With all the hand-wringing over the melt-down in Neil Woodford’s Patient Capital Fund, something big may have flown under your radar.
It seems we’ve all climbed on board Dr Who’s Tardis and been whisked back to 2017. The price of Bitcoin is up over 250% year to date, hitting highs around $11,800. Still nowhere near its all time high, but impressive nonetheless.
Another bubble or, is it time to dust off those favourite words of the devotee, ‘this time it’s different’?
The financial establishment is once again forced to take sides. Having said he ‘didn’t give a sh*t’ about Bitcoin at a conference last October, JP Morgan boss Jamie Dimon promptly oversaw the launch of his own bank’s crypto coin shortly afterwards.
The big banks’ currency traders would love to get involved because high margins and high volatility equals high bonusses. But it’s still a tiny market worth just $400 million a day compared to the $5 trillion a day traded on the forex market for grown-ups.
With the Fed and the Bank Of England making noises about interest rate cuts, there is now almost $13 trillion of government bonds giving a negative return. That’s making gold and cash under the mattress attractive again as a zero yield is better than a negative one. Gold just made a six year high above $1400 an ounce, with investors increasingly bracketing the yellow metal and Bitcoin in the same asset class as uncorrelated stores of value.
There’s also the recent news from Mr Zuckerberg that he would like to gather even more information on us through the launch of his own digital coin, Libra. Given it will be pegged to a mix of real currencies to keep its value stable, I’m not sure it can be regarded as a ‘pure’ crypto. Mind you, even a cent or two taken in payment processing fees from 2 billion users worldwide is going to add up to a useful chunk of change.
Would you buy or hold shares in the big banks with all this going on? One of the biggest profit centres for banks remains foreign currency broking. Money Week editor and FT columnist Merryn Somerset Webb recently said ‘we need a product that fully disrupts the woefully inefficient global payments system and starts to break the power of the big banks’. A new fintech platform that I am involved with is going to do just that in the non-crypto world – those with reasonably deep pockets will be receiving a letter from me about it momentarily.
The conflict between believers and sceptics will come to a head soon in a conference in Taiwan being billed as ‘the Tangle In Taipei’. The heavyweights in the ring will be Arthur Hayes, a former ‘serious’ trader at Deutsche Bank who now runs a crypto exchange and Nouriel Roubini, who continues to insist that Bitcoin is a bubble waiting for a pin.
While the jury may be out on whether Bitcoin is destined to become a serious asset class, there’s a lot more certainty that the underlying blockchain technology is a big leap forward. Will it be cash, digital coins or coloured beads that we end up transmitting across the blockchain with its absence of third parties, speed and transparency of audit?
That, dear reader, is the $64,000 question. Or do I mean the 5.4237288136 Bitcoin question?
Until next time.