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ALEX BRUMMER: A core feature of cryptomania is the difficulty even the most financially savvy people have of explaining how it works
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A golden rule of investing is to steer clear of what you don’t understand. In recent months, this has been written big with the implosion in the liability-driven investments (LDIs) market and the failure of crypto exchange FTX.
Much attention has been paid to the bizarre life and times of the central figure at FTX – Sam Bankman-Fried.
The fate of FTX, BlockFi (which has just filed for bankruptcy) and other collapsed platforms can be traced back to the lesser-known failure of Terra Luna, which broke up in May 2022 and destroyed an incredible $200bn (£167bn) of the value of cryptocurrency.
The complexity and proliferation of the various cryptocurrencies has left the industry blissfully unregulated
It led to margin calls that in turn jeopardized Alameda, the trading arm of Bankman-Fried’s obscure business empire.
A core feature of cryptomania is the difficulty even the most financially savvy have in explaining how it works.
At the center are the blockchain ledgers that record transactions, verified by algorithms, that also create (or mine) new cryptocurrencies. Suffice to say, it is a landscape ideal for exploitation by scammers.
It may very well be that useful technologies are involved. But its complexity and sprawl made it gloriously unregulated.
It would be a shame if crypto’s shattered dreams hindered transformative technologies that would change the face of the financial world.
Regulators are being criticized for not cracking down on crypto and its meta-universe hard enough or fast enough.
Maybe, but thanks to the Bank of England’s sandbox in the UK and the embrace of financial technology, they’ve turned London into a global hub for fintech investment.
Companies like Wise, Atom Bank, Pension Bee and online asset manager Nutmeg are thriving, using advanced technology, with the imprimatur of regulators.
One of the reasons Wall Street investment banks have experimented with digital banking in London is that there is both technical expertise and a trusted form of enforcement.
Outdated financial institutions are often saddled with cracking systems that need to be replaced. Investors in the UK market are more likely to reward financial companies for dividend increases and share buybacks than for innovation.
Still, digital innovation is able to eliminate cost layers and speed up processes such as remittances and the creation of different models.
The banking and insurance managers smart enough to handle this surge – as HSBC (the old Midland) discovered when it backed First Direct in 1989 – will reap rich dividends.
Canadian exit
Long before Chinese investor Ping An decided to step up the pressure on HSBC, the bank’s chief executive, Noel Quinn, had decided that its strategy of being the world’s “local bank” was misguided.
In the latest sale, HSBC has agreed to sell its Canadian arm to the Royal Bank of Canada. It’s far from a foregone conclusion, as the competition authorities will want to look into it.
So what should Quinn do with the money? The obvious move, if the bank wants to silence Ping An, would be a distribution of most of the estimated £4.75 billion profit from the sale to existing investors, including Ping An, through payouts and buybacks .
It would not stop the Chinese insurer’s demand for a spin-off of its activities in the Far East. But a little money always helps.
In addition, private investors in Hong Kong, agitated by the Bank of England’s Covid-era dividend restrictions, could find themselves sidelined again.
And the cash inflow could be helpful in handling commissions stemming from the collapse of China’s real estate.
In fact, it would be brilliant if chairman Mark Tucker and Quinn could be persuaded to bring the magic of AI to a gritty bureaucracy. Then pigs can fly.
Game of chicken
The egg market has been transformed since my schoolboy days when I was delegated to collect and sell our freckled free range products at the farm gate in Sussex.
Energy and feed costs, exacerbated by bird flu, have pushed prices up by as much as 48 percent. At a colleague’s Sainsbury’s in Chislehurst, despite emergency supplies from Italy, there is no egg to be seen.
Aldi is committing an additional £12.5 million to support producers, bringing aid to the industry to £38 million and ensuring the best British eggs are available in stores.
Now we know why Aldi crossed the sea