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There is a good reason why every civilized country in the world tightly regulates its financial system. After all, the 2008 global financial crisis was largely the result of a relaxation of financial regulation. Scammers, criminals and scammers are a reality, and no financial system can serve its purpose unless investors are protected.
As a result, there are regulations that require securities to be registered, money service activities to be permitted, capital controls to include "money laundering" (AML) and "know your client" provisions. (KYC) (to prevent tax evasion and other tax offenses). illicit financial flows), and that fund managers serve the interests of their clients. Because these laws and regulations protect investors and society, the compliance costs badociated with them are reasonable and appropriate.
But the current regulatory regime does not cover all financial activities. Crypto-currencies are regularly launched and traded outside the field of official financial supervision, where avoidance of compliance costs is presented as a source of efficiency. The result is that crypto-land has become an unregulated casino, where uncontrolled crime is unleashed.
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This is not a simple guess. Some of the greatest cryptography players can be openly involved in systematic illegality. Take BitMEX, an unregulated exchange of $ 1 trillion in cryptographic derivatives domiciled in Seychelles, but active globally. Its managing director, Arthur Hayes, has openly touted the fact that the BitMEX business model involved peddling to "degenerate players" (meaning unsophisticated retail investors) crypto derivatives with leverage from 100 to one.
To be clear, with a leverage of 100 to one, even a 1% change in the price of the underlying badets could trigger a margin call and wipe out the entire investment. Worse still, BitMEX charges high fees every time we buy or sell toxic instruments, then takes a new measure of the apple by siphoning its customers' savings into a "liquidation fund" that is likely to be much more important than what is necessary to avoid -part risk. It is not surprising that, according to an independent researcher's estimates, liquidations sometimes represent up to half of BitMEX's revenues.
BitMEX insiders have revealed that this exchange is also used daily for large-scale money laundering by terrorists and other criminals from Russia, Iran and the United States. ;elsewhere; the stock market does not do anything to stop this because it benefits from these transactions.
As if that were not enough, BitMEX also has an internal trading desk (supposed to be intended for market making) that has been accused of leading its own customers. Hayes has denied this, but since BitMEX is completely unregulated, there is no independent audit of its accounts, and therefore no way of knowing what is going on behind the scenes.
Whatever the case may be, we know that BitMEX bypbades the AML / KYC regulations. Although it claims not to serve US and UK investors who are subject to such laws, its method of "verifying" their citizenship is to check their IP address, which can easily be masked with a standard VPN application. This lack of diligence is a flagrant violation of securities laws and regulations. Hayes even openly challenged anyone to try to sue him in unregulated Seychelles, knowing that he was operating in the shadow of laws and regulations.
Earlier this month, I debated Hayes in Taipei and called his racket. But, without my knowledge, he had obtained the organizers of the exclusive rights conference on the video of the demonstration and refused for a week to broadcast it in full. Instead, he published "highlights" chosen by cherries to give the impression that he had performed well. I suppose that goes without saying among scammers, but it is ironic that anyone who claims to represent "resistance" to censorship has become the father of all censors now that his scammer has been exposed. Finally, ashamed in public by his own supporters, he gave in and published the video.
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On the same day, we debated the issue of the UK Financial Conduct Authority, which proposed to ban outright investments in high-risk cryptography. However, unless a concerted response from policy makers, private investors lured into the cryptographic domain will continue to be trapped. Price manipulation is pervasive in all cryptographic exchanges, due to pumping and dump systems, delayed trading, identity theft, jogging and running. other forms of manipulation. According to one study, up to 95% of all Bitcoin transactions are fake, which indicates that fraud is not an exception, but a rule.
Of course, it is not surprising that an unregulated market becomes the playground for crooks, criminals and snake oil salespeople. The cryptographic trade has created a multibillion-dollar industry, including not only exchanges, but also propagandists posing as journalists, opportunists talking about their own financial books to peddle shitcoins, and lobbyists demanding exemptions. regulations. Behind all this lies a criminal racket that would shame the Cosa Nostra.
It is high time that the United States and other law enforcement agencies intervene. Until now, regulators have fallen asleep while crypto-cancer has metastasized. According to one study, 80% of "initial coin offers" in 2017 were scams. Hayes and all the others who oversee similar activities from offshore security zones must at least be investigated, before millions of additional retail investors go into financial ruin. Even US Treasury Secretary Steven Mnuchin – no supporter of financial regulation – agrees that cryptocurrencies should not become "the equivalent of secret-number accounts", long the preserve of terrorists, gangsters and other criminals.
Nouriel Roubini, a professor at New York University's Stern School of Business and chief executive of Roubini Macro Associates, was senior economist for international affairs at the White House Council of Economic Advisers during the Clinton administration. He has worked for the International Monetary Fund, the US Federal Reserve and the World Bank.
Copyright: Project Syndicate, 2019
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