Stock Losses Deepen in Asia With Oil Below $40; Won, Kiwi Weaken

Asia stocks extended their drop as oils selloff revived concerns over global growth and after Japans fiscal stimulus package fell short of what some investors had expected. High-yielding currencies retreated.

Japans Topix index slipped for a third day after the yen, which typically moves at odds with local shares, jumped 1.5 percent last session. Crude halted losses below $40 a barrel before an update on U.S. oil inventories, while gold was near its highest price since July 11. The Korean won weakened with the Malaysian ringgit as New Zealands currency also slipped.

A four-week advance in global equities has faltered as crude descended into a bear market. With investors looking to central banks and governments around the world to shore up growth, Japans announcement Tuesday that it would boost spending by 4.6 trillion yen ($45 billion) in the current fiscal year failed to ignite optimism that Prime Minister Shinzo Abe can revive the worlds third-biggest economy. The Bank of England is projected to cut rates Thursday.

After all the build-up, its a disappointment, Shane Oliver, a global investment strategist at AMP Capital Investors Ltd. in Sydney, which manages more than $110 billion, said by phone, referring to Japans fiscal stimulus announcement. This will be negative for Asian stocks Wednesday, reflecting the negative response weve already seen in the U.S. and Europe overnight, he said.

A slew of services purchasing managers indexes are due Wednesday, with figures from China showing a slower pace of expansion in July than in June. Thailand is projected to hold benchmark rates in a policy review.

Stocks

The MSCI Asia Pacific Index sank 1.2 percent as of 10:50 a.m. Tokyo time, set for its lowest close in almost a week, as all 10 industry groups declined.

Australias S&P/ASX 200 Index slipped 0.8 percent amid losses in banks. The Kospi index in Seoul slid 1 percent. Hong Kongs Hang Seng Index sank 1.6 percent as trading resumed after the market was shut on Tuesday because of a storm. The Topix lost 1.4 percent, and is down more than 3 percent this week.

A risk-off mood is coming to the forefront, said Chihiro Ohta, a senior strategist at SMBC Nikko Securities Inc. in Tokyo. In Japan, where many companies, especially in the auto sector, are easily affected by currency moves, the strength in the yen weighs on the overall profits for listed firms.

E-mini futures on the S&P 500 retreated 0.1 percent to 2,151.25 after the underlying index slipped 0.6 percent Tuesday, led lower by retailers and industrial stocks. The S&P 500 Index notched its first back-to-back declines since the aftermath of the U.K.s decision to quit the European Union.

Currencies

The yen weakened 0.3 percent to 101.24 per dollar, after touching 100.68 on Tuesday, its strongest level since July 11.

The governments plan incorporates 13.5 trillion yen of fiscal measures — including 7.5 trillion yen in new spending starting this year, and 6 trillion yen in low-cost loans.

For more on Japans fiscal stimulus boost, click here.

The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, added 0.1 percent, after sliding 0.6 percent in the previous session amid waning bets on the Federal Reserve raising interest rates in 2016.

The kiwi retreated 0.6 percent to 72 U.S. cents after jumping 1 percent last session, while the ringgit and the won were down at least 0.4 percent.

Bitcoin tumbled after one of the largest exchanges halted trading because hackers stole about $65 million of the digital currency. Bitcoin slumped 4.2 percent against the dollar, bringing its three-day drop to 18 percent.

Bonds

Australian notes due in a decade yielded 1.92 percent, up 10 basis points after they slid to an all-time low on Tuesday. The Reserve Bank of Australia delivered its second quarter-point cut for 2016 on Tuesday, taking the cash rate to a record-low 1.5 percent, as expected by a majority of economists and investors.

Yields on 10-year New Zealand debt added three basis points to 2.2 percent, while rates on similar maturity Treasuries held at 1.56 percent, following a two-day advance of about 10 basis points.

Bill Gross, the former chief investment officer of Pacific Investment Management Co., reiterated his warning on government debt Tuesday after yields touched all-time lows in the past month. The danger of the unprecedented rally, as Gross sees it, is that any reversal will be painful for investors.

Commodities

West Texas Intermediate crude added 0.8 percent to $39.81 a barrel, after falling 5 percent over the past two sessions.

The decline is not totally unexpected, but the speed and severity of the fall has been a surprise, said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney. Disruptions tightened the market during the second quarter and the sustainability of those was always going to be relatively short lived. There are still relatively high inventories but the market is approaching a balance.

U.S. oil inventories dropped by 1.34 million barrels and gasoline stockpiles fell, the American Petroleum Institute was said to have reported. Government data out Wednesday is forecast to show crude and motor fuel supplies decreased.

Gold for immediate delivery was little changed at $1,364.78 an ounce.

Read more: www.bloomberg.com

Youd Be Crazy to Actually Spend Bitcoin

A little more than four years ago, Coupa Café, a caramel-macchiato joint in Palo Alto, began accepting bitcoin. This was shortly before the first big bitcoin rush briefly pushed the cryptocurrency’s price from about $100 to more than $1,000. At the time, two or three Coupa customers a week would pay their bills with bitcoin, says co-owner Camelia Coupal. Today, the number is … still two or three people a week. “It’s a really minimal part of our sales,” she says. “It’s really just a quirky thing for our customers.”

That’s the story of bitcoin this past year: The cryptocurrency has made fortunes for speculators, but—for that reason and others—it hasn’t been much use as a medium of exchange. Except in countries such as Venezuela, where inflation makes the local money even more volatile than bitcoin prices, its use by online merchants is virtually zero and shrinking, according to Morgan Stanley. When businesses like Coupal’s started accepting bitcoin, advocates predicted it would eventually replace money. Those voices have grown quiet. “The value of bitcoin is really predicated on its being a useful means of transactions,” says Jacob Leshno, an assistant professor at Columbia Business School. “If you take that away, all you are left with is a bubble asset.”

In 2017 bitcoin’s value rose from about $1,000 to as much as $19,000, often with swings of thousands of dollars a day. (As of publication, it’s trading at about $15,000.) Governments including China’s and Japan’s tightened the rules governing cryptocurrency businesses, and China has shut down its exchanges. Bitcoin’s popularity has also made its network much slower and sent transaction fees spiraling. In late December, sellers had to choose between waiting hours and sometimes days for their transactions to go through or paying an average $55 fee to jump the line. (In mid-2016 such fees topped out at about 15¢.) That’s made bitcoin impractical for everyday transactions, such as $3 cups of coffee.

The eight-year-old bitcoin network is “really janky,” says John Quinn, co-founder of Storj Labs Inc., whose dozen employees worked 12-hour days for two months last spring to switch their data-storage startup from bitcoin to the rival cryptocurrency ethereum. Two-year-old ethereum has its own problems, including rising transaction fees, but it’s become the first choice for most startups seeking to use so-called smart contracts or raise money through initial coin offerings, which generated about $4 billion in 2017. While ethereum has added lots of features and uses, bitcoin looks almost the same as it always has, says Lucas Nuzzi, a senior analyst at Digital Asset Research.

Bitcoin’s limitations are becoming bigger issues as banks and other financial institutions build out their own similar networks. “Cost, we expect that to be sub-1¢,” says Richard Brown, chief technology officer for industry consortium R3, which is helping companies build such networks. Completing a transaction, he says, “takes the speed of light, seconds at most.”

Some bitcoin developers are trying to tweak the network software to speed transactions, but disagreements about the approach have led some groups to split off and create their own smaller networks. “Startups need to be aware that they are building a house on moving ground,” says Michael Dunworth, chief executive officer of Wyre Inc., a cross-border payment service using the bitcoin network.

Because only 21 million bitcoins will ever be issued, there’s a case to be made that the currency is simply evolving from a transaction network to digital gold. Longtime advocates say different. “At the end of the day, it is bitcoin’s use in commerce that drives its price and further adoption,” says Roger Ver, the advocate known as Bitcoin Jesus, who spent bitcoin last year to cover his startup’s 60-person payroll and book hotels on Expedia. (He’s become a vocal champion for “bitcoin cash,” a cryptocurrency that’s facing an internal insider-trading investigation after having splintered from bitcoin last summer.)

Amid the current fervor, Ver is the exception. “No one is spending bitcoin,” says Iqbal Gandham, managing director at EToro Ltd., a cryptocurrency exchange. “It could be the most expensive piece of pizza you ever bought.”

    BOTTOM LINE – There’s little sense in using bitcoin for its intended purpose as a medium of exchange when its value can fluctuate by thousands of dollars in a given trading day.

    Read more: www.bloomberg.com

    Behind the Biggest Bitcoin Heist in History: Inside the Implosion of Mt. Gox

    Mt. Gox was once the biggest exchange for the virtual currency. Then half a billion dollars’ worth went missing. Emails give important clues to what happened.”>

    TOKYO When Mark Karpeles, the CEO of what was once the worlds largest Bitcoin exchange, said that the company had gone bankrupt because 800,000 bitcoins (worth nearly half a billion dollars at the time) had been hacked, he wasnt exactly lying. He wasnt exactly telling the whole truth, either, but there was an intriguing element of fact.

    At least 80,000 had been hacked before Karpeles even took over the company, and that initial cyber theft began a spiral of trouble that may have led directly to the firms financial collapse.

    This week The Daily Beast obtained internal emails, contracts,, and other documents related to the implosion of Karpeless company, Mt. Gox. Along with information provided by a former employee who handled accounting for the firm, the documents reveal previously unreported details about how Mt. Gox failed, and why.

    According to Karpeless lawyer, Nobuyasu Ogata, one of the emails has been submitted to the court as evidence by the prosecution to demonstrate that Karpeles was not forthcoming with his customers. But the same email can be used to argue for his innocence on other charges.

    Mt. Gox, which was once the worlds largest exchange for the decentralized virtual currency, filed for bankruptcy protection in February 2014, when it was reported that 850,000 bitcoins, worth $450 million at the time, had disappeared or been stolen by hackers. Mt. Gox said it also lost $27 million in cash.

    Originally, the company had been created as a platform for trading playing cards. Pokmon probably is the most familiar version in the West, but these were for Magic: The Gathering, a game that was popular among kids who gave up on any hope of being cool at high school; a dungeons and dragons sort of card game for obsessive fans.

    The company were writing about here was called Magic: The Gathering Online eXchange, which is where Mt. Gox derived its unusual name. But in a very short time, it left the original nerds far behind as bitcoins came in and cards went out. And then, a whole lot of bitcoins went missing.

    To date, 650,000 bitcoins, currently worth $292 million, remain unaccounted for, and Karpeles is facing several criminal chargesbut none of them deal directly with the absent virtual currency. 

    In November of last year, Japanese prosecutors finally finished bringing criminal charges against Karpeles after re-arresting him again and again in hopes that he would confess to every crime they thought he might have committed. 

    It should be noted here that one of the reasons Japans prosecutors have a 99 percent conviction rate is that a suspect can be held up to 23 days after an arrest, without having a lawyer present during daily interrogations. If the suspect is denied bail, the police and the prosecutors have even longer to question the suspect. Eventually most people do confess to the charges against themguilty or not.

    When the prosecutors concluded their investigation into Karpeles in November, he was indicted for improper use of electronic funds and embezzling a total of over 300,000,000 yen ($2.7 million) of customer funds.

    At this point in time, Karpeless lawyers would only say that Karpeles had made no confession to the police and that Karpeles is only guilty of sloppy accounting, mixing personal accounts and corporate accounts, not embezzlement.

    Yet the documents obtained by The Daily Beast, which included correspondence between Mark Karpeles and the original founder of Mt. Gox, Jed McCaleb, suggest that Mt. Gox was plagued by problems from its earliest days, before Karpeles had even taken over the company. The Daily Beast was given internal documents including emails by a former consultant to Mt. Gox and then verified them with Karpeless lawyer, former employees, and sources in law enforcement.

    Jed McCaleb first approached Mark about selling him Mt. Gox in January of 2011. In an email dated Jan. 18 that year, McCaleb wrote to his acquaintance Karpeles:

    Hi Mark~

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    Please keep all this confidential I dont want to start a panic and Im not sure Ill do it yet but Im thinking I might try to sell mtgox. I just have these other projects I would like to devote more time to. Would you be interested? It could be very little up front and just a payout based on revenue or something. There is also an investment group that wants to fund mtgox. Probably around $158k. So you could most likely take it over with some cash.

    Let me know

    Thanks,

    Jed.

    Karpeles had become interested in Bitcoin in late 2010 and saw the Mt. Gox platform as the perfect place to set up a Bitcoin exchange. In the early days of the currency, changing fiat money (real money) into bitcoins was an arduous task.

    Karpeles agreed to purchase the company from McCaleb and by Feb. 3, 2011, he had signed an agreement with McCaleb to buy the firm, under some very unusual terms.

    The seller (McCaleb) wrote into the contract that the Seller is uncertain if mt.gox.com is compliant or not with any applicable U.S. code or statute, or law of any country. And it included an article of indemnification: The buyer agrees to indemnify Seller against any legal action that is taken against Buyer or Seller with regards to mtgox.com or anything acquired under this agreement.

    Shortly after the handover, Karpeles became aware that Mt.Gox had already been hacked at least once and was missing a substantial number of bitcoinsa total of 80,000 to be precise.

    The following email on April 28, 2011, which reportedly has been submitted into evidence by both sides in the trial, was probably the beginning of Mark Karpeless nightmare:

    From: Jed McCaleb <[email protected]>

    Date: 2011/04/28 22:33

    To: Mark Karpeles <[email protected]>

    I cant tell how big an issue it will be to be short 80k BTC (*80,000 bitcoin) if the price goes to $100 or something. That is quite a bit to owe at that point but mtgox should have made a ton of BTC (Bitcoin) getting to there. There is also still the fact that the BTC (Bitcoin) balance will probably never fall below 80k. So maybe you dont really need to worry about it.

    There are 3 solutions I have thought of:

    – Slowly buy more BTC with the USD that Gox Bot has. Hopefully you would fill up the loss before the price got out of hand.

    – Buy a big chunk of BTC (really just moving the BTC debt to the USD side) If BTC goes up this is a huge win. Problem is there isnt enough BTC for sale on mtgox. Maybe you could find someone on the forum to do it.

    – Get those crystal island people to investThey have 200+ BTC so they could fill in the gap.

    Maybe you could just mine it

    The Daily Beast has been trying to reach Jed McCaleb for several weeks both through his email accounts and social media accounts but he has not responded.

    Kim Nilsson, a computer security expert at WizSec who has been analyzing the case for over two years, says, Assuming the emails are genuine considering the timing, both Mark and Jed were aware of some 80,000 BTC that seem to have already been missing before the large June 2011 hack, and Jed was suggesting possible approaches to recovering from it. The question then remains: did either of them put these plans into actionfor example creating a trading bot (a software application that runs automated tasks) to cover the loss.

    That is still an unresolved mystery.

    In April 2011, 80,000 bitcoins were worth approximately $62,400.

    Maybe Karpeles figured he could make it back up as he went along. But luck was not on his side. As he would try to fill the hole, the price of bitcoins kept rising. By June 2, 2011, the value for the missing BTC had jumped to over $800,000.

    Unfortunately for Karpeles, he had signed a non-disclosure agreement that left him unable to discuss the loss, and he faced the Sisyphean task of recovering the missing bitcoins on his owna problem that became greater by the day and sometimes by the hour as the value of bitcoins skyrocketed.

    In June of 2011, Mt. Gox was hacked once again. Investigators at the time believed that hackers might have gained access to Jed McCalebs administrator account, which was still active.

    Karpeless reaction to the hack was to move the majority of the bitcoins off-line into what is called cold storage and place them in safety deposit boxes dispersed through various banks in Tokyo. He only left enough online to make sure transactions could be carried out. But having moved the bitcoins off, Karpeles neglected to reconcile the amounts of cold storage with other customer accounts. Karpeles became increasingly paranoid about hackersalmost obsessive.

    An individual who worked at Mt. Gox handling accounting told The Daily Beast, on condition we not identify him by name because of his role in the investigation, Mt. Gox was not an investment company, according to my opinion. It was like a pachinko parlor gift exchange. (Pachinko is a Japanese variant of pinball with a payoff.)

    The man in charge of accounting says he urged Karpeles to reconcile the BTC (Bitcoin) balance, the on-line balance, and the fiat (cash) balance several times but was spurned.

    I told him, I want to know where are the bitcoins, and we need to reconcile, and Mark replied, mendokusai [its a pain in the ass]. He said it was too difficult and too risky, because to reconcile the balance, you need to put the bitcoins from the cold storage onto a hot wallet, and there is the risk that it could be hacked, so he didnt want to do it.

    A hot wallet refers to bitcoins onlinea situation that makes them more vulnerable to cyber predators.

    Karpeles insisted that bitcoins in a cold-wallet, sometimes printed out on sheets of paper, were much more secure. He thought it was difficult to know how much each cold wallet is worth until you put the BTC back on-lineor make notations on the paper wallets when creating them.

    The virtual money was becoming makeshift paper money, and there were masses of it.

    The accounts manager understood what Karpeless concerns were from a cyber security perspective but still felt that not reconciling the accounts was dangerous.

    I didnt think it was reasonable not to reconcile, but I thought its his company, hes the CEO, so I said okay.

    Former employees of Karpeles say that he might have made it all work. They claim rogue U.S. government agents seized $5 million of Mt. Gox funds in summer 2013 in retaliation for Karpeless refusal to cooperate with them. This seizure supposedly cut into the firms operating reserves, which may have been the beginning of the end, at least according to the former Mt. Gox accountant.

    In the meantime, Karpeles voluntarily assisted U.S. authorities in their investigation of the online black market Silk Road, evidently hoping that would buy him some sort of immunity.

    It didnt.

    The first time I got the signal that the bitcoins were missing, it was when Mark told me, sometime in early February [2014], said the accountant. He called me in his office, and he said, There is a chance that Mt. Gox might have to file for bankruptcy. And he asked me to go to the law firm Baker & McKenzie the next day to discuss with them. 

    The accountant recalls that Karpeles was eerily calm at the timebut that Mark was always that way. He was like a more stoic version of the Cheshire Cat. He was always smiling. He could probably tell you, Oh, the entire office is on fire and wed better leave before we burn to death and it would be the same expression.

    The Japanese courts will determine if Karpeles has committed criminal acts, but the latest revelations would make anyone ask: Is he a con-man, a victim, a fall-guy, or all of the above?

    One thing seems clearKarpeles bought a company already missing tens of thousands of bitcoins.

    Did the thief who took them take hundreds of thousandsworth hundreds of millions of dollarsmore? Someone did, in the heist of the century, and to solve it, the police need to make a case that depends on more than coercion and confession.

    Read more: www.thedailybeast.com