Crypto: no country for old men

My long-held view that crypto currencies are little more than 21st century tulips is proving on the (fiat) money - and I won't be buying the dip

Photo by olieman.eth

The sun may be shining outside, but for crypto winter has well and truly set in. Having hit $3tr on November 21, the total cryptocurrency market capitalisation slipped below $1tr this week, with more than half - $1.2 trillion - of that loss coming in the last 77 days.

The falls have been prompted by major collapses of most altcoins, not least the failure of so-called stable coin Terra Luna, which lost its investors $40bn. According to data from CoinGoLive, 98.5% of the nearly 13,500 cryptocurrencies are down more than 90% from their top, and 95.9% have lost 99.9% of their peak value…zero, effectively. Industry experts are predicting that many will collapse altogether, along with the exchanges and hedge funds that have sprung up around them.

Crypto platform Celsius – which amassed $20bn offering its clients interest rates on crypto holdings as high as 18% - has already frozen withdrawals - and rumours are circulating that crypto hedge fund Three Arrows Capital is facing margin calls. Nasdaq-listed crypto exchange Coinbase – which once boasted 98m users – has laid of a fifth of its workforce, with its shares down 80% this year.

Even bitcoin, which accounts for roughly two-fifths of the entire crypto’s market value, is collapsing, down by a fifth in the last few days, taking its total drawdown to 70% from the $69,000 top, while NFT currency Ethereum is down 80%. Data suggests bitcoin miners are sending coins to exchanges in unprecedented volumes, suggesting selling pressure is high.

In short, it’s a meltdown. But just as there were many crypto cheerleaders encouraging people to buy on the way up, so there will be many telling people that the falls are a great time to buy the currency of the future.

I’d be the first to admit that the crazy world of crypto has always scared the hell out of me. Maybe I just don’t get it…perhaps, even, I am too old to get it. As I march through middle age I wonder if maybe my brain isn’t what it used to be, and that the world has moved well-beyond my comfort zone.

On reflection I may have been too hard on myself, though - there is a lot more in it now than when it was a flexible sponge, and I’m fairly sure I know how to see when things don’t add up. And, however alluring the narrative – fiat money debasement and monetary equality primarily – the case for cryptocurrency often seems a case of 1+1+=3. It doesn’t work as a store of value, as daily swings in price show, and hardly anyone owns it because you can barely spend it – as Adam Smith once said, “money is like muck…useless unless it is spread.”

And while there is a case to be made for blockchain technology as a way to replumb the web more democratically, questions over reliability and energy efficiency still mean any widespread usage is a long, long way off.

Whatever the arguments in its favour, it is hard to hide from the fact that crypto’s popularity is largely because it has been seen by many as a way to get rich quickly, thus creating a feedback loop that shot prices higher – the inevitable result of which is that they have come crashing down again. In other words, crypto has been a high beta play on risk. I lived the dot com boom and there are many similarities, not least the cult-like fervour with which crypto enthusiasts defend their actions.

It’s really that simple – that speculative assets, whose fundamental value is impossible to determine, will wither in the heat of a risk-off world. And that’s why we won’t be writing about it again, and why I’m not remotely tempted to BTFD. If you want crypto in your portfolio and want to read about it, that’s fine, lots of people have lots to say and bridges to sell you.

But we like the boring bit better – get rich slowly with shares, with real businesses and economic value behind them. My old man’s brain can make sense of that.

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Brazil: riding the commodities wave

The South American emerging market is, as ever, beset with political issues. But, as economist Christine Shields notes, investors shouldn’t ignore its vast commodity wealth

Photo by Raphael Nogueira

Brazil, as a major commodity producer, stands to gain from the war in Ukraine. Not only are commodity prices rising substantially, but also demand for commodities from non-Russian sources is much higher.

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It’s hard picking long-term winners in the ever-changing retail sector

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Britain’s high streets are in a sorry state. A short walk around Norwich city centre a few weeks ago revealed a rather grim picture of an otherwise ancient and splendid City – several thousand square feet of vacant Top Shop, another few thousand square feet of vacant Debenhams and a plethora of smaller shops, bars and restaurants long boarded up.

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India: when will the next Asian Tiger awake?

Country risk specialist Christine Shield explains why investors should treat tales of India's untapped opportunity with caution

Photo by Raghu Nayyar

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Will it now do so and finally overcome a host of structural shortcomings? Will its political ambivalence over the Ukraine war turn the west against it so that yet another opportunity is missed? Or will it be some mix of the two?

Here we explore the latest economic situation and attempt to look ahead into the medium and longer term.

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Why the FANGs are losing their bite

Netflix’s horror show quarter is a reminder that there are limits to the technology industry’s rate of growth

Photo by Michael Dziedzic

Big tech has been carrying the US markets for some time now. Since Jim Cramer coined the acronym FANGs in 2013, the market’s very biggest boys have, until recently, just got bigger and bigger. FANGs became FAANGs, then FAANG+ or – another Jim Cramerism – MAMAA as names and market caps changed, before finally the Muppets inspired MANAMANA, incorporating Nvidia and Adobe and name changes. Apple – bizarrely excluded from the first FANG definition – became the world’s first trillion-dollar company in Aug 2018 and then the world’s first three trillion-dollar company in January. Microsoft, Alphabet/Google, Amazon, Meta/Facebook, and Tesla (a story for another time) have all since joined the trillion-dollar club.

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The Ukraine war: an industrial squeeze

Christine Shields explores the conflict's less publised economic effects on global industry

Photo by Chris Ried

In our two previous pieces on the impact of the war we looked at oil and gas first, then food. We mentioned the sharp surge in nickel prices that necessitated trading to be suspended. Other metals have also jumped sharply in price and some supply problems are causing firms to pull out of specific sectors.

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The Ukraine War: Commodity contagion

Christine Shields explains how the war in Ukraine could pre-empt a wider political crisis

Photo by Darla Hueske

Our previous piece examined the price implications of higher oil and gas prices resulting from Russia’s invasion of Ukraine. Here we look at the wider consequences on food supply and manufacturing as well as touching on some longer term political risk issues.

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The economics of the war in Ukraine

Country risk specialist Christine Shields weighs up the longer-term economic impacts of the Ukraine war in this three-part series

Photo by Maria Lupan

Russia’s late February invasion of Ukraine has shocked the world. Not only is the human cost vast, but so are the economic implications. Sanctions are squeezing Russia’s economy and the fortunes of its overseas oligarchs. The consequences for the rest of the world will also be painful. So interdependent now is the world that few places will be immune. Here we take a look at some of the implications of this crisis.

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