Bitcoin has a serious potential within the Greek crisis

Edward Tj GeretyThe world is watching with bated breath as the Greek people consider how to vote in the country’s upcoming referendum. A yes vote on Sunday will see Greece accept the terms of the troika’s bailout, and commit itself to further austerity; a no vote will see the country taking the first step towards exiting the Euro entirely.

But not everyone is afraid of the prospect of “Grexit”. For proponents of Bitcoin, the cryptocurrency, a shaky Mediterranean economy implementing capital controls amid the prospect of full-blown exit from the euro recalls halcyon days gone by.

In theory, when the conventional financial system is experiencing turbulence, alternative currencies such as bitcoin should have their time to shine. The decentralised nature of the currency means that it’s impossible for any central bank to impose controls on it, while the pseudonymity at its core could make it the perfect vehicle to get money into and out of the country while avoiding legal reprisals.

As a result, Tony Gallippi, the co-founder of bitcoin payment processor Bitpay, tweeted on Sunday night that he expected the price of bitcoin to rise to between $610 and $1,250 if Greece exits the Euro. The currency is currently worth $250. On Reddit’s bitcoin subforum, users are sharing tips on how to buy bitcoin in the country, and commenting on reports of bank runs in the capital: “Should’ve bought bitcoins”.

Part of the reason why the crisis is so tempting for proponents of the cryptocurrency is the echoes of a previous crisis in the Eurozone: the banking collapse in Cyprus in 2013, which saw that nation also impose capital controls to prevent massive outflows of currency from the panicking country. That collapse came at the same time as the first major boom in the price of bitcoin, which began the year at less than $20 and peaked at ten times that by early April – before it all came crashing down.

At the time, many credited the price rise to interest in the currency sparked by the banking crisis, but Nathaniel Popper, author of the book Digital Gold: the Untold Story of Bitcoin, says that they are labouring under a misapprehension.

Speaking on the Guardian’s Tech Weekly podcast, Popper explained that the rise was more likely caused by an influx of money from Silicon Valley. In those days, “if someone buys $1m of bitcoin in one go … that will make the price rise”, he said.

For now, the price of bitcoin has steadily risen as the Greek crisis has intensified, from $240 on Wednesday to $250 over the weekend. It remains a long way off its 2014 highs of $1,000 per coin, but what happens after Sunday’s vote is anybody’s guess.


Bitcoin: Could it become the Currency of International Trade?

edward tj geretyU.S. Senate informational panels deemed it legitimate. Detractors dismiss it as unstable and a vehicle for criminal trade. China has banned new deposits on its largest exchange.

Bitcoin, the international digital payment system and currency and one of the hottest technology and finance topics this past year, could become a widespread vehicle for trade, believe the leaders of a Miami group. To further that view, Miami International Bitcoin will be participating in the North American Bitcoin Conference slated for Miami Beach in January.

“The thing that’s really exciting about bitcoin is that, here in South Florida, we have a half billion people to the south of us who do not have access to a banking system that works well, capital markets, credit — things that we take for granted,” said Charles Evans, business professor at Florida Atlantic University and one of the founders of Miami International Bitcoin.

“I fully expect that Miami could become the ‘Silicon Valley’ of small-scale international finance,” said Evans, who will speak at the conference. “I defy anybody to do business in South Florida without doing international business.”

Bitcoin began in 2009 as an electronic payment system and currency allowing for peer-to-peer payments and financial exchanges without financial regulation or a third party, such as a bank. Users establish an online wallet using their local currency and exchange with other bitcoin owners. As a payment system, it functions much like PayPal, but there are no charge fees and no credit cards are required. As a currency, bitcoin allows for a nearly universal system as units can be converted to local currencies, usually without fees.

The 2014 conference will take place Jan. 24-26, and is expected to draw more than 500 members of the bitcoin community. It hopes to build on the success of past conferences like Bitcoin 2013, held in May in San Jose, Calif., by bringing together technology professionals, business people and policy makers to discuss the future of bitcoin.

The Clevelander hotel will even allow conference goers to pay for their rooms, food and drinks with bitcoin through conference sponsor BitPay. The hotel joins other businesses that are accepting bitcoin as payment like Vanity Cosmetic Center in Miami and Planet Linux Caffe in Coral Gables. Internationally, bitcoin is gaining acceptance for various kinds of purchases like gift cards and even for Black Friday shopping last month.

Daniel Mery, owner of Planet Linux in Coral Gables, said customers can easily walk up and use their phones to purchase coffee, pastries and sandwiches in the cafe with bitcoin.

“We want to promote bitcoin like we promote new technologies,” Mery said. “Bitcoin is a universal currency, it’s a currency that no government controls.” He wants to encourage other local store owners — not just those appealing to techies — to follow his lead.

Proponents like Evans see bitcoin as a potential payment solution that facilitates international trade without requiring currency exchange, especially in regions like the Caribbean and the Americas where cell phone and technology usage is increasing. In Venezuela, for example, there are 30.5 million cell users, a number that tops the country’s actual population, according to National Telecommunications Commission data.

Since bitcoin can be transferred via smart phones, Carlos Parra, an economics professor at Florida International University, believes there’s a chance to impact impoverished and under-served residents in countries like Venezuela.

“If it turns out that bitcoins end up having less volatility than the national currency, then people at the bottom of the pyramid in Venezuela, for them it would be easier to use bitcoins,” Parra said. “Bitcoins would be very useful for international transfers. Most of the remittances to the Caribbean come from Miami and they are making a lot of inroads with mobile money.”

But understanding the currency and overcoming skepticism remain potential challenges for international expansion and acceptance. “There’s the connotation that it’s used for black markets and illegal purposes. From the public affairs side of things, a company wouldn’t want to be exposed to that, even if it’s an indirect relationship,” Parra said.

Recently, bitcoin took a hit in value when BTC China, the largest bitcoin exchange in China, said it would stop accepting deposits for bitcoin in the local currencies, renminbi and yuan. Bitcoin’s exchange rate dropped from a peak of more than $1,000 to as low as about $300 before settling in the $500 and $600 range. Monday it traded at $641 for 1 bitcoin.

“The run-up we saw over the last month or so was unsustainable,” Evans said. “It was based on high expectations that people in China would be able to use bitcoin in a way that is not the case.”

And as other international marketplaces are revealed as hoaxes or simply disappear, there’s still skepticism about bitcoin becoming a rival to the dollar or euro — or even holding its value as an investment.

For individuals who have already invested, bitcoin advocates want to also let people know the currency is still highly vulnerable to hacking.

Sean Emmanuel co-founded Bot Revolt, a sort-of bitcoin “antivirus,” to help educate people about bitcoin if they invest. Subscribers pay monthly or annually to have Bot Revolt monitor their bitcoin exchanges to prevent illicit activity and hacking.

“Pushing out the word and getting people to understand that there are better ways to protect your bitcoin is one of the tougher things in the world,” Emmanuel said.

Emmanuel and his team, which is based in Pompano Beach, also plan to launch the beta version of the website bitcoin Intel in January, to track price movements. As the value continues to rise, Evans warns that new converts to bitcoin should remain cognizant of trends, like the recent and ongoing crackdowns in China.

“We’re talking about something that’s new, and very few people understand it, and they hear about it from their friends and get involved in it,” Evans said. “I wouldn’t count on (its exchange rate) doubling every day forever, so you’re going to have to watch the price movements and wait for things to calm down a little bit before you get too giddy.”

As with any investment, people have to know how to balance spending and saving, because the currency is vulnerable.

“I’ve personally invested money into bitcoin, so it’s definitely a cause for concern,” Emmanuel said. “You can have bitcoin that you store, and I have a set of bitcoin that I use to exchange goods and services between my colleagues.”

Evans thinks that beyond investing in bitcoin, individuals should think of creating personal business opportunities like Emmanuel did. Or like Kenneth Metral created with his online marketplace Coingig.

Metral is CEO of the Coingig site and works in South Miami with international partners. He said that he wants his site to become the “Amazon” of bitcoin and avoid the fates of marketplaces that sold illegal goods or duped users out of their bitcoins.

“We do a small verification process with each seller to make sure they’re real,” Metral said. “When a buyer purchases a product they pay us first, we wait until the buyer receives the product and then we release the payment to the seller.”

Coingig’s homepage is refreshed in real time to reflect the current price of bitcoin and translates a customer’s local currency into the bitcoin equivalent. Metral says the site is getting customers every day, because people are attracted to the idea of shopping without giving up their personal information: “It’s kind of changing the way we think about money and currency.”

And even if bitcoin plummets in value again (even before you finish reading this), Evans thinks it has already made an impact.

“This is the future with a capital t and a capital F,” said Evans.

Millennials are disillusioned with politics. Here’s a way that might change.

We often hear that Millennials are disengaged and disillusioned with the U.S. political system. In many ways, that’s true. Compared with Gen Xers (born between 1965 and 1980) and Baby Boomers (1946 to 1964), the generation of Americans who were born after 1980 and before 1997 identify less with political parties, are less interested in politics and vote at lower rates. Even young Americans who consider themselves politically active may not do much more than vote every few years, sign an online petition once a year, or passive-aggressively unfriend people who express different political views on Facebook.

Many people see these trends as a product of the general uprooting of American civic society. For a variety of complex reasons — including changes in work, technology and gender roles — Americans today know less about their neighbors, are less likely to take part in their communities, and be part of fewer formal institutions such as churches or political parties.

But there are hints that this could change, as social media lowers the cost of reaching out to Millennials and introduces new ways to engage and organize them politically. On Wednesday, the newest entrant in this area emerged, with the release of a new app called Brigade, which its founders, including Napster founder and Facebook backer Sean Parker, describe as “like a Tindr for politics.” The app follows in the traditions of Web sites like and that have already successfully used social media to start petitions, form nonprofits and recruit volunteers.

The app, which launched in private beta testing  Wednesday morning, allows people to express their opinions on a variety of issues, from climate change and charter schools to the future of Ukraine, and see how those opinions compare with their friends and connections. It also encourages people to comment on trending news topics and form groups with their friends and neighbors, potentially for offline social action.

The app is also meant to be a tool for advocacy groups and candidates, who can use it to build out their supporter networks, run campaigns on a specific issue and get much more accurate information on who their supporters are and what they believe. The app launched with several advocacy partners, including the Drug Policy Alliance, Heritage Action and Americans for Tax Reform.

In an interview, Brigade chief executive Matt Mahan and president James Windon said they hope the app will help connect voters and give them tools to organize. By starting conversations about politics with your friends and contacts, the goal is to help bridge the gap between American’s political and civic lives and their social lives and “bring it back in the sphere of people we trust.”

The app is also designed to better map the complexity of people’s political views outside of America’s two parties, an approach that is particularly suited to the views of Millennials. And when the general election comes in 2016, the company is planning to introduce features to help people vote in line with their values. “People often don’t fall into a left-right spectrum, especially when it comes to local issues. We think we’re going to create new openings for people to act together to do something that might get buried in the current system,” says Mahan.

Thirteen-thousand people have already tested out Brigade, and users can invite others to participate. People can also request an invitation through the app’s Web site.

Brigade has about 50 employees housed in Washington and San Francisco and raised $9.5 million in venture capital in April from Parker, Salesforce chief executive Marc Benioff and venture capitalist Ron Conway. The company does not have an immediate plan to generate a profit, but Windon said that they do intend to do so in the future.

“Right now, we’re trying to get the tools out. Assuming we can, we’ll be thinking about revenue in the future,” he said. “We have to assume that the data we’re collecting will form part of our revenue model.”

The basic task of getting millennials engaged will be challenging enough. Poll after poll show that millennials are less interested in politics and talk about it less frequently than their elders. They are also far more likely to describe themselves as independents, though in practice many lean liberal, especially on social issues like same-sex marriage. According to Pew, these figures are at or near the highest levels of political and religious disaffiliation any group has shown in the quarter century that Pew has done its polling.

One reason millennials may not be as politically motivated is they don’t see much of a difference between Democrats and Republicans. And fewer millennials say they trust political parties — or people in general. Just 19 percent of millennials agree that most people can be trusted, compared with 31 percent of Gen Xers and 40 percent of Boomers in a poll by Pew Research Center.

Pew Research Center

That mistrust extends to institutions of authority more generally. In a Harvard survey of 3,000 18- to 29-year-olds, only about half of the respondents said they trusted the military, while 42 percent trusted the Supreme Court. The figures were even lower for the president, the United Nations, the federal government and Congress. The same poll also showed little confidence in the justice system in general, or the ability of protests like #BlackLivesMatter to make changes to it.

Mindy Romero,  director of the California Civic Engagement Project at the University of California, Davis, says younger people don’t trust political parties because they grew up during a period of intense partisan bickering, and they don’t personally see evidence of what Washington is doing for their communities. The economic hardships triggered by the Great Recession and globalization have further eroded their faith in institutions.

But young people also face specific barriers to political participation that could be reduced, says Romero. One is a lack of education and preparation in schools about practical aspects like voter registration, as well as the more abstract understanding of civic duty. She says another barrier is America’s two-step voting process, which requires you to separately register before you vote. Young people tend to move around more, and that can cause their registration to lapse.

There are also practical barriers to reaching young people, since they are less likely to participate in formal organizations and pay attention to diverse media sources.

“You can’t reach young people through formal organizations, because they’re not in them … They’re not all watching the same TV show,” says Peter Levine, a professor at Tufts who directs a civic engagement program. The one place young people do congregate is college, so a lot of campuses have become the focus of a lot of political youth organization. But even so, Levine points out that most millennials aren’t in college in a given year. About 70 percent of high school grads are enrolled in college or university the next year, but they only stay in school for a few years.

The one place where millennials do talk politics more than older generations is on social media. In a poll by Pew Research Center, roughly a quarter of millennial Facebook users said at least half of the posts they see on Facebook relate to government and politics – compared with only 18 percent of Gen Xers and 16 percent of Baby Boomers.

Pew Research Center

The obstacles abound, but once political messages reach Millennials, they can be very effective. The Obama campaign directly asked young people to vote, volunteer and express their opinions, and found that Millennials responded strongly. “One of the lessons of the 2008 Obama campaign is that it really pays off to actually ask people to participate,” Levine says.

Parties, candidates and analysts alike have also found that Millennials are more willing to organize around particular issues rather than political parties. “For all human beings, it makes more sense to talk about issues than parties – who cares about parties. Most people are more interested in solving issues,” says Levine. “But I think it’s especially true for young people, who have a particularly weak attachment to political parties.”

All this hints at better ways to get Millennials engaged in political and civic life — including appealing to them directly, using social media in a smart, strategic way, and focusing on issues they care about and how those issues impact their communities.

Granting of First NY Charter and FinCEN Fine Demonstrate Continued Evolution for Virtual Currency Sector 

Edward Tj GeretyThe last several months have demonstrated the continued growth, volatility and regulation of the virtual currency industry.  A number of Wall Street institutions and established technology companies have made sizeable investments in virtual currencies and the underlying blockchain technology, and investors aren’t the only ones who continue to be interested in the development of virtual currencies.  Regulators at the federal and state level have recently taken important actions that will continue to shape the nascent regulatory environment.  In particular, we discuss below two recent developments:  (1) New York’s issuance of the first charter to a virtual currency company and (2) a recent FinCEN enforcement action against the second-largest U.S. virtual currency company.

New York Department of Financial Services Grants First Charter to Virtual Currency Company

On May 7, 2015, DFS granted its first charter[1] under New York Banking Law to a virtual currency company–itBit Trust Company, LLC (itBit), a commercial Bitcoin exchange that will allow customers to buy, sell, and hold digital currency as an asset.[2]  The limited purpose trust company charter awarded to itBit allows the company to commence its virtual currency operations immediately, sidestepping the soon-to-be-announced final BitLicense framework.[3]  itBit was granted a license after applying for a charter only three months earlier in February 2015, though it is reported that itBit began the charter process and negotiations sometime in early 2014.[4]

Similar to the proposed BitLicense requirements, itBit was subject to a “rigorous review” that included, among other things, a review of the company’s anti-money laundering, capitalization, consumer protection and cybersecurity standards.[5]   In addition, itBit will continue to be subject to supervision by the DFS as both a trust company and, when finalized later this month, a company subject to BitLicense regulations.[6]

itBit is the currently the only company licensed to conduct a virtual currency business in New York.  Time will tell how long that will remain the case, as well as the significance of that fact as virtual currency companies compete for a greater share of the U.S. market.[7]

FinCEN Assesses a $700,000 Penalty for BSA/AML Violations

On May 5, 2015, Ripple Labs Inc. (Ripple) and XRP II, LLC (XRP and, collectively, the Companies) entered into a Consent to the Assessment of Civil Money Penalty (the Consent) with the Financial Crimes Enforcement Network (FinCEN) for violations of the Bank Secrecy Act (BSA) related to the Companies’ engagement in the sales of approximately $1.3 million in virtual currency.[8]  On the same day, the Companies also entered into a Settlement Agreement with the U.S. Attorney’s Office for the Northern District of California, avoiding criminal charges related to their activities described above.[9]

FinCEN assessed a civil money penalty against Ripple, the second-largest U.S. digital currency company in terms of market capitalization, for willfully violating the BSA when it first started selling virtual currency on March 6, 2013 without registering as a money services business.  Ripple continued to operate without registering, despite March 18, 2013 FinCEN guidance that specifically addressed registration requirements for virtual currency transmitters.[10]  Additionally, Ripple was also cited for its failure to establish an anti-money laundering (AML) program throughout the two months it engaged in the sales of virtual currency.[11]

XRP, a FinCEN registered money service business and subsidiary of Ripple, assumed Ripple’s functions of selling virtual currency in April 2013.  Despite registering with FinCEN, XRP was cited for its failure to implement and maintain an adequate AML program; XRP initially operated without any AML procedures or policies for several months, operated without a compliance officer for three months, and did not conduct its first risk assessment until six months after assuming the business from Ripple.  XRP was further cited for its failure to report suspicious activities related to several questionable transactions.[12]

The Companies were assessed a penalty of $700,000 and required to perform several remedial undertakings,[13] pursuant to 31 U.S.C. § 5321 and 31 C.F.R. § 1010.820.  In connection with the Settlement Agreement, which resolved a criminal investigation, the Companies were also subject to a forfeiture of $450,000, which would be credited against FinCEN’s assessment upon payment.[14]  Remedial undertakings require the Companies’ to establish adequate AML/BSA compliant policies and programs, as well as transfer all virtual currency business to registered money service businesses.  The virtual currency community took particular issue with a remedial measure to make “enhancements to the Ripple protocol.”[15]  These required enhancements were cited as a concern that they could allow FinCEN to alter companies’ protocols and monitor counterparties that use the underlying software program that runs Ripple’s network.[16]


These two developments demonstrate that despite continued volatility and challenges, virtual currency businesses are increasingly viewed as more mainstream–and therefore are attracting heightened attention from regulators.  As start-ups and established companies continue to innovate–leading to greater investments in bitcoin consumer services and exchange providers, accelerator programs, active exploring of ways to leverage blockchain technology, and a crossover of executives into the virtual currency sector–we anticipate there will continue to be  growth, additional state initiatives to attract virtual currency start-ups, and increased regulatory scrutiny at both the state and federal levels.  One of the most significant forthcoming developments that we will monitor is the release of the much-anticipated final DFS BitLicense regulatory framework, which is expected in the coming days.

   [1]   See Authorization Certificate for ItBit Trust Company LLC (May 6, 2015), available at; see also Reem Nasr, NY Grants First Banking License to Bitcoin Exchange itBit, CNBC, May 7, 2015,

   [2]   Press Release, N.Y. State DFS, DFS Grants First Charter To A New York Virtual Currency Company (May 7, 2015),

   [3]   As we discussed in a previous alert, the DFS outlined an updated BitLicense regulatory framework in December 2014 and a finalized version is expected at the end of this month.  See Developments in Virtual Currency: Regulation and Enforcement Actions Gain Momentum (Jan. 5, 2015),–Regulation–Enforcement-Actions-Gain-Momentum.aspx.

   [4]   Nathaniel Popper, Bitcoin Exchange Receives First License in New York State, N.Y. Times Dealbook (May 7, 2015),

   [5]   Press Release, N.Y. State DFS, DFS Grants First Charter To A New York Virtual Currency Company (May 7, 2015),

   [6]   Id.

   [7]   For example, Coinbase, a virtual currency company based in San Francisco, is attempting to open the first exchange with all necessary licenses in the United States, but has yet to obtain regulatory approval in New York.  See Pete Rizzo, DFS: Coinbase Is Not Licensed in New York, Coindesk (Jan. 28, 2015, 17:23 BST),

   [8]   United States Dep’t of the Treasury, Financial Crimes Enforcement Network, Assessment of Civil Money Penalty, In re Ripple Labs Inc. and XRP II, LLC, No. 2015-05 (May 5, 2015), available at

   [9]   Settlement Agreement, United States Dep’t of Justice (May 5, 2015),

  [10]   News Release, United States Dep’t of the Treasury, Financial Crimes Enforcement Network, FinCEN Issues Guidance on Virtual Currencies and Regulatory Responsibilities (Mar. 18, 2015),  See Gibson Dunn Client Alert, U.S. Developments in Virtual Currencies: FinCEN Administrative Rulings and New York Department of Financial Services Hearings (Feb. 12, 2014),–FinCEN-Administrative-Rulings-and-New-York-Department-of-Financial-Services-Hearings.aspx.

  [11]   See United States Dep’t of the Treasury, Financial Crimes Enforcement Network, Assessment of Civil Money Penalty, In re Ripple Labs Inc. and XRP II, LLC, Attachment A: Statement of Facts and Violations (May 5, 2015), available at

  [12]   For example, XRP processed a $250,000 transaction despite a customer’s refusal to complete a “know your customer” form.  In another instance, XRP declined to process a $32,000 payment because it “doubted the legitimacy of the overseas customer’s source of funds,” but failed to report its suspicions.  Id.

  [13]   See United States Dep’t of the Treasury, Financial Crimes Enforcement Network, Assessment of Civil Money Penalty In re Ripple Labs Inc. and XRP II, LLC, No. 2015-05, Attachment B: Remedial Framework (May 5, 2015), available at

  [14]   Assessment of Civil Money Penalty, In re Ripple Labs Inc. and XRP II, LLC, Attachment A: Statement of Facts and Violations, supra note 11.

  [15]   Assessment of Civil Money Penalty In re Ripple Labs Inc. and XRP II, LLC, No. 2015-05, Attachment B: Remedial Framework, supra note 13.

  [16]   Michael J. Casey, BitBeat: Day After FinCEN Bombshell, Ripple Labs Addresses Concerns, WALL ST. J. MONEYBEAT BLOG (May 6, 2015, 11:31 PM ET),

What is going on in China?

Edward Tj Gerety IIIChina’s central bank cut its benchmark lending rate by 25 basis points to 5.1 percent on Sunday, its third reduction since November, as economic growth cools to levels not seen since the global financial crisis.

The People’s Bank of China (PBOC) also reduced one-year benchmark deposit rates by 25 basis points to 2.25 percent, it said in a statement on its website, adding that the reductions would be effective on May 11.

The central bank said the move would support the healthy development of the economy. Economists had said it was not a matter of if, but when China eased policy again after economic growth in the first quarter cooled to 7 percent, the slowest pace since 2009.

Initial indicators and industry surveys for April released over the last few weeks had pointed to a further loss of momentum heading into the second quarter. “Currently, the pace of domestic economic restructuring is quickening and the fluctuation of external demand is relatively big. China’s economy is still facing relatively big downward pressure,” the central bank said.

Liquidity in the banking system is generally adequate and market interest rates are falling, providing a good window to open up the upper limit for deposit rates, it said. The central bank has now cut interest rates and relaxed banks’ reserve requirements five times in six months, and many economists expect more easing measures over the course of the year as the world’s second-largest economy is weighed down by a weak property market and slackening growth in manufacturing and investment.

It is simple to see that the growth model powering China’s economy is running out of steam as the world’s second-largest economy is too reliant on exports and municipal debt to build infrastructure. And rebooting China’s economy is easier said than done, he said.

China had a set of policies that served them very well for a long time. Anyone who says they’ve developed a better form of capitalism I think is wrong. There’s a bigger risk in overestimating China’s strength as it is in underestimating it.

China’s economy grew at its slowest pace since 2009, building the case for further stimulus from policymakers. The government said Wednesday that gross domestic product expanded 7 percent in the three months to March.  When I look at the growth, I would much rather, and I know they would much rather, grow at a slower rate but have the right sources for growth.

Those right sources of growth for China are opening up markets and having the private sector do more to stimulate the economy.

People aren’t spending their savings from Cheaper Gas.

Edward John Gerety IIIThe first-quarter gross domestic product report put several dents in popular Wall Street economic narratives, none of which bode well for growth ahead.

Worst among current economic fallacies was the notion that consumers, buoyed by big savings at the gas pump, would propel U.S. GDP to higher levels. Rather than spend the savings at the pump, which saw the average price for a gallon of unleaded gas sink below $2 in several states as 2014 drew to a close, consumers saved that money and actually pulled back on their spending pace.

As a percentage of the economy, the consumer actually grew in 2015’s first three months. Personal consumption expenditures now account for 72 percent of GDP, a mathematical phenomenon attributable at least in part to a retreat on business investment at the corporate level.

But actual spending increased just 1.9 percent in the quarter, a steep drop-off from the 4.4 percent gain in 2014’s fourth quarter and the worst rate by a fairly wide margin since the same period a year ago. The end result was an anemic 0.2 percent gain overall for GDP. At one time, economists had been predicting 3 percent growth.

The spending slide was “particularly disappointing given that the decline in energy prices generated a massive 6.2 percent annualized jump in real disposable income,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a report for clients.

Personal savings jumped to 5.5 percent from 4.6 percent. If consumers didn’t spend their savings while oil was falling, it’s hard to imagine them parting with their cash now that gasoline prices are rising again. The price for a gallon of regular has jumped 15 cents just over the past two weeks, according to AAA. That has happened as benchmark West Texas crude prices have surged about 28 percent over the past three months.

With the winter fading away, albeit slowly, “we would expect to see signs of a pickup in consumption growth emerging soon,” Ashworth added, expressing widely held hopes among economists that nonetheless have not materialized.

In fact, economists whiffed significantly on their first-quarter growth expectations, even after weeks of lowering projections. The Wall Street consensus was a comparatively optimistic 1.0 percent heading into Wednesday morning’s data release; only the GDPNow tracker, tabulated by the Federal Reserve’s Atlanta branch, had a strong handle on the situation, predicting a 0.1 percent rise.

“The downward pressure on profits, the large drop in oil-related investment and the strong dollar are holding back the U.S. economy,” Gad Levanon, managing director of macroeconomic and labor market research at The Conference Board, said in a statement. In the past 12 months, the dollar has risen 19.7 percent against a trade-weighted basket of global currencies.

“While the weak consumption of goods was partly a result of bad weather, it seems that most of the boost from oil prices already took place in the previous quarter,” Levanon added.

Don’t expect help from corporate America, either.

The oil price decline boosted neither consumer nor company spending. Capital expenditures, or capex, actually dropped 3.4 percent in the quarter, even as companies have spent, according to market data firm TrimTabs, $237.1 billion buying back their own shares just since March.

The ball on growth is now in the Fed’s court. The central bank, which meets this week and will release its post-meeting statement later Wednesday, has indicated a desire to normalize interest rates even amid the tepid economic growth.

Though most Wall Street economists likely will hold to the story line that elevated levels of consumer confidence will translate to stronger growth ahead, full-year GDP gains seem likely to fall short of 3 percent expectations, posting yet another challenge to Fed policy.

“We knew Q1 was going to be weak with only the degree in question and we expect to have a bounce back in Q2 with also the degree in question,” Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. “For the full year though, 2 percent-type growth is still with us and the hoped for 3 percent growth rate that too many still expect is highly unlikely to happen.”

Orange Seeks to Invest in Bitcoin Startups

Edward John Gerety IIIOrange SA is looking to invest in bitcoin startups in the coming months, making it one of the first big international phone carriers to become interested in the technology behind the digital currency.

“There’s something intriguing in this technology, so we want to be there as early as possible,” said Georges Nahon, chief executive officer of Orange Silicon Valley, a division of the Paris-based company. “This could be a digital platform of the future,”

While bitcoin’s price has almost dropped in half in the past year and the prospects of the digital currency are uncertain, its underlying software is attracting investors. The technology can be tweaked to record changes in ownership of any asset in a public ledger using a distributed network of computers, and could help facilitate transactions at businesses like carriers, banks, stock exchanges or insurance providers.

The bitcoin blockchain technology, as it is called, could be used to cheaply transfer money between different countries, Nahon said. Like other carriers, Orange is building up its mobile-payment business as more people use their smartphones to make purchases or transfers. Orange already has more than 12 million users for its money transfer service Orange Money in Africa and the Middle East, and is looking to expand the business.

Chatting up Start-ups

Orange Silicon Valley has been holding bitcoin events at its offices in San Francisco and is talking to two bitcoin companies, Nahon said. The group can invest $20,000 per startup and is part of global team that can spend up to 3 million euros ($3.2 million) per company.

The carrier recently expanded its venture-capital effort with the creation of Orange Digital Ventures. The goal is to have supported 500 startups worldwide by 2020, Orange said in March.

“Even though we have a large internal R&D organization, given the pace of innovation we need to compliment our own initiatives and projects with what the outside world is doing,” Nahon said.

Bitcoin venture-capital investments hit an all-time quarterly high of $233.95 million in the first quarter, according to researcher CB Insights.

Google Ventures and venture arms of several other large tech companies have made investments in bitcoin-related startups. Even the biggest U.S. stock exchange operators are taking steps to embrace bitcoin. This year Nasdaq OMX Group Inc. licensed its technology to a bitcoin trading company, while the New York Stock Exchange invested in bitcoin startup Coinbase.

While telecommunications companies have mostly stayed on the sidelines, several have begun to dabble in bitcoin. Perseus Telecom, which provides high-speed global connectivity services for traders, announced it would begin supporting bitcoin trading. Dish Network Corp. began accepting bitcoin payments last year.

What is Hallowing out the US Middle Class?

Edward Tj GeretyPerhaps the biggest question in American political economy right now is why middle-class wages have been falling. There are three main hypotheses. Roughly, these are: Robots, unions and China.

The robots theory gets by far the most play in the news media, since it’s by far the scariest — if automation is replacing big chunks of the human workforce, things are only going to get worse as robots become more capable and efficient. This interpretation has tentatively been embraced by many on the political right, since it doesn’t imply a need for substantial government intervention in the economy (though it might imply a need for redistribution). The unions theory is favored by the political left, since it implies that giving more institutional power to this traditional liberal power bloc would shift the distribution of national income toward workers.

Neither side really wants to blame China. The right generally represents business interests and capital owners who have made a lot of money off of China, and hope to make a lot more. The left is afraid to go against the free-trade orthodoxy that has dominated postwar American economic thinking, and also fears a potential cold war with China.

But there’s just one problem: The evidence may point to least favored answer being the right one.

A new National Bureau of Economic Research paper by economists Avraham Ebenstein, Ann Harrison and Margaret McMillan examines the impact of offshoring to China. They compare industries and occupations based on their exposure to Chinese offshoring after China’s accession to the World Trade Organization in 2001. They find that when exposure is greater, wage declines are much bigger. They also find that competition from Chinese imports affects wages, but to a much smaller degree.

Another paper, by economists Michael Elsby, Bart Hobijn and Aysegul Sahin looks at the China story from a different angle. They ask why the share of income going to labor has decreased in the U. S. They examine two variants of the robots story and also the unions story, and find that these explain only a small part of the decline in the labor share. But when they look at industries exposed to imports, they find that import competition is responsible for most of the variation in the payroll share of value added. Our biggest new source of imports, of course, has been China.

And then there is the famous 2013 paper by economists David Autor, David Dorn and Gordon Hanson, entitled “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.” They compare areas of the U.S. based on how exposed they were to Chinese import competition from 1990 to 2007. Their abstract states their conclusion in no uncertain terms:

Rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import competing manufacturing industries…[I]mport competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment.

In other words, there is a growing body of research showing that globalization — and, in particular, the rise of China — has been the biggest factor hollowing out the American middle class. Naturally, supporters of the robots explanation have challenged some of this research, but the papers keep piling up.

Meanwhile, the robots hypothesis is also starting to get serious pushback on other fronts. Celebrity economist Larry Summers, who has expressed concern over the possibility of automation replacing human jobs, has hedged his bets. He points out that productivity hasn’t surged as fast as one might expect from a robot revolution. He also notes that if robots were replacing humans, we’d expect to see a temporary boom in human labor, since people would be needed to build and install the robots. We haven’t seen that. Although Summersstill believes robots are a factor, he points out some reasons to be skeptical of the story.

So if the U.S. middle class has been gutted because of China instead of robots or de-unionization, what do we do? Reshoring initiatives are becoming popular, but so far they have had limited effect. Trade barriers against China are unlikely to do much, since offshoring investment will just shift to other low-wage countries — as it is already doing as Chinese wages rise. And the globalization cat is already out of the bag — now that markets and supply chains are global, walling off American industry will probably just cut American companies out of fast-growing global markets, and lead to slower growth in the U.S.

The only solution to the problem of globalization may be to wait. Chinese wages have risen a lot, and only India is big enough to take China’s place. As global economic convergence proceeds, the U.S. will look more attractive as an investment destination, and reshoring will increase. That isn’t an answer that people want to hear, but it may be the right one.

BitCoin is growing in Africa!

africaIt is a well-documented fact that Africa has a huge number of unbanked, which in some countries goes beyond 70%, and also incurs very high costs of money transmission. It follows then that when Bitcoin is mentioned in the same breath as Africa, it is often as a technology that is in a position to help solve these problems.

However, there is another opportunity in cryptocurrency that is attracting attention, at least in some quarters of the continent’s population. And that is being a source of income as a tradable currency online.

A few weeks ago I was added to a Kenyan Bitcoin Social Media group, where members share all manner of information on Bitcoin and other cryptocurrencies. And for the time I have been there, I noted that apart from how to get into mining, the other question that kept coming up is how one can trade Bitcoin online and generate income.

In line with this demand, TagPesa and BitPesa, two Bitcoin exchanges operating in Kenya have recently made efforts to facilitate online trading in bitcoins. Indeed, BitPesa did hold an event on February 13, 2015 dubbed ‘Hustle with Bitpesa’, which was specifically targeted at traders. Since then, the company has been holding similar events in other major towns around the country.

The same is being replicated in other African countries. The South African Bitcoin exchange ICE3X that took place last January launched its services in Nigeria, which will help the locals buy and sell bitcoins using naira, the local currency.

New phenomenon

Of course, it would accurate to say that online trading in Africa is still in its early age. Online Bitcoin trading will probably furthermore remain marginal for many years to come even as internet penetration grows at a relatively high rate.

Nevertheless, there is some activity taking place in this area.

Tech-savvy, mostly young people in cities like Nairobi, Cape Town and Lagos are taking the initiative to learn the ropes. I must mention however that almost all of these pioneers are people who have been trading online before using other methods.

One perfect example of such a trader is Nelson Lemashon, a Kenyan, who has been trading currencies on the ForEx market for close to five years. He decided to venture into BTC in 2012, and he believes there is an opportunity for Africans in this area too.


Lemashon acknowledges however that just like with other Bitcoin traders around the world, those trying it from Africa have to overcome a number of teething problems and other challenges.

“We have to face the challenges of not well-developed trading tools,” says Lemashon. “For instance, apart fromBTC-e, few other bitcoin trading platforms have the MT4 software. Also in order to leverage on volume, you have to invest a larger amount of value as compared to when trading other currencies or assets.”

Michael Kimani, a founding member of the African Digital Currency Association, thinks that more Africans are going to interact with Bitcoin through trading.

“It can happen as the means of moving money between local currencies and bitcoins are becoming available,” says Kimani

Indeed, it will take time for a vibrant community of online Bitcoin traders to grow. However, with the continent holding its first Bitcoin Conference on April 16-17, 2015, and a growing list of exchanges opening up shop on the continent, there is little doubt that it will happen.

Bank Suspends Polish Bitcoin Exchange’s Accounts

bitcoin-europePolish bitcoin exchange has had its bank accounts suspended by Bank BPH.

BPH initially said the suspension was the result of a technical glitch, but later claimed it was due to outstanding debt and lack of credentials, according to The exchange said it discovered its BPH accounts were suspended on 26th January. founder Michal Pleban told CoinDesk that the real reason for the bank’s decision was prompted by a query filed by the local district attorney’s office. The filing revolved around one particular transaction on the exchange, which was allegedly performed with stolen funds.

“For that reason, the bank decided to close all our accounts and refuse our business,” he said.

The exchange never received a notification from the bank or the authorities, according to Pleban. He said he was unable to see the query that eventually prompted the bank to freeze the accounts.

In addition, Pleban said the bank’s compliance team made a mistake by closing the account before it disabled the IT connector. This resulted in transactions being channelled to the already disabled account. The bank said the transactions would eventually be returned to their senders.

CoinDesk has contacted BPH for additional comment on the matter, but no response had been received at press time.

New bank account

Pleban said the exchange has decided to create a new company to take ownership of and is seeking to open a new account with a different bank.

He added that the exchange is trying to normalise operations:

“This should take no more than two weeks. In the meantime, we have re-enabled electronic fiat transfers which will be warehoused at the payment processor until a new bank account is opened. We also re-enabled crypto deposits, and all withdrawals are performed normally from my own personal account. Normal (non-electronic) fiat transfers will be re-enabled once a new bank account is established.”

Pleban is also looking into the possibility of taking legal action against the bank, claiming his lawyer is preparing the necessary paperwork.

“I am currently on a quest to find a bitcoin-friendly bank in Poland,” he added. opened in March 2014, promising to offer superior security following a number of attacks on local exchanges.