Bitcoin Flash Crashes, Drops By 80% In Seconds

Now that Bitcoin exchange Mt.Gox has terminally discredited itself following the latest, and likely last, withdrawal halt announced late last week which sent the value of Bitcoin tumbling by 25%, Bitcoin traders are left with just two exchange options on which to transact: BTC-e and Bitstamp. And for those using the former to buy and sell the virtual digital currency, things went from bad to worse a few short hours ago, when Bitcoin had its very own “Waddell and Reed” moment, when the price of Bitcoin cratered by over 80% in the span of seconds, after a modest block of just under 6000 Bitcoins sent the price plunging from over $600 to $102.

However, market gymnastics may just be the tip of the iceberg – a far bigger issue, one we have been warning about since the last March surge in Bitcoin’s dollar price, is that the crackdown on Bitcoin both in the US (see “Miami Bitcoin Arrests May Be First State Prosecution“), and around the world (in Russia Bitcoin was just declared illegal) is finally heating up. It’s only going to get worse in an insolvent world desperate to halt money laundering.

And since digital currency advocates have finally realized they can’t hold the electronic 1s and 0s in their hand in a worst case scenario, the biggest winner of the latest Bitcoin crash is none other than the real alternative currency (in Paul Singer’s words), gold, which moments ago just hit a one month high and rising.

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Bitcoin plunges on Japan exchange halt

A twenty-five bitcoin is arranged for a photograph in Tokyo, Japan

Bitcoin prices have plunged after one of the world’s biggest Bitcoin exchanges, Japan’s Mt Gox, said it had suspended withdrawals because of a software flaw that would allow people trading the virtual currency to defraud exchanges.

The price of Bitcoin tumbled 16 per cent to $572.40 on Monday after the Tokyo-based company posted a statement saying the suspension was due to a bug in the bitcoin software that was “not limited to Mt Gox and affects all transactions where bitcoins are being sent to a third party”.

Mt Gox said the defect made it possible for users of the network to alter transaction details and make it appear as if a transfer of bitcoins to a Bitcoin wallet had not taken place. They would then be able to contact the exchange or wallet service and claim the transaction had not gone through.

It had taken action after noticing “unusual activity” and finding transactions that needed “to be examined more closely”. Bitcoin transactions to a Mt Gox address and withdrawals in conventional currencies are not affected.

The exchange said the “design issue” had been largely ignored but was “known to at least a part of the Bitcoin core developers”. It believes it knows how the flaw can be resolved but this would need to be approved and standardised.

However, BTC China and Coinbase, rival Bitcoin exchanges that have grown to rival or surpass Mt Gox in trading volumes, have not reported similar problems. Mt Gox has for some weeks faced complaints from customers experiencing delays in withdrawing dollars from their accounts with the exchange, before the latest problem prevented withdrawals in Bitcoin.

Michael Keferl, a spokesman for the exchange, did not immediately respond to a message seeking comment.

The Mt Gox statement offered a technical explanation of the risk to exchanges from the software bug: “An individual could request bitcoins from an exchange or wallet service, alter the resulting transaction’s hash before inclusion in the blockchain, then contact the issuing service while claiming the transaction did not proceed. If the alteration fails, the user can simply send the bitcoins back and try again until successful.”

Mt Gox said it would resume withdrawals to outside wallets once the flaw had been addressed.

The halt at the Tokyo exchange follows news that Russian authorities are preparing to crack down on Bitcoin and have warned that those who use “cryptocurrencies” are breaking the law. Regulatory scrutiny of the virtual payment system is intensifying around the world.

The promise of new measures to curb the virtual currency was made after Russia leapfrogged China to become the second fastest growing territory for Bitcoin software downloads, behind the US.

Port Authority ‘wildlife specialists’ hunt snowy owls at New York City’s airports

Snowy owls are in the cross hairs at JFK, with three killed on Saturday to keep them from endangering planes.

The Port Authority doesn’t give a hoot about the lives of snowy owls.

The agency that oversees the city’s airports has added the majestic snowy owl to the list of birds it kills to protect airplanes from bird strikes.

The Port Authority’s “wildlife specialists” started exterminating the owls Saturday, killing three at JFK Airport with a shotgun, a Port Authority source said.

The snowy owl — widely familiar to children as Hedwig, the beloved pet of boy wizard Harry Potter — was added to the kill list after one of them, nesting on top of a taxiway sign on an airport runway and got sucked into an airplane turbine.

“These are beautiful birds that I or anyone else I know who has worked at JFK have never heard pose a problem,” the source said. “Even a wildlife specialist didn’t understand why they were being killed because they are not part of a large population and they are easy to catch and relocate, unlike seagulls.”

The Port Authority has fewer than five of the specialists, who are armed with shotguns filled with birdshot, the source said. The agency didn’t return calls seeking comment on the snowy owls slayings.

George Soros picks up $5.5bn as Quantum Endowment fund soars

George Soros

George Soros, billionaire chairman of Soros Fund Management, primary adviser to the Quantum Group

George Soros’s Quantum Endowment fund had its second-best year ever in dollar terms in 2013, adding $5.5bn to the billionaire’s fortune and putting Quantum back in top place among the most successful hedge funds of all time.

The gains mark a return to stability for Quantum, which Mr Soros closed to non-family members at the end of 2011 to avoid regulatory scrutiny under the Dodd-Frank financial reforms. He handed day-to-day trading to Scott Bessent, chief investment officer, after a decade of rapid turnover at the top of the fund.

The $5.5bn return was the best for the $28.6bn fund since 2009, when Mr Soros oversaw a return of 29 per cent by correctly calling the end of the global financial crisis. He has frequently made higher percentage returns, including 32 per cent when he came out of retirement in 2007, but his then-smaller asset base meant lower dollar profits.

Last year’s return means Mr Soros has displaced Ray Dalio’s Bridgewater Pure Alpha as the fund that has made the most money for investors. It has generated almost $40bn since it was founded in 1973, according to Rick Sopher, chairman of LCH Investments, who compiled the rankings.

Mr Soros is best known for triggering the collapse of the pound on Black Wednesday 1992, when Quantum made $1bn. Last year’s profits did not come from such an aggressive strategy, with the 22 per cent return spread across the different strategies of the fund.

Four other funds made $4bn or more last year, all correctly calling the strong run in equities, which resulted in the US stock market returning 32 per cent. They were Lone Pine and Viking, the most successful “Tiger cub” protégés of Tiger Management’s Julian Robertson; David Tepper’s Appaloosa; and Baupost, founded by the Boston-based deep-value investor Seth Klarman.

Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds.

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“They did far better than the hedge fund indexes,” said Mr Sopher, who is also chief executive of Edmond de Rothschild Capital Holdings. “These funds are still in the mode of being get-rich vehicles rather than stay-rich vehicles. They carry on seizing whatever opportunities there are but still exhibit really good risk control.”

“Too many managers now focus on risk control at the expense of returns.”

Andrew Law, who runs the 13th-ranked, $7bn fund Caxton, said the key to success was to give money back to avoid growing too big.

“With one very obvious exception [Quantum], history has not been kind to macro funds that have grown much in excess of $10bn-$12bn, in terms of subsequent return,” he said. Macro funds such as Caxton and Quantum can make freewheeling bets across currencies, interest rates and shares.

While the top 20 managers mainly performed well, hedge funds as a whole have proved less lucrative in recent years than they were before the crisis. Since the start of 2008 the HFRI Composite index of hedge funds has risen 20 per cent, half the return from US equities and US 10-year Treasury bonds. Last year the HFRI was up 9 per cent, its best year since 2010.

Mr Law said long-only managers, who have benefited from rising shares, may face headwinds as a 30-year decline in real interest rates comes to an end.

“The challenge will be to trade tactically,” he said. “The discounting of financial repression over the past few years has merely brought forward future returns and left a rather less enticing landscape to long-only managers.”

Mr Sopher’s ranking excludes large computer-run funds such as Renaissance Technologies and those with no single manager, such as DE Shaw.

Deutsche Telekom Said to Pay $1.1 Billion in Czech Buyout

Deutsche Telekom AG shares have fallen 5.4 percent this year.

Deutsche Telekom AG (DTE), Germany’s biggest phone company, agreed to fully take over its Czech wireless unit from investors including Mid Europa Partners LLP, according to two people familiar with the matter.

The owner of the T-Mobile brand agreed to pay about 830 million euros ($1.1 billion) for a remaining stake of almost 40 percent, the people said, asking not to be identified before an official announcement expected as early as tomorrow, they said.

The buyout is part of Chief Executive Officer Timotheus Hoettges’s strategy to broaden Deutsche Telekom’s reach in eastern Europe. With assets stretching from the U.K. to the Balkans, the carrier agreed to acquire Warsaw-based landline provider GTS Central Europe in November and has offered to purchase an additional 10 percent stake in Hellenic Telecommunications Organization SA (HTO) from the Greek government, people familiar with the talks said last month.

A Deutsche Telekom official declined to comment on the Czech transaction. Manager Magazin reported the agreement earlier today.

Claudia Nemat, who heads the company’s European operations, is set to travel to the Macedonian capital of Skopje on Feb. 13 to present the company’s progress in developing an integrated network in the region.

Telefonica Sale

Deutsche Telekom has offered mobile services in Germany’s eastern neighbor since 1996, according to its website. The Czech wireless company had 5.5 million customers at the end of 2012 and reported sales of 1.04 billion euros for that year. Spain’s Telefonica SA (TEF)last month completed a 2.5 billion-euro sale of its Czech unit to PPF Group NV.

Hoettges, who became CEO on Jan. 1, is renewing predecessor Rene Obermann’s push into eastern Europe after the company’s U.S. business returned to growth following its merger with MetroPCS Communications Inc. Excluding the German home market, eastern Europe accounted for 22 percent of Deutsche Telekom’s net revenue in the first nine months of 2013. The company is scheduled to release fourth-quarter earnings March 6.

The carrier plans to eliminate thousands of jobs at its T-Systems corporate-client unit as it trims outsourcing services with low profitability and refocuses on growth areas such as connected cars and cloud computing.

Deutsche Telekom shares have fallen 5.4 percent this year. They closed at 11.76 euros on Feb. 7 in Frankfurt, valuing the company at 52.3 billion euros.

Out Olympian Speedskater Ireen Wüst Wins Gold In Sochi

Ireen Wüst skates to first place

Ireen Wüst, a speedskater from the Netherlands, won first place Sunday in the 3,000-meter competition in Sochi, defeating the defending champion from Czech Republic. She is one of few out LGBT olympians competing in Sochi.

Wüst finished in just 4 minutes, 0.34 seconds — just ahead of Martina Sablikova, the defending champ. Sablikova took silver after stopping the timer at 4 minutes, 1.95 seconds, while Russia’s Olga Graf won the bronze medal, finishing in 4 minutes, 3.47 seconds. Graf’s medal is the first in the games for Russia, the host nation.

Wüst, 27, won her first gold medal at the age of 19 in the same event during the 2006 Winter Olympics in Torino, Italy, becoming the youngest Dutch Winter Olympic champion. In 2010, she won gold in the the women’s 1,500-meter race in Vancouver, Canada. 

CORRECTION: Wüst has described herself as bisexual. A previous version of this post incorrectly stated her sexual identity and was brought to our attention by sharp-eyed commenters.

There’s No Real Difference Between Online Espionage and Online Attack

An office of the U.S. Air Force Space Command in 2010 (Reuters)

Back when we first started getting reports of the Chinese breaking into U.S. computer networks for espionage purposes, we described it in some very strong language. We called the Chinese actions cyberattacks. We sometimes even invoked the word cyberwar, and declared that a cyber-attack was an act of war.

When Edward Snowden revealed that the NSA has been doing exactly the same thing as the Chinese to computer networks around the world, we used much more moderate language to describe U.S. actions: words like espionage, or intelligence gathering, or spying. We stressed that it’s a peacetime activity, and that everyone does it.

The reality is somewhere in the middle, and the problem is that our intuitions are based on history.

Electronic espionage is different today than it was in the pre-Internet days of the Cold War. Eavesdropping isn’t passive anymore. It’s not the electronic equivalent of sitting close to someone and overhearing a conversation. It’s not passively monitoring a communications circuit. It’s more likely to involve actively breaking into an adversary’s computer network—be it ChineseBrazilian, or Belgian—and installing malicious software designed to take over that network.

In other words, it’s hacking. Cyber-espionage is a form of cyber-attack. It’s an offensive action. It violates the sovereignty of another country, and we’re doing it with far too little consideration of its diplomatic and geopolitical costs.

Four insignia of U.S. Air Force command—Cyber Command is second from the right

The abbreviation-happy U.S. military has two related terms for what it does in cyberspace. CNE stands for “computer network exfiltration.” That’s spying. CNA stands for “computer network attack.” That includes actions designed to destroy or otherwise incapacitate enemy networks. That’s—among other things—sabotage.

CNE and CNA are not solely in the purview of the U.S.; everyone does it. We know that other countries are building their offensive cyberwar capabilities. We have discovered sophisticated surveillance networks from other countries with names like GhostNetRed OctoberThe Mask. We don’t know who was behind them—these networks are very difficult to trace back to their source—but we suspect China, Russia, and Spain, respectively. We recently learned of a hacking tool called RCS that’s used by 21 governments: Azerbaijan, Colombia, Egypt, Ethiopia, Hungary, Italy, Kazakhstan, Korea, Malaysia, Mexico, Morocco, Nigeria, Oman, Panama, Poland, Saudi Arabia, Sudan, Thailand, Turkey, UAE, and Uzbekistan.

When the Chinese company Huawei tried to sell networking equipment to the U.S., the government considered that equipment a “national security threat,” rightly fearing that those switches were backdoored to allow the Chinese government both to eavesdrop and attack US networks. Now we know that the NSA is doing the exact same thing to Americanmade equipment sold in China, as well as to those very same Huawei switches.

The problem is that, from the point of view of the object of an attack, CNE and CNA look the same as each other, except for the end result. Today’s surveillance systems involve breaking into the computers and installing malware, just as cybercriminals do when they want your money. And just like Stuxnet: the U.S./Israeli cyberweapon that disabled the Natanz nuclear facility in Iran in 2010.

This is what Microsoft’s General Counsel Brad Smith meant when he said: “Indeed, government snooping potentially now constitutes an ‘advanced persistent threat,’ alongside sophisticated malware and cyber attacks.”

When the Chinese penetrate U.S. computer networks, which they do withalarming regularity, we don’t really know what they’re doing. Are they modifying our hardware and software to just eavesdrop, or are they leaving “logic bombs” that could be triggered to do real damage at some future time? It can be impossible to tell. As a 2011 EU cybersecurity policy document stated (page 7):

…technically speaking, CNA requires CNE to be effective. In other words, what may be preparations for cyberwarfare can well be cyberespionage initially or simply be disguised as such.

We can’t tell the intentions of the Chinese, and they can’t tell ours, either.

Much of the current debate in the U.S. is over what the NSA should be allowed to do, and whether limiting the NSA somehow empowers other governments. That’s the wrong debate. We don’t get to choose between a world where the NSA spies and one where the Chinese spy. Our choice is between a world where our information infrastructure is vulnerable to all attackers or secure for all users.

As long as cyber-espionage equals cyber-attack, we would be much safer if wefocused the NSA’s efforts on securing the Internet from these attacks. True, we wouldn’t get the same level of access to information flows around the world. But we would be protecting the world’s information flows—including our own—from both eavesdropping and more damaging attacks. We would be protecting our information flows from governments, nonstate actors, and criminals. We would be making the world safer.

Offensive military operations in cyberspace, be they CNE or CNA, should be thepurview of the military. In the U.S., that’s CyberCommand. Such operations should be recognized as offensive military actions, and should be approved at the highest levels of the executive branch, and be subject to the same international law standards that govern acts of war in the offline world.

If we’re going to attack another country’s electronic infrastructure, we should treat it like any other attack on a foreign country. It’s no longer just espionage, it’s a cyber-attack.

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