Bitcoin

Just six days after proudly proclaiming that it was unscathed by the Mt.Gox debacle, another Bitcoin bank - Flexcoin - has admitted that it will be forced to close after hackers stole 896 bitcoin, worth around $600,000, in an attack on Sunday. As The Guardian reports, the company shut its website and posted a statement on Tuesday morning detailing the loss..."as Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately."

Gold and crude oil prices rose steadily all day even as US equities oscillated around VWAP unable to break above Friday's lows (and trading in a narrow range) on heavier than normal volume. USDJPY and US equities remained roughly coupled but stocks auctioned up and down in search of stops with algos desperate to cling to VWAP on a big down day as a rally mid-afternoon reached the S&P into the green for 2014 and marked the top of the day. Gold ended at 4-month highs, the USD rose 0.4% (led by GBP and EUR weakness), WTI crude back over $104.50 (near 6-month highs), and Treasury yields dropped 5bps or so with 10Y back under 1.60% (2nd lowest yield close in 4 months). VIX jumped above 16% - 1-month highs but still the asset-gatherers demand we BTFWWIII...

• Russian markets hit as Putin tightens grip on Crimea (Reuters)
• Ukraine Sees More Russian Incursions as Standoff Worsens (BBG)
• Ukraine Crisis Roils Global Markets (WSJ)
• Cold War Ghosts Haunt East Europe in Moves for Crimea (BBG)
• How Moscow Orchestrated Events in Crimea (WSJ)
• Russia Gas Threat Shows Putin Using Pipes to Press Ukraine (BBG)
• Euro-zone PMI slowed less sharply than estimated (MW)
• Two top Microsoft execs to leave in reshuffle (Reuters)
• Soaring Luxury-Goods Prices Test Wealthy's Will to Pay (WSJ)
• IQ-Boosting Drugs Aim to Help Down Syndrome Kids Learn (BBG)

The Bitcoin phenomenon has now reached the mainstream media where it met with a reception that ranged from sceptical to outright hostile. The recent volatility in the price of bitcoins and the issues surrounding Bitcoin-exchange Mt. Gox have led to additional negative publicity. It is clear that on a conceptual level, Bitcoin has much more in common with a gold and silver as monetary assets than with state fiat money. The supply of gold, silver and Bitcoin, is not under the control of any issuing authority. It is money of no authority – and this is precisely why such assets were chosen as money for thousands of years. Gold, silver and Bitcoin do not require trust and faith in a powerful and privileged institution, such as a central bank bureaucracy. Under a gold standard you have to trust Mother Nature and the spontaneous market order that employs gold as money. Under Bitcoin you have to trust the algorithm and the spontaneous market order that employs bitcoins as money (if the public so chooses). Under the fiat money system you have to trust Ben Bernanke, Janet Yellen, and their hordes of economics PhDs and statisticians.

Readers will recall that back in October, when the only way for Bitcoin seemed up, none other than the head of sophisticated hedge fund/private equity megafund Fortress Group, Michael Novograts, recommended buying Bitcoin:  "I have a nice little Bitcoin position,” Novogratz said. "Enough that I’m smiling that it doubled... Put a little money in Bitcoin...Come back in a few years and it’s going to be worth a lot." Or, you can come back in a few months and now that the momentum euphoria is over and done with, watch it be worth far less.

"There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble" - Mt.Gox CEO Mark Karpeles

Missed today's follow up Janet Yellen testimony before the Senate Banking Committee? Don't worry: you didn't miss much, all the bases were covered including winter weather during the winter, the Fed's complete cluelessness about what "full employment" means (because the definition changed thoroughly from December 2012 when it was 6.5%), what the "quantitative" definition of quantitive easing is (Yellen has no idea), why the Fed isn't subject to a haircut on its MBS holdings while all the other banks have to suffer under the intolerable Basel III 15% haircut (something to do with illiquidity of MBS, and specifically - something to do with the fact that the Fed has soaked up more than all net issuance of MBS in the past year, but don't worry - the Fed is on top of it), and, of course, Bitcoin. For everything else, here is Goldman's post-mortem of Yellen's Day Two testimony.

• European Bonds Surge on Slowing German Inflation, Ukraine Tumult  (BBG)
• Ukraine tensions hit shares (Reuters)
• Debating Geithner’s Appearances in 2008 Transcripts  (Hilsenrath)
• Tensions in Asia Stoke Rising Nationalism in Japan (WSJ)
• GM Investigated Over Ignition Recall Linked to 13 Deaths (BBG)
• Smartphone wars shift from gadgetry to price (Reuters)
• Some Companies Alter the Bonus Playbook (WSJ)
• London’s Subterranean Luxury Manors Lure New Breed of Lenders (BBG)
• Japan No Country for Old Farmers as 7-Eleven Takes Plow (BBG)
• Dream of U.S. Oil Independence Slams Against Shale Costs (BBG)

How the volatility of the market can be seen every day! Yesterday, the London financiers were out there celebrating on their 14-year high and backing that the ‘only way was up’. Then today they woke up too late after hitting the bottle too much and now that high has dropped as China’s economy is causing greater concerns for the rest of the financial world.

Harvard's Research Computing department's 14,000-core supercomputer "Odyssey" has been moonlighting as a virtual currency miner. As The Register reports, a Harvard student has had their access credentials revoked after the discovery that the Odyssey cluster had been scheduled for use in a Dogecoin mining operation. Harvard is not happy: "Any participation in 'Klondike' style digital mining operations or contests for profit requiring Harvard owned assets to examine digital currency key strength and length are strictly prohibited for fairly obvious reasons."

It does not appear that things are getting any better for the virtual currency exchange named after "Magic: The Gathering."

• *FBI SAID TO BE PROBING POSSIBLE CRIMINAL VIOLATIONS BY MT. GOX
• *U.S. SAID TO REQUEST DOCUMENTS FROM BITCOIN SERVICE PROVIDERS
• *MANHATTAN U.S. ATTORNEY SAID TO BE REVIEWING MT. GOX SHUTDOWN

No real reaction yet in price across Bitcoin exchanges. Bloomberg BusinessWeek summarizes "where did the bitcoins go?" below

The developments are bullish for gold prices as various bitcoin exchanges had captured capital flows from investors and speculators who are skeptical of the current financial and monetary system and many of whom would have previously have bought gold and silver.  Some of this capital is more likely to flow into gold in the coming months.

Dear MtGox Customers,

As there is a lot of speculation regarding MtGox and its future, I would like to use this opportunity to reassure everyone that I am still in Japan, and working very hard with the support of different parties to find a solution to our recent issues. Furthermore I would like to kindly ask that people refrain from asking questions to our staff: they have been instructed not to give any response or information. Please visit this page for further announcements and updates.

Sincerely,
Mark Karpeles

• California couple finds $10 million in buried treasure while walking dog (Reuters) ... not bitcoin?
• Dimon Says Threats to JPMorgan Span Google to China Banks (BBG)
• Stocks So Many Love to Hate Buoyed by Fed’s Jobs Priority (BBG)
• White House Weighs Four Options for Revamping NSA Phone Surveillance (WSJ) ... to pick the fifth one
• Credit Suisse Executives Weren’t Aware of U.S. Tax Dodges (BBG)
• Militias Hunt Kiev Looters From Central Bank to Bling Palace (BBG)
• Crisis Gauge Rises to Record High as Swaps Avoided (BBG)
• Obama to Propose Highway-Repair Program (WSJ)
• Ukraine Pledges to Protect Deposits as Kiev Rally Called (BBG)

Speculation involving the possible bankruptcy of Mt. Gox are building momentum and becoming a viable option today. The virtual currency Bitcoin slumped Tuesday morning by 20% and it looks as if the Japanese-based exchange will issue a statement amid growing fears that have been mounting for a number of months now.