COP ConocoPhillips Energy Oil & Gas Exploration & Production ConocoPhillips is an independent exploration and production company. The Company explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids.
DDD 3D Systems Corporation Technology Technical & System Software DDD develops intellectual property in the field of image analysis and stereoscopic 3D image processing and deploys in software and hardware products that are licensed primarily for use with 3D mobile telephones and tablets, televisions, and personal computers.
DE Deere & Company Industrials Heavy Machinery & Vehicles Deere & Company is engaged in equipment operations and financial services. The Company operates through three business segments: agriculture and turf, construction and forestry, and financial services.
FSLR First Solar, Inc Energy Renewable Energy Equipment & Services First Solar, Inc. is a global provider of solar energy solutions. The Company designs, manufactures and sells photovoltaic (PV) solar modules, and also develops, designs, constructs and sells PV solar power solutions. The Company operates through two segments: components and systems.
HD Home Depot Cyclical consumer goods & services Home Improvement Products & Services The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Home Depot stores sell an assortment of building materials, home improvement products and lawn and garden products and provide services.
MU Micron Technology, Inc Technology Semiconductor – Memory Chips Micron Technology, Inc. provides semiconductor systems worldwide. It operates in four segments: Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit.
SUNE SunEdison, Inc Energy Photovoltaic Solar Systems & Equipment SunEdison, Inc. (SunEdison) is a developer and seller of photovoltaic energy solutions, an owner and operator of clean power generation assets, and a developer and manufacturer of silicon wafers. The Company operates in three segments: Solar Energy, TerraForm Power and Semiconductor Materials through SunEdison Semiconductor Ltd.
SSYS Stratasys, Ltd Technology Computer Peripherals Stratasys Ltd. provides additive manufacturing (AM) solutions for the creation of parts used in the processes of designing and manufacturing products; and for the direct manufacture of end parts. The company offers entry-level desktop 3D printers for idea and design development.
WFM Whole Foods Market, Inc Non-Cyclical Consumer Goods & Services Supermarkets & Convenience Stores Whole Foods Market, Inc. (Whole Foods Market) is a retailer of natural and organic foods and grocer. The Company has one operating segment, natural and organic foods supermarkets. As of September 29, 2013, Whole Foods Market operated 362 stores in the United States, Canada, and the United Kingdom.
WYNN Wynn Resorts Ltd Cyclical Consumer Goods & Services Casinos Wynn Resorts, Limited is a developer, owner and operator of destination casino resorts which integrate accommodations and amenities, including fine dining, premium retail offerings, distinctive entertainment and convention facilities.