Why Bitcoin’s Bubble Matters - Wall Street Journal

Why Bitcoin’s Bubble Matters

If there’s a price crash in the cryptocurrency, it could hit the tech sector.

Bitcoin’s 18-month gain is 1,000% and it has yet to find a widespread use outside of speculation. DANIEL DOWNEY FOR THE WALL STREET JOURNAL

By Rob Curran

Oct. 8, 2017

Ask most people about the bitcoin bubble, and they’ll probably have the same reaction: It’s interesting, but it won’t affect me. After all, they’ll figure, they aren’t investing in bitcoin, so if there is a bubble, and it does burst, they’ll be just fine.

Well, maybe they should start worrying.

The market for cryptocurrencies—digital tokens used to transfer money between individuals’ computers with minimal fees—has grown in stature in recent years and is increasingly entwined with broader financial markets as well, a trend that is likely to continue. Bitcoin is now traded by some of the institutional investors around which bond and stock markets revolve. The Wall Street Journal has reported that Goldman Sachs Group Inc. GS -0.02% is considering opening bitcoin-trading operations. Cryptocurrencies also are being used to raise capital by more companies.

As the bubble grows, analysts say, a crash has a greater chance of affecting investor sentiment about stocks, especially in the technology and financial sectors.

“Any product that blows up, there’s always collateral damage,” says Joe Kinahan, chief market strategist at brokerage TD Ameritrade . Tech and financial “companies who are relying on it for business, and those who have put a significant investment into the [blockchain] infrastructure would be the first” to suffer collateral damage, Mr. Kinahan says.

What has some market observers concerned is that in less than six months, bitcoin went from around $1,000 a token to $5,000. It is back now to $4,400. But in early 2016, bitcoin was trading at less than $400, bringing its 18-month gain to 1,000%. Consider that the math-based currency has yet to find a widespread use outside of speculation, and warnings of an implosion from J.P. Morgan Chase Chief Executive James Dimon and others in the financial establishment sound like more than curmudgeonry.

At around $150 billion, the market capitalization of bitcoin and other cryptocurrencies is up by a factor of roughly eight this year, according to the Cointelegraph website. If this growth rate continues, what’s now a relatively small part of global investible assets could become a significant one, says Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund and a student of the history of speculation. By next year, Mr. Di Mattia expects the bubble to have inflated to the point where a pop could send a shock wave through the stock market.

Another analyst says bitcoin is at a similar stage in its development as the internet was in 1994, early in the speculative bubble. “What we’re looking at is a new technology that people are still trying to understand,” says Matthew Gertler, senior analyst and counsel at Digital Asset Research, which provides research to institutional investors on cryptocurrency issues.

Give bitcoin its due: Most people in finance agree that bitcoin and the blockchain, the open-access ledger that underpins the currency, were great inventions; even as J.P. Morgan’s Mr. Dimon derides bitcoin as a “fraud,” his bank is working on its own blockchain technology.

The bitcoin invention goes back to a 2008 blueprint signed by Satoshi Nakamoto and circulated on the internet. When a bitcoin owner transfers a token to another person, he or she posts the transaction to the blockchain, a simple account book floating on the internet, signing it with a unique string of numbers and letters. Bitcoin “miners” verify the transaction by running those numbers through formulas on high-powered computers, work for which they are paid mostly in newly minted bitcoin. For the users, fees are relatively low and transactions are—in theory—fraud-proof.

Clever as it is, however, bitcoin has shown no signs of replacing the dollar and other “fiat” currencies.

“For bitcoin to be a success, it needs to take a large part of various markets—remittances, payments, stored value,” says Mr. Gertler.

Meanwhile, speculation in bitcoin—driven by hopes of its wider adoption—actually has diminished its usefulness as a means of exchange.

“Say you agree to buy a car [in bitcoin] and the price on Saturday is $32,000 and because of a bitcoin move, on Monday it’s $41,000—people just can’t live their lives like that,” says Mr. Kinahan of TD Ameritrade.

Nvidia vulnerable

A crash in the price of leading cryptocurrencies would almost certainly hurt shares of Nvidia Corp. NVDA 0.29% , the chip maker that was the biggest percentage gainer on the S&P 500 in 2016, and its rival Advanced Micro Devices Inc., at least temporarily. Both companies have noted in their quarterly filings that cryptocurrency miners are a key source of demand for their graphic chips. Sales of chips to cryptocurrency sources represented 6.7% of Nvidia’s fiscal second-quarter revenue of $2.23 billion.

“Anybody getting more than 5% of their business from crypto, it’s starting to become significant and you could see their stock prices very quickly collapse” in the event of a bubble bursting, says Mr. Kinahan.

Spokesmen for Nvidia and AMD declined to comment for this article.

Other companies at risk include those in financial technology, or “fintech,” one of the hottest parts of the tech sector. Shares of the exchange-traded fund Global X FinTech (FINX), a basket of such stocks, are up 43% in 2017.

“A lot of the innovation around financial tech has to do with blockchain these days,” says Gil Luria, director of institutional equity research at brokerage DA Davidson. “So if the crypto asset values decline and that’s associated with the blockchain innovations, there could be some carry-over effect.” That possibility has some observers worried about the broader tech sector, as well, where investors are already uneasy about elevated valuations.

Another concern is the use of cryptocurrencies by some startups as a funding mechanism. Companies such as teen-oriented chat application Kik Interactive are using bitcoin-like systems to raise hundreds of millions of dollars from crowdsourced investors overnight, skirting initial-public-offering regulations and avoiding tough questions from venture capitalists. In many ICOs, or initial coin offerings, companies don’t have a product yet when they sell these stakes, says Mr. Gertler.

Shares of the online retailer Overstock.com shot up recently after it said it was exploring a trading platform for ICOs. “To the extent there’s any negative changes [in the value of cryptocurrencies], that could be to their detriment,” Mr. Luria says.

Fears about fraudulent ICOs, meanwhile, caused Chinese regulators to shut down local bitcoin exchanges recently, causing a 20% retreat in bitcoin prices.

In 18 months, however, a new bitcoin crash could have wider ramifications.

That is when Spencer Bogart, head of research with cryptocurrency investment firm Blockchain Capital, estimates that the first bitcoin ETF will reach the market. The Securities and Exchange Commission rejected a high-profile ETF proposal from Cameron and Tyler Winklevoss earlier this year, citing the lack of regulation and transparency on underlying bitcoin exchanges. But LedgerX LLC recently received Commodity Futures Trading Commission permission to trade and clear bitcoin options and futures. ETF firm ProShares filed an application for long and short funds that would track bitcoin futures on the Chicago Board Options Exchange , which has said it would apply for approval of these derivatives.

An ETF’s effect?

The appearance of an ETF would result in another surge in speculative activity as small investors wary of the high-tech bitcoin markets and institutional investors obliged to trade only registered securities finally have a way in, say Mr. Bogart and others.

What’s an Initial Coin Offering? (October 2017)

Goldman Sachs Explores a New World: Trading Bitcoin (October 2017)

Quiz: Test How Much You Know About Bitcoin (April 2017)

‘You’re going to put a derivative on a derivative of an unregulated asset?’

‘You’re going to put a derivative on a derivative of an unregulated asset?’

“We see it on our desk every day,” said Bobby Cho, at Cumberland Mining, a bitcoin-focused unit of Chicago proprietary trading firm DRW Investments LLC that works with institutional investors. “Many just go ahead and trade the underlying [tokens], but many more are just sitting on the sidelines waiting for a product…. There’s a lot of pent-up demand for such a product.”

One sign of that demand is the wild behavior of the closest thing to an ETF on the market, the over-the-counter-traded Bitcoin Investment Trust . GBTC -1.15% Owing to the trust’s design, where shares must be owned by wealthy investors for a year before they can sell, there is a limited supply. This shortage became acute when fund manager Grayscale Investments LLC suspended creation of new shares in January while it sought SEC approval for an exchange listing (it abandoned that particular effort in late September). For about four months, the fund traded at nearly a 100% premium to its bitcoin holdings. Usually spreads between ETFs and the underlying indexes are measured in fractions of percentage points.

Currently, bitcoin markets have very limited links to stocks, bonds and commodities, allowing for some quarantine. An ETF would allow for the kind of “contagion”—the forced selling of seemingly unrelated assets—that bring on financial crises.

Joe Saluzzi, co-founder of agency brokerage Themis Trading, says that if the SEC approves an ETF based on bitcoin futures, it would sow the seeds for a market crisis.

“You’re going to put a derivative on a derivative of an unregulated asset?” says Mr. Saluzzi. “That, to me, is a recipe for disaster.”

Mr. Curran, a writer in Denton, Texas, is a regular contributor to Dow Jones Newswires and The Wall Street Journal. Email him at rob.curran@dowjones.com.

The story behind the Trump Effect, from the Editor-in-Chief - Reuters

The story behind the Trump Effect, from the Editor-in-Chief

Stephen J. Adler

Shortly after Donald J. Trump became U.S. president last January, I wrote a memo to the Reuters staff providing guidance on how to cover the new Administration. The gist was that we should proceed as we would with any leader in the world, whether that leader admired journalists or viewed them as the enemy.

That meant trying not to take sides or to make ourselves the story but rather to work dispassionately on behalf of Reuters users, who would need honest, carefully sourced, vigorous reporting on what this presidency meant for them.

In this period of intense polarization and raging Twitter storms, there would be a great deal of noise every day, and some of it might be newsworthy in itself. But mostly, our job would be, I wrote, to “cover what matters in people’s lives and provide them the facts they need to make better decisions.” Also, we would commit ourselves to “get out into the country and learn more about how people live, what they think, what helps and hurts them, and how the government and its actions appear to them, not to us.”

We've been working hard to follow this playbook ever since, organizing our reporting teams to target areas where the Trump administration promised to change or reverse policy, so that we can cover what the administration does – not only what it says or what is being said about it. This approach has produced, for instance, a story tracking the number of arrests of undocumented immigrants in the wake of the president's statements and executive orders; a Reuters survey showing that most power-generating companies have no plans to alter their years-long shift away from coal, despite an executive order declaring an end to America’s "war on coal"; and a report on projected staffing levels at the EPA that would result from the Administration’s budget proposal.

Today, we are taking this approach even further by launching a project called "The Trump Effect: Tracking the Impact of the President's Policies." This dedicated section features text stories, video, photos, interactive graphics and data that identify and measure the impact of policies in the areas of energy and environment, health care, immigration and business and the economy. Other areas will follow.

The Trump Effect

See how Reuters is tracking President Donald J. Trump’s impact on energy and the environment, healthcare, immigration, and business and the economy

Beyond finding stories that will focus on how the administration’s actions affect people, communities, institutions and companies, readers will be able to delve into key themes in each of those areas, via interactive graphics that explain how policies have translated into real-world changes on the ground. A separate database will track policy decisions and their impact on a regular basis. Readers will also be able to explore a rich trove of polling data that covers how Americans view this administration’s policies, actions and statements on a range of issues.

We will work to ensure that The Trump Effect keeps you on top of news that matters, as well as serving as a useful resource to check on the state of play in a particular policy area. I welcome you to The Trump Effect.

'Only one thing will work' with N Korea, says President Trump - BBC News

'Only one thing will work' with N Korea, says President Trump

The US president and his North Korean counterpart are at loggerheads over Pyongyang's nuclear programme

"Only one thing will work" in dealing with North Korea after years of talks with Pyongyang brought no results, US President Donald Trump has warned.

"Presidents and their administrations have been talking to North Korea for 25 years," he tweeted, adding that this "hasn't worked".

Mr Trump did not elaborate further.

The two nations have been engaged in heated rhetoric over North Korea's nuclear activities, with the US pressing for a halt of missile tests.

Pyongyang says it has recently successfully tested a miniaturised hydrogen bomb which could be loaded on to a long-range missile.

The US has been conducting military exercises with South Korea as part of what it describes as show of force missions

There are fears that North Korea will soon have the capacity to hit the US mainland with a nuclear-tipped missile

President Trump has previously warned that the US could destroy North Korea if necessary to protect America's national interests and defend its allies in the region.

Inside the world's most secretive country

Where is the war of words heading?

North Korean leader Kim Jong-un on Saturday praised nuclear weapons as a "powerful deterrent" which guaranteed his country's security, state media reported.

In a speech addressing "the complicated international situation", he said such weapons had safeguarded "the peace and security in the Korean peninsula and north-east Asia" against the "protracted nuclear threats of the US imperialists".

He said his country's policy of simultaneously pursuing the development of nuclear weapons in parallel with moves to strengthen the economy was "absolutely right".

North Korea recently launched two missiles over Japan and defied international condemnation to carry out its sixth nuclear test in September. It has promised to carry out another test in the Pacific Ocean.

There are fears in the West that is rapidly reaching the point where it is capable of developing a nuclear-tipped missile that could reach the US mainland.

Escalating tensions

Saturday's tweets by President Trump are another cryptic announcement by America's leader, the BBC's Laura Bicker in Washington says.

US Secretary of State Rex Tillerson (above) has denied reports of a rift with President Trump

Last week, it was suggested that US Secretary of State Rex Tillerson had direct lines of communication with Pyongyang to try to resolve the escalating tensions.

Mr Trump then tweeted: "Save your energy Rex, we'll do what has to be done!"

On Saturday, the US president insisted he had a good relationship with his secretary of state, but added that Mr Tillerson could be tougher.

Earlier in the week, Mr Tillerson had denied rumours of a rift between the two men, amid media reports he had called the president a "moron".

Mr Trump's latest comment on North Korea could just be bluster - but the fear is that Pyongyang will interpret it as a threat, our correspondent says.

At a speech to the UN later that month, Mr Trump threatened to annihilate North Korea, saying the country's leader, Kim Jong-un," is on a suicide mission".

In exchange, Mr Kim in a rare statement, vowed to "tame the mentally deranged US dotard with fire".

Kim Jong Un promotes sister to centre of power - Independent

Kim Jong Un promotes sister to centre of power

Kim Yo Jong made an alternate member of the politburo - the top decision-making body over which supreme leader presides

James Pearson

North Korea’s leader Kim Jong Un said his nuclear weapons were a “powerful deterrent” that guaranteed its sovereignty, state media reported on Sunday, hours after U.S. President Donald Trump said “only one thing will work” in dealing with the isolated country.

Trump did not make clear to what he was referring, but his comments seemed to be a further suggestion that military action was on his mind.

In a speech to a meeting of the powerful Central Committee of the ruling Workers’ Party on Saturday, a day before Trump’s most recent comments, state media said Kim had addressed the “complicated international situation”.

Kim Jong-un not mad but a 'rational actor', CIA says

Rees-Mogg says Tory conference has become a 'Kim Jong-un-style' event

Donald Trump to go on tour of Asia 'to confront Kim Jong-un'

The mysterious life of Kim Jong-un's wife, Ri Sol-ju

North Korea’s nuclear weapons are a “powerful deterrent firmly safeguarding the peace and security in the Korean peninsula and Northeast Asia,” Kim said, referring to the “protracted nuclear threats of the U.S. imperialists.”

In recent weeks, North Korea has launched two missiles over Japan and conducted its sixth nuclear test, and may be fast advancing toward its goal of developing a nuclear-tipped missile capable of hitting the U.S. mainland.

North Korea is preparing to test-launch such a missile, a Russian lawmaker who had just returned from a visit to Pyongyang was quoted as saying on Friday.

Donald Trump has previously said the United States would “totally destroy” North Korea if necessary to protect itself and its allies.

The situation proved that North Korea’s policy of “byungjin”, meaning the parallel development of nuclear weapons and the economy was “absolutely right”, Kim Jong Un said in the speech.

“The national economy has grown on their strength this year, despite the escalating sanctions,” said Kim, referring to U.N. Security Council resolutions put in place to curb Pyongyang’s nuclear and missile program.

The meeting also handled some personnel changes inside North Korea’s secretive and opaque ruling center of power, state media said.

Kim Jong Un’s sister, Kim Yo Jong, was made an alternate member of the politburo - the top decision-making body over which Kim Jong Un presides.

Alongside Kim Jong Un himself, the promotion makes Kim Yo Jong the only other millennial member of the influential body.

Her new position indicates the 28-year-old has become a replacement for Kim Jong Un’s aunt, Kim Kyong Hui, who had been a key decision maker when former leader Kim Jong Il was alive.

“It shows that her portfolio and writ is far more substantive than previously believed and it is a further consolidation of the Kim family’s power,” said Michael Madden, a North Korea expert at Johns Hopkins University’s 38 North website.

In January, the U.S. Treasury blacklisted Kim Yo Jong along with other North Korean officials over “severe human rights abuses”.

Kim Jong Sik and Ri Pyong Chol, two of the three men behind Kim’s banned rocket program, were also promoted.

State media announced that several other high ranking cadres were promoted to the Central Committee in what the South Korean unification ministry said could be an attempt by North Korea to navigate a way through its increasing isolation.

“The large-scale personnel reshuffle reflects that Kim Jong Un is taking the current situation seriously, and that he’s looking for a breakthrough by promoting a new generation of politicians,” the ministry said in a statement.

North Korea’s foreign minister Ri Yong Ho, who named Donald Trump “President Evil” in a bombastic speech to the U.N. General Assembly last month, was promoted to full vote-carrying member of the politburo.

“Ri can now be safely identified as one of North Korea’s top policy makers,” said Madden.

“Even if he has informal or off the record meetings, Ri’s interlocutors can be assured that whatever proposals they proffer will be taken directly to the top,” he said.

Reuters

University lecturers are topping up earnings by helping students cheat, review suggests - Telegraph

University lecturers are topping up earnings by helping students cheat, review suggests

Academic staff and lecturers are among those paid by “essay mill” companies

Camilla Turner, education editor

7 OCTOBER 2017 • 9:30PM

University lecturers are topping up their earnings by helping students cheat in their degree, a government-backed review will suggest.

The inquiry was commissioned by ministers amid concerns that universities are gripped by an epidemic of so-called “essay mills”, which sell essays, coursework or exam answers to students.

Institutions which repeatedly turn a blind eye to cheating could be stripped of their powers to award degrees by the Government’s new regulator, the Office for Students (OFS), The Sunday Telegraph has learned.

Academic staff and lecturers are among those paid by “essay mill” companies to complete work for students, the report by the Quality Assurance Agency (QAA), the UK's independent quality body for higher education, is expected to find.

“These 'essay mill' companies prey on vulnerable academics as well as students,” said Douglas Blackstock, chief executive of the QAA.

“These are hard-pressed research assistants or lecturers, topping up their earnings. Many companies claim they get genuine academics to write their material. To make their businesses viable, they need to attract people who know enough about the subject.

“If a university was to find a member of staff was writing an essay for [their students] we would think that is a serious issue.”

The report will recommend that universities add an explicit clause into academic staff contracts to explain that “assisting a student to commit an academic offence, or ignoring evidence of misconduct, would be a cause for a staff disciplinary investigation”.

Later this month the OFS will unveil a series of conditions for registration, which institutions will have to meet if they want to retain their status as a university.

Ability to secure academic standards is likely to be a condition for registration

Ability to secure academic standards is likely to be a condition for registration CREDIT: CHRIS ISON

Mr Blackstock told The Sunday Telegraph that the ability to secure academic standards is likely to be a condition for registration. “In a really serious failing of academic standards, there will be significant consequences. [The OFS] allows for the removal of degree awarding powers,” he said.

He said that universities must have appropriate sanctions in place to tackle “contract cheating”, and if they fail to address the issue “there have to be consequences”. “Universities have a responsibility for academic standards,” he said.

“There are expectations that they secure standards of their degrees.” Mr Blackstock warned that failing to confront fraudulent university work not only undermines academic standards, but is also a matter of public safety when graduates enter the jobs market.

“This is where we want to work with the professionals,” he said. “You wouldn't want a lawyer representing you in a court case [if they had not passed their Law degree on their own].

“If it it was a medical related profession or something that [impacted on] public safety - that is such a dangerous thing.”

In a really serious failing of academic standards, there will be significant consequences

Douglas Blackstock, QAA chief executive

He said if the issue is not addressed, there are "significant consequences" for institutions, for students and academics, and for the public. The QAA has previously found the use of essay mills was “rife” among university students, with previous reports suggesting that sixth-form pupils also use such methods.

Earlier this year, this newspaper revealed that more than 20,000 students enrolled at British universities are paying up to £6,750 for bespoke essays in order to obtain degrees.

The number of students using “essay mill” sites, which can charge over £6,500 for a PhD dissertation, has rocketed over the last five years.

While universities already use complex anti-plagiarism software to detect the copying of academic texts, the process of contract cheating - where students submit paid-for essays as their own original work - means that examiners and markers are powerless to prevent foul play.

The QAA’s guidance for universities is due to be published on Monday, in a report titled “Contracting to cheat in higher education: how to address contract cheating, the use of third party services and essay mills”.

Universities minister Jo Johnson said he welcomes the guidance from QAA and expects the OFS to “ensure that the sector implements strong policies and sanctions to address this important issue in the most robust way possible”.

Mattis Discloses Part of Afghanistan Battle Plan, but It Hasn’t Yet Been Carried Out - New York Times

Mattis Discloses Part of Afghanistan Battle Plan, but It Hasn’t Yet Been Carried Out

By THOMAS GIBBONS-NEFFOCT. 6, 2017

Defense Secretary Jim Mattis testified Tuesday before a Senate Armed Services Committee hearing. Credit Aaron P. Bernstein/Reuters

WASHINGTON — Defense Secretary Jim Mattis, normally reluctant to speak publicly about American troops deployed around the globe, took a different tack this week on Capitol Hill.

Pressed by lawmakers, including Senator John McCain, Republican of Arizona and the chairman of the Armed Services Committee, about the Pentagon’s failure to provide more details about the Afghanistan war plan, Mr. Mattis divulged new information about more aggressive rules of engagement there.

But the changes he described have yet to be issued as orders to troops in the field, according to American service members and officials in Afghanistan. With the new rules caught in bureaucratic limbo, Mr. Mattis effectively telegraphed the military’s plans to the Taliban before they could be put into action.

Why Mr. Mattis chose to publicly discuss the rules of engagement — parameters that are classified to ensure the enemy cannot take advantage of their limitations — is unclear. The Pentagon did not deny that the changes had yet to go into effect, but a spokesman, Lt. Col. Mike Andrews, said he strongly disagreed “that the secretary said anything in public that would place forces on the ground at risk, or help the enemy.”

Mr. Mattis’s decision to talk about the secretive guidelines highlights the difficult position he is in: wedged between lawmakers’ demands for more transparency while trying to articulate how the United States is committed to the country’s longest-running war, one the public has largely dismissed.

The disclosure signaled to Taliban fighters that some of their well-established sanctuaries are no longer safe and that they will need to change how they move around the battlefield to avoid American bombs. It also takes away the element of surprise, a core aspect of any battle plan.

Battlefield commanders in Afghanistan have long publicly discussed the need to take more aggressive measures as the Taliban have gained ground since the American troop drawdown in 2014. But current and retired military officers expressed surprise that Mr. Mattis, himself a retired Marine field commander, went so far.

“This is an odd break from someone who is usually very selective of information divulged about the war,” said Jason Dempsey, an adjunct senior fellow at the Center for a New American Security and veteran Army infantry officer who was deployed twice to Afghanistan.

Mr. Mattis’s shift will move the military away from Obama-era rules that allow American forces to strike the Taliban if they are shooting at or otherwise threatening American or Afghan forces. Instead, under the changes, American aircraft could seek out and attack militants based simply on their affiliation to the group.

“You see some of the results of releasing our military from, for example, a proximity requirement — how close was the enemy to the Afghan or the U.S.-advised Special Forces,” Mr. Mattis said on Tuesday in front of the Senate Armed Services Committee. “That is no longer the case, for example. So these kind of restrictions that did not allow us to employ the air power fully have been removed, yes.”

He made similar remarks testifying that afternoon in front of the House Armed Services Committee.

The changes are similar to the rules of engagement governing the fight against the Islamic State in Syria and Iraq as well as in eastern Afghanistan, where the extremist group has been active for the past two years.

They also hark back to the height of the war in Afghanistan, when about 100,000 American troops were fanned out across the country and intelligence was regularly harvested in an effort to produce more targets for fleets of American aircraft and hundreds of Special Operations forces.

David W. Barno, a retired Army lieutenant general, who led the war effort in Afghanistan for almost two years, said the changes probably indicate that the American military is shifting from a largely defensive war and “getting off its hands and much more involved in combat operations.”

Indeed, Mr. Mattis’s push to implement more aggressive rules of engagement coincides with his decision to place American troops closer to the fighting, which he stresses will be in only an advisory role. It is also the latest move in a string of military decisions by the Trump administration to give more decision-making authority to troops at lower levels.

Mr. Mattis’s comments also provided some clarity about a remark made last month by President Trump in front of the United Nations General Assembly. During a speech, Mr. Trump said that he had “totally changed” the rules of engagement against the Taliban and terrorist groups in Afghanistan as part of his new strategy for South Asia.

An American military official in Afghanistan said that Gen. John W. Nicholson Jr., the top American commander in the country, had requested the new rules, and that they were expected to be in effect soon. But the official acknowledged that changes were still being worked out. He said that Mr. Mattis chose an unconventional venue to describe them and added that they are usually never discussed.

“One of the things that is interesting to me is why this didn’t go into a closed hearing,” Mr. Barno said of Mr. Mattis’s decision to talk about the rules of engagement. “It’s a bit odd to me they didn’t go down that route to paint the picture more clearly.”

Later during the hearing, Mr. Mattis was pressed by Senator Kirsten Gillibrand, Democrat of New York, about another issue: whether he would be “honest with the American people about the numbers of troops you are sending over and what their missions will be.”

Mr. Mattis replied, “No, ma’am, if it involves telling the enemy something that will help them.”

Eric Schmitt contributed reporting.