Connect with us

Markets

Investors urged to exercise caution after bitcoin price swings

Published

on


Finance experts have urged retail investors to take care when buying into bitcoin after the UK regulator this week warned savers of the risks of putting money into volatile cryptocurrencies.

The Financial Conduct Authority cautioned that the market for cryptoassets offered little protection for consumers and firms offering them often overstated the rewards and downplayed the risks.

The value of bitcoin has more than tripled since October, and valuations surged past $40,000 before falling in a weekend sell-off as investors dumped holdings. On Monday alone, cryptocurrencies lost more than $150bn in value, according to data from Coin Metrics. By Thursday, bitcoin had recovered much of the lost ground, trading at over $39,000.

Laith Khalaf, a financial analyst at investment broker AJ Bell, said: “Anyone who invests in cryptocurrencies should be prepared to lose their shirt, or a considerable portion of it . . . The fear is that consumers are leapfrogging stocks and bonds and going straight from cash to bitcoin, in the mistaken belief it’s much the same.”

Susannah Streeter, an analyst at investment platform Hargreaves Lansdown, said: “Bitcoin’s price is being driven primarily by future price speculation. The FCA clearly believes the crypto Wild West could be running out of control, and is warning that consumers risk losing all their money if they succumb to promises of fast and high returns.”

Bitcoin is nonetheless increasingly seen as a tool for diversifying portfolios and a hedge against currency devaluation and frothy equity markets.

“Fears around devaluation of the dollar and the chance of inflation eating away at the dollar mean you’re seeing people come in and put up to 5 per cent of [their] portfolio into this asset class,” said Matt Blom, global head of sales trading at cryptocurrency trading platform Diginex. “There are a lot of investors placing money in this space who weren’t here in 2017.”

Five bitcoin-centric exchange traded funds (ETFs) have launched since the start of 2019, pointing to a marked increase in appetite among retail investors. In December more than $121m flowed into bitcoin and cryptocurrency ETFs, and global assets under management in these funds more than doubled from October, to more than $3bn, according to TrackInsight, an ETF data provider.

But larger-scale investments have also become more commonplace, suggesting greater institutional involvement. Purchases of bitcoin by “wallets” holding more than 1,000 coins, or stakes worth approximately $35m at recent prices, have spiked as the price of bitcoin tumbled from last week’s highs.

In 2017, fewer than 1,600 people or institutions held more than 1,000 bitcoin. This week, more than 2,400 held stakes of equivalent or greater size, according to data from the cryptocurrency data tracker Glassnode.

The Ruffer Investment company in the UK attracted attention in November when it took out a substantial holding in bitcoin, and is currently trading at an almost 1 per cent discount, after netting between £327m and £693m in profit from the trade, with a total return of 16.8 per cent for the past 12 months, according to the Association of Investment Companies, an industry body.

Cryptoasset investments are available on many big investment platforms in the UK, though whether it should be offered to non-professional investors has long divided opinion. Some say the risks to retail investors remain profound.

“It’s important to note that [Ruffer] only invested around 2.5 per cent [in bitcoin] of a portfolio that is otherwise invested in more traditional assets,” said Mr Khalaf.

Writing about the recent sell-off in a note, Simon Peters, cryptoasset analyst at investment broker eToro, said: “The most bullish large-scale investors have been using the recent price dip as an opportunity to add to their balance sheets at a (relatively) cheap price and retail investor sentiment continues to remain positive.”

The largest holders of bitcoin remain those investment houses which are focused on cryptocurrency and digital assets, rather than traditional asset managers. But other companies are buying too. Square, a mobile payments company founded by Twitter chief executive Jack Dorsey, holds a stake worth $155m, according to data provider Bitcoin Treasuries.

Dan Lane, a senior analyst at Freetrade, said: “The longer crypto stays part of the conversation, and the more bigger firms explore blockchain and its potential usage, the more investors feel validated in gaining exposure to the asset.”

However, Mr Khalaf said retail investors remained at risk. Cryptocurrency investments are not covered by the Financial Services Compensation Scheme if something goes wrong. An FCA ban on the sale of cryptocurrency derivatives to retail investors came into effect in January.

In a post that appeared on eToro’s bitcoin page, Butler, an “elite” investor on the platform, likened patterns of investor enthusiasm now to those he saw in the run-up to the 2017 price collapse, when his mother had said she was thinking about investing in bitcoin.

“I would not be overly surprised if bitcoin broke through $50,000 and beyond, but I have also seen it lose more than 80 per cent of its value,” Butler said. “You have to ask yourself, are you in a financial position to lose 80 per cent of your holdings in cryptocurrencies right now?”



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets

Powell inflation remarks send Asian stocks lower

Published

on

By


Asian stocks were mostly lower after a rout in US Treasuries spread to the region after comments from Jay Powell that failed to stem inflation concerns in the US.

Hong Kong’s Hang Seng dropped 0.3 per cent following the remarks by the chairman of the US Federal Reserve while Japan’s Topix rose 0.1 per cent and the S&P/ASX 200 fell 0.8 per cent in Australia.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped as much as 2 per cent before pulling back to be down 0.5 per cent by the end of the morning session, after Beijing set a target of “above 6 per cent” for economic growth in 2021.

Premier Li Keqiang hailed China’s recovery from an “extraordinary” year and said the government wanted to create at least 11m urban jobs at a meeting of the National People’s Congress, the annual meeting of the country’s rubber-stamp parliament.

“A target of over 6 per cent will enable all of us to devote full energy to promoting reform, innovation and high-quality development,” Li said, adding that Beijing would “sustain healthy economic growth” as it kicked off the new five-year plan.

Analysts were less sanguine on China’s economic outlook, however, pointing to the markedly lower growth target relative to recent years.

“There is, in fact, not much surprise from the government work report except for the super-low GDP target,” said Iris Pang, chief economist for Greater China at ING, who estimated growth would be 7 per cent this year. “This makes me feel uneasy as I don’t know what exactly the government wants to tell us about the recovery path it expects.”

The mixed performance from Asia-Pacific stocks came after Powell failed to alleviate fears that the US central bank was reacting too slowly to rising inflation expectations and longer-term Treasury yields, which rise as bond prices fall.

Powell on Thursday said he expected the Fed would be “patient” in withdrawing support for the US economic recovery as unemployment remained well above targeted levels. But he added that it would take greater disorder in markets and tighter financial conditions generally to prompt further intervention by the central bank.

“As it relates to the bond market, I’d be concerned by disorderly conditions in markets or by a persistent tightening in financial conditions broadly that threatens the achievement of our goals,” Powell said.

Yields on 10-year US Treasuries jumped 0.07 percentage points to 1.55 per cent following Powell’s remarks. In Asian trading on Friday, they climbed another 0.02 percentage points to 1.57 per cent. The yield on the 10-year Australian treasury rose 0.07 percentage points to 1.83 per cent

“Based on our growth forecast, longer-term rates will likely rise for the next few quarters — but more slowly,” said Eric Winograd, a senior economist at AllianceBernstein. “And we think the Fed is prepared to push in the other direction if rates rise too far, too fast.”

The S&P 500, which closed Thursday’s session down 1.3 per cent, was tipped by futures markets to fall another 0.1 per cent when trading begins on Wall Street. The FTSE 100 was set to fall 0.8 per cent.



Source link

Continue Reading

Markets

Financial bubbles also lead to golden ages of productive growth

Published

on

By


Sir Alastair Morton had a volcanic temper. I know this because a story I wrote in the early 1990s questioning whether Eurotunnel’s shares were worth anything triggered an eruption from the company’s then boss. Calls were made, voices raised, resignations demanded. 

Thankfully, I kept my job. Eurotunnel’s equity was also soon crushed under a mountain of debt. Nevertheless, the company was refinanced and the project completed. I raised a glass to Morton’s ferocious determination on a Eurostar train to Paris a decade later.

With hindsight, Eurotunnel was a classic example of a productive bubble in miniature. Amid great euphoria about the wonders of sub-Channel travel, capital was sucked into financing a great enterprise of unknown worth.

Sadly, Eurotunnel’s earliest backers were not among its financial beneficiaries. But the infrastructure was built and, pandemics aside, it provides a wonderful service and makes a return. It was a lesson on how markets habitually guess the right direction of travel, even if they misjudge the speed and scale of value creation.

That is worth thinking about as we worry whether our overinflated markets are about to burst. Will something productive emerge from this bubble? Or will it just be a question of apportioning losses? “All productive bubbles generate a lot of waste. The question is what they leave behind,” says Bill Janeway, the veteran investor.

Fuelled by cheap money and fevered imaginations, funds have been pouring into exotic investments typical of a late-stage bull market. Many commentators have drawn comparisons between the tech bubble of 2000 and the environmental, social and governance frenzy of today. Some $347bn flowed into ESG investment funds last year and a record $490bn of ESG bonds were issued. 

Last month, Nicolai Tangen, the head of Norway’s $1.3tn sovereign wealth fund, said that investors had been right to back tech companies in the late 1990s — even if valuations went too high — just as they were right to back ESG stocks today. “What is happening in the green shift is extremely important and real,” Tangen said. “But to what extent stock prices reflect it correctly is another question.”

If the past is any guide to the future, we can hope that this proves to be a productive bubble, whatever short-term financial carnage may ensue.

In her book Technological Revolutions and Financial Capital, the economist Carlota Perez argues that financial excesses and productivity explosions are “interrelated and interdependent”. In fact, past market bubbles were often the mechanisms by which unproven technologies were funded and diffused — even if “brilliant successes and innovations” shared the stage with “great manias and outrageous swindles”.

In Perez’s reckoning, this cycle has occurred five times in the past 250 years: during the Industrial Revolution beginning in the 1770s, the steam and railway revolution in the 1820s, the electricity revolution in the 1870s, the oil, car and mass production revolution in the 1900s and the information technology revolution in the 1970s. 

Each of these revolutions was accompanied by bursts of wild financial speculation and followed by a golden age of productivity increases: the Victorian boom in Britain, the Roaring Twenties in the US, les trente glorieuses in postwar France, for example.

When I spoke with Perez, she guessed we were about halfway through our latest technological revolution, moving from a phase of narrow installation of new technologies such as artificial intelligence, electric vehicles, 3D printing and vertical farms to one of mass deployment.

Whether we will subsequently enter a golden age of productivity, however, will depend on creating new institutions to manage this technological transformation and green transition, and pursuing the right economic policies.

To achieve “smart, green, fair and global” economic growth, Perez argues the top priority should be to transform our taxation system, cutting the burden on labour and long-term investment returns, and further shifting it on to materials, transport and dirty energy.

“We need economic growth but we need to change the nature of economic growth,” she says. “We have to radically change relative cost structures to make it more expensive to do the wrong thing and cheaper to do the right thing.”

Albeit with excessive enthusiasm, financial markets have bet on a greener future and begun funding the technologies needed to bring it to life. But, just as in previous technological revolutions, politicians must now play their part in shaping a productive result.

john.thornhill@ft.com



Source link

Continue Reading

Markets

US tech stocks fall as government bond sell-off resumes

Published

on

By


A sell-off in US government bonds intensified on Wednesday, sending technology stocks sharply lower for a second straight day.

The yield on the 10-year US Treasury bond, which acts as a benchmark for global borrowing costs, climbed to nearly 1.5 per cent at one point. It later settled around 1.47 per cent, up nearly 0.08 percentage points on the day.

Treasury trading has been particularly volatile for a week now — 10-year yields briefly eclipsed 1.6 per cent last Thursday — but the rise in yields has been picking up pace since the start of the year and the moves have begun weighing heavily on US stocks.

This has been especially true for high-growth technology companies whose valuations have been underpinned by low rates. The tech-focused Nasdaq Composite index was down 2.7 per cent on Wednesday, on top of a 1.7 per cent drop the day before.

The broader S&P 500 fell by 1.3 per cent.

The US Senate has begun considering President Joe Biden’s $1.9tn stimulus package, with analysts predicting that the enormous amount of fiscal spending will boost not only economic growth but also consumer prices. The five-year break-even rate — a measure of investors’ medium-term inflation expectations — hit 2.5 per cent on Wednesday for the first time since 2008.

Inflation makes bonds less attractive by eroding the value of their income payments.

“I would expect US Treasuries to continue selling off,” said Didier Borowski, head of global views at fund manager Amundi. “There is clearly a big stimulus package coming and I expect a further US infrastructure plan to pass Congress by the end of the year.”

Mark Holman, chief executive of TwentyFour Asset Management, said he could see 10-year yields eventually trading around 1.75 per cent as the economic recovery gains traction later this year.

“It will be a very strong second half,” he said.

Line chart of Five-year break-even rate (%) showing US medium-term inflation expectations hit 13-year high

Elsewhere, the yield on 10-year UK gilts rose more than 0.09 percentage points to 0.78 per cent, propelled by expectations of a rise in government borrowing and spending following the UK Budget.

Sovereign bonds also sold off across the eurozone, with the yield on Germany’s equivalent benchmark note rising more than 0.06 percentage points to minus 0.29 per cent. This was an example of “contagion” that was not justified “by the economic fundamentals of the eurozone”, Borowski said, where the rollout of coronavirus vaccines in the eurozone has been slower than in the US and UK.

The tumult in global government bond markets partly reflects bets by some traders that the US Federal Reserve will be pushed into tightening monetary policy sooner than expected, influencing the costs of doing business for companies worldwide, although the world’s most powerful central bank has been vocal that it has no immediate plans to do so.

Lael Brainard, a Fed governor, said on Tuesday evening that the ructions in US government bond markets had “caught my eye”. In comments reported by Bloomberg she said it would take “some time” for the central bank to wind down the $120bn-plus of monthly asset purchases it has carried out since last March.

After a series of record highs for global equities as recently as last month, stocks were “priced for perfection” and “very sensitive” to interest rate expectations that determine how investors value companies’ future cash flows, said Tancredi Cordero, chief executive of investment strategy boutique Kuros Associates.

Europe’s Stoxx 600 equity index closed down 0.1 per cent, after early gains evaporated. The UK’s FTSE 100 rose 0.9 per cent, boosted by economic support measures in the Budget speech.

The mid-cap FTSE 250 index, which is more skewed towards the UK economy than the internationally focused FTSE 100, ended the session 1.2 per cent higher.

Brent crude oil prices gained 2 per cent at $64.04 a barrel.



Source link

Continue Reading

Trending