Curious about crypto ⚡🍕₿
Crypto + Mark & Spencer + trouble for start-ups
Cryptocurrency is one of the most divisive topics I have ever covered as a financial journalist, if not the most divisive. The divide between the buyers and the sceptics, the bulls and the bears, is enormous. One side thinks digital currencies and the technology behind them can change the world by decentralising power. The other side thinks it’s a financial bubble the likes of which the world and markets have seen plenty of times before (tulip mania in the 1600s for instance). This side also thinks that most of the crypto industry is a scam where tech-savvy individuals are reeling in ordinary people with the promise of future riches.
When I was at The Times anything we wrote about crypto got a strong reaction from both sides. Crypto-backers would accuse us of being part of an MSM (mainstream media) conspiracy to destroy digital currencies and protect the status quo for the establishment… or that we simply didn’t understand it. Other readers would wonder why we were bothering to cover such a frivolous topic.
Off to Lunch will aim to fill the divide with its coverage of crypto. There are smart people on both sides of the debate – I know them, speak to them and will explain their views to you. As we go on this journey, I will help you understand crypto. I know there are a lot of people who are interested in what is going on and realise it is important, but want to know more about how it actually works. There will also be a UK-angle to this coverage. Who is investing in crypto here? How is the industry developing? How are politicians and regulators approaching it?
There has never been a more important time to cover crypto. About $500 billion has been wiped off the value of crypto in the last month following the collapse of TerraUSD and the wider market sell-off. At present this does not seem to pose a threat to the broader financial system. However, the size of the crypto world is growing and lots of ordinary people are sitting on losses from the crash. About 6 per cent of UK adults hold cryptocurrencies according to estimates (about 1 in 16). In the US it is 16 per cent and in Europe it is 10 per cent.
Whether you like it or not, there is also an arms race for technological talent in the world and countries are promoting their crypto credentials to get that talent. Emmanuel Macron, for example, has said he wants France to be a crypto hub. France welcomed and approved Binance, the online crypto trading platform, immediately after it failed to get approval from UK regulators last month. At Davos this week, where world leaders and chief executives are gathered for the World Economic Forum, crypto adverts are everywhere. Yet those in power in the UK seem split on crypto. Rishi Sunak, the chancellor, has said he wants the UK to be a “crypto hub” but the Financial Conduct Authority and Bank of England are wary.
We all need to think about how we want the future of money to look. Central banks around the world, including the Bank of England, are working on plans for their own central bank digital currencies (CBDCs). Cash is disappearing from society and is already unusable in parts of the economy, with 30 per cent of transactions now through internet shopping, according to the Bank. We should not underestimate how quickly the payment system could change. As recently as the 1960s, nearly 70 per cent of people didn’t even have a bank account.
A concept for a UK digital currency outlined by the Bank is a Paypal-style online wallet. This would involve a high street bank of your choice holding your money digitally on a platform managed by the Bank. But one of the dangers of CBDCs is privacy. A central bank or government could in theory track where, how and when you spend your money. There are all sorts of other issues too, like the risk of cybercrime.
One final point for today on crypto. The technology behind it, blockchain, has a relevance far beyond digital money and this will not get lost in my coverage. I spoke to iov42, an interesting UK start-up that works in blockchain, earlier this week. It has developed technology that is being used to try to combat the illegal timber trade (which is worth tens of billions of dollars a year). It does this through parties in the supply chain recording information on a digital ledger at each step of the supply chain, allowing the buyer to confirm the legitimacy and identity of the source of the timber. This technology could in theory be applied to other supply chains (fashion, for example) and is an example of how blockchain and its digital ledger could be used.
David Coleman, the chief product officer of iov42, used to work for Credit Suisse and BNP Paribas. “It makes it easier for good actors but harder for bad actors,” he said of the technology. However, he also cautioned that while blockchain can “make things stronger” there is also a danger that it could be “far worse when it breaks”. He has previously said the technology is in a “trough of disillusionment” phase, where people are frustrated at the complications of getting it to work and unsure of where it can be applied. However, Coleman is optimistic for the future, as long as businesses are “pragmatic and realistic” about how to use blockchain. Interestingly, he said that cryptocurrencies can obscure the other uses for the technology. He warned of the “hype and scams” in crypto, adding: “It’s a scary market to be getting into.”
Steve Rowe leaves Marks & Spencer
Steve Rowe has today presented his last set of annual results as chief executive of Marks & Spencer before standing down after six years in the role. Pre-tax profits for the year to April 2 were £392 million after a loss of £210 million last year. That is highest profit for M&S since 2016. Rowe initially joined the company in 1983, working in its Croydon store. After a sojourn managing Topshop stores, he returned in 1989. The share price graph for his tenure suggests it has been a difficult period, but Rowe undoubtedly hands over M&S in a better shape than what he inherited.
Rowe is often portrayed as one of the good guys of the business world who is at his most comfortable on the shop floor with fellow staff. Now, both of those things may be true, and having had the pleasure of his company many times I can report he is one of the brightest and most affable chief executives I have met. However, his tenure should really be defined by taking big, difficult strategic decisions that involved a hit in the short-term but will benefit M&S in the long-term. These decisions include the £750 million deal with Ocado to sell M&S food online and closing underperforming shops across the country, an unpleasant task given that for many communities the M&S shop is still the heart of their high street. Along with Archie Norman, the chairman, he has also put together a strong board and management team. He hands over control to Stuart Machin, currently head of food, and Katie Bickerstaffe, who runs the clothing business.
A chart that helps you understand the world
As Harry Wallop, a former colleague at the Telegraph and Times, points out here, Aldi and Lidl combined are now bigger than Morrisons, bigger than Asda and bigger than Sainsbury’s in terms of how much we spend with them in the UK. Aldi is not that far from overtaking Morrisons. This is not just about the cost-of-living squeeze and households looking to buy cheaper groceries, it’s about the two German discounters investing in improving their products and opening new stores over the last decade. Despite scepticism when they arrived, Aldi and Lidl have changed the UK supermarket industry forever.
You should also read this
Fascinating piece from Bloomberg on how venture capital now runs finance in London, not the City. It looks at how fast-growing firms are successfully raising private money while there is a lack of floats on the stock exchange, and how the younger generation are attracted to jobs in venture capital rather than at investment banks (Bloomberg, paywall)
Painkillers over vitamins. A report on the type of start-ups that will survive this downturn and those that won’t. As the builder quoted in the piece says: “A bad economy just weeds out the hacks.” (TechCrunch, paywall)
On a similar note, Sequoia Capital, one of the leading venture capital funds, has shared a 52-page presentation to the founders it invests in warning they face a “crucible moment” and should move fast to avoid a “death spiral” (The Information, paywall)
Matt Levine’s Money Stuff newsletter is always worth a read and his latest is no exception – it looks at a new piece of financial engineering by banks that some will applaud and others will frown at. Banks are moving swaps off their balance sheet by working with a company called Capitolis. To explain this in basic terms, a swap is a type of trade that can involve trading shares in a company to a hedge fund in return for taking on debt and getting a steady income from the interest on that debt. The risk for the bank is if the shares go down and the hedge fund can’t pay it back. To reflect this risk, the bank has to hold capital on its balance sheet (cash basically). However, by working with Capitolis, the bank can move the swap off their balance sheet and doesn’t need to hold the extra capital. Levine thinks this is smart, but as he says, others will be concerned. Read the piece and decide (Bloomberg, paywall)
There has been plenty written about the Elizabeth Line/Crossrail opening in London this week. There is discontent outside London about how the £19 billion project gives the city a modern new trainline while the rest of the UK battle on with old diesel engines. However, there are benefits for the rest of the UK too. More than half of the contracts on the project were awarded to businesses outside London and those firms are now using that expertise on new work, like this £60 million development in Stockport, Manchester (Business Live)
I want to finish today by handing over to Steve Kerr, head coach of the Golden State Warriors basketball team. He spoke last night about the horrific school shooting in Texas far more eloquently, intelligently and emotionally than I could ever do…
Thanks for reading. Off to Lunch will be back on Friday. If you want to contribute to the work of Off to Lunch, then please sign up for a paid subscription below. Alternatively, please just spread the word!
Graham
Good read. Leaving aside debates about the specific intrinsic value of crypto (or lack thereof) the very fact that it provokes such passion should serve as a large warning flag to onlookers.