ALEX BRUMMER: A core feature of the crypto mania is the difficulty even the most financially literate people have in explaining how it works
A golden rule of investment is to steer clear of what you don’t understand. In the last several months this has been writ large with the implosion in the market for liability-driven investments (LDIs) and the failure of crypto exchange FTX.
There has been much focus on 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 less-noticed failure of Terra Luna which disintegrated in May 2022, wiping an incredible $200billion (£167billion) off the value of crypto.
The complexity and helter-skelter growth of the various cryptocurrencies have left the industry gloriously unregulated
It led to margin-calls which in turn imperilled Alameda, the trading arm of Bankman-Fried’s opaque business empire.
A core feature of the crypto mania is the difficulty even the most financially literate people have in explaining how it works.
At the centre are the blockchain ledgers which record transactions, verified by algorithms, which also create (or mine) new crypto. Suffice it to say it is a landscape ideal for exploitation by scammers.
It may well be that there are useful technologies involved. But its complexity and helter-skelter growth left it gloriously unregulated.
The pity would be if the destroyed dreams of crypto were to stunt transforming technologies changing the face of finance.
Regulators are criticised for failing to clamp down on crypto and its meta universe hard or fast enough.
Maybe, but they have been effective, through the Bank of England’s sandbox in the UK and the embrace of financial technology, in making London a global centre for fintech investment.
Firms such as Wise, Atom Bank, Pension Bee and online investment management firm Nutmeg are flourishing, using advanced technology, with the imprimatur of regulators.
Among the reasons that Wall Street investment banks have experimented with digital banking in London is because both the tech expertise and a trusted form of enforcement exists.
Legacy financial institutions are often stuck with creaky systems which need replacing. Investors in the UK market are more likely to reward financial firms for dividend increases and share buybacks than innovation.
Yet digital innovation is capable of eliminating layers of cost and speeding up processes such as money transfers and creating different models.
The bank and insurance executives smart enough to catch this wave – as HSBC (the old Midland) found when it backed First Direct in 1989 – will reap rich dividends.
Long before Chinese investor Ping An decided to heap the pressure on HSBC, the bank’s chief executive Noel Quinn had decided that the strategy of being the world’s ‘local bank’ was misplaced.
In the latest disposal, HSBC has agreed to sell its Canadian arm to the Royal Bank of Canada. It is far from a done deal since competition authorities will want to look.
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 £4.75billion gain on the sale to existing investors including Ping An through payouts and buybacks.
It wouldn’t stop the Chinese insurer’s demand for a spin-off of the Far Eastern business. But a bit of money always helps.
Moreover, private investors in Hong Kong, agitated by the Bank of England’s Covid-era limits on dividends, could be brought back on-side.
And the cash infusion could be helpful in dealing with provisions arising from China’s property meltdown.
Even better, it would be brilliant if chairman Mark Tucker and Quinn could be persuaded to bring the magic of AI to a stolid bureaucracy. Then pigs might fly.
Game of chicken
The egg market is transformed from my days as a schoolboy when I was deputed to collect and sell our freckled free range produce at the farm gate in Sussex.
Energy and feed costs, exacerbated by bird flu, have sent prices soaring by as much as 48 per cent. At a colleague’s Sainsbury’s in Chislehurst there is not an egg to be seen in spite of emergency supplies from Italy.
Aldi is ploughing in an extra £12.5million to support producers, bringing its assistance to the sector to £38million and ensuring the finest British eggs are available in its stores.
Now we know why Aldi crossed the sea