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Bitcoin PHOTO

Market Watch: Bitcoin has fallen to its lowest point since November

On Friday the price of Bitcoin fell to $5,791, the lowest since last November, and while it recovered in Tokyo, the fall has led to a flurry of speculation that it will be wiped out. We cannot know, but since it is the largest of the cryptocurrencies, and other smaller examples are apparently now worthless, the possibility is clearly there. But of course, that may prove wrong – there may be some value after all.

What can we sensibly say?

First some thoughts about money in general; next some about this particular so-called “currency”; and then some about the consequences of a total collapse, or a recovery.

Cryptocurrencies are quite new but the history of money is very old. People have used something as money for at least 20,000 years. Paper money is only a few hundred years old in Europe but was used a couple of thousand years ago by the Chinese. The classic functions of money are threefold: they are a medium of exchange, a unit of account and a store of value. The second is simply something we can price things in, thereby measuring comparative values, and the first and third are obvious.

On this tally, none of the cyber currencies stack up. They have a marginal use as a medium of exchange because some people will accept them in exchange for goods and services, but they are too volatile to be useful as a unit of account or store of value. Indeed in most transactions, they don’t really serve as mediums of exchange because they have to be switched into real money first. They are, however, an asset class like gold, fine wines or classic cars.

That leads to the next question, and maybe soon very relevant question: what happens now to their value?

With regular currencies there is an issuing body that will in extremis stand behind them: usually a national government. Ultimately the backing is the taxing power of the state. Sometimes that taxing power is inadequate to support the currency, or the central bank issues too much of it. The most recent example of this is Venezuela right now. The Bolivar has lost 99 per cent of its value against the dollar this year (Bitcoin has lost 58 per cent), and if I have got my decimal point in the right place the current rate is more than 100,000 Bolivars to the dollar. So it is in effect worthless. The poor country (which given its oil revenues should be the richest in Latin America) is running on barter and dollars. Currency reform is promised for August, and we’ll see.

So what is behind Bitcoin? Well, it is not clear that there is anything there at all. It may be that the holders of Bitcoin will collectively support it, in that they will accept it in return for goods and services. That would allow it to continue. But if they collectively try to bunk out, there would be a Bolivar situation.

Might there be collective support? The trouble is that we don’t know who owns the Bitcoin. A huge amount of energy has gone into uncovering ownership but apart from a few high-profile holders such as the Winklevoss twins in America, the names remain concealed. By looking at IP addresses, it is clear that ownership is very concentrated. According to BitInfoChart, 87 per cent of all coins issues are held by 0.5 per cent of holders. But the big holders don’t seem very active, for many of them don’t seem to have sold any at all.

Anecdotal evidence suggests that the larger holders in the developed world fall into five groups. There are some tech-savvy people who got in very early and saw cryptocurrencies almost as a game. They are probably still holding onto all or most of their stock. Second, there are people around the world who have suddenly come into money – oil workers in Kazakhstan – and want to pop it into a variety of different investments. Third, there are computer students, who literally bought the hype and put cash into a few Bitcoin while there were still affordable. Four, there are general investors, many of whom who got suckered in last autumn and are sitting on big losses. And finally there are the illegal or tax-avoiding holders who want an asset that is under the radar.

The intriguing question is this: who, among these groups, really needs to sell? We have seen a collapse of the currency, but from a very high level. Many holders, probably most, will be still on a profit. So the question will be whether enough of them decide that they do want the deposit for a house or whatever else.

But this is in the West. Most of the trading in Bitcoin is now in Asia, with much of that in China. It may be that this is more trading than holding, or it may be that investors in the developed world have indeed been gradually unloading their stock and this is being picked up by Chinese investors. It may be that as and when the final collapse comes, the run will start in Asia. We simply don’t know.

What we do know is that cybercurrencies are much frowned upon by the financial establishment in the West. There are a few supporters but not many. On Friday Mohamed El-Erian, chief economic advisor at Allianz, said Bitcoin would be a buy if the price falls below $5,000. The most scathing and detailed commentary came last week from the Bank for International Settlements (BIS). It said there were three problems: scalability, stability and trust.

On scalability it pointed out that these currencies were now using enough electric power to run Switzerland. It follows that if they were to grow further there would not be enough power in the world to drive them. Stability, well – we have seen what has happened. And trust? The BIS thinks that the decentralised nature of cryptocurrencies is a weakness rather than a strength.

We will know the answer pretty soon. My instinct is that these cryptocurrencies will disappear in a puff of smoke. I just hope too many people are not too damaged when it happens.

Netherlands PHOTO

Dutch entrepreneurs optimistic about Chinese business climate

This week, BenCham presented the key findings of the Sino Benelux Business Survey at the Embassy of the Kingdom of the Netherlands in Beijing. Every year, BenCham investigate the business climate for Benelux businesses in China. “It is great to see that Benelux businesses are performing very well and are expecting to profit even further from the current business climate. Many are actually outperforming the local market,” said Mr. Bas Pulles, Deputy Head of Mission of the Netherlands Embassy in Beijing.

Favorable Business Climate

Dutch and Benelux businesses are optimistic about doing business in China. A majority experiences the business climate as favourable. 89% of Dutch companies realized equal or increased profits according to the survey. The success of Dutch companies may be due to their competitive position in the market, which according to businesses is thanks to their high product quality and good management. Expectations for the business results in 2018 are overall very positive.

Economic Slowdown

The Chinese economy has entered a new phase after its years of high-speed GDP growth. The aim of the government is to stimulate qualitative rather than quantitative growth by focusing on domestic consumption. So far, the effects of the Chinese economic slowdown on Benelux businesses appear limited. More than half of the businesses do not expect any impact.

“Even though we expected the economic slowdown to severely impact businesses, it seems we are already transforming towards ‘the new normal’ and the impact is limited. We believe this is mainly because many Benelux businesses are active in sectors which are booming because of economic trends such as urbanization, made in China 2025 or the rise of the middle classes,” said Mr. Roland Reiland, Deputy Head of Mission of the Luxembourg Embassy in Beijing.

Rising Salary & Regulatory Costs

Businesses experienced positive results, based on higher turnovers, better use of technology and increased efficiency. However there were also negative drivers. There is an increasing financial burden because of rising salary and regulatory costs, which makes that some businesses are considering leaving China. Also, the unlevelled playing field is making things increasingly difficult for Benelux businesses: many businesses feel local competitors receive preferential treatment. Moreover competition from other foreign owned (and Chinese) companies is growing. Also, more so than last year, businesses perceive the government regulations as restrictive.

“It is an interesting paradox really: many businesses are profiting in the current business climate but at the same time we see an increasing number of businesses contemplating to leave the Chinese market,” said Mr. Karel van Hecke, Deputy Head of Mission and Head of the Economic Department of the Belgium Embassy in Beijing. “A possible explanation may be that businesses who came here many years ago purely for cheap production are now struggling, but more recent entrants to the market are thriving,” mentioned Mr. Raoul Schweicher of Moore Stephens Advisory.

Belt & Road Initiative

For the first time the BenCham questionnaires and the Sino-Dutch survey were merged. When the 2016 edition of the Sino Benelux Business Survey was presented, little was known about the impact of the Belt and Road Initiative. Right now, more details on projects are available. However, only 16% of Dutch respondents has come across opportunities arising from BRI, and a vast majority 81% feels they don’t have enough information about BRI to profit from it.

“Let us not forget that many projects are currently being branded as a BRI-project. This makes it difficult for entrepreneurs to discover what BRI actually entails. For instance, we are already seeing some impact on for instance the logistics sector, with air routes being used much more frequently. This is due to BRI-projects, but not directly linked. It’s important that local authorities start defining BRI projects more clearly so that we can actually gain insight into the opportunities,” said Mr. Van Hecke.

Mr. Pulles added: “Because so many projects are branded as a BRI-project, businesses are very unsure of concrete opportunities. Right now, we notice most opportunities are within really specific projects for very specific parts or subprojects, for instance in the field of technology or ports. As embassies, we need to share more information on BRI and work on translating high-level BRI projects into such concrete opportunities.”

Awards Cerem PHOTO

Awards Spotlight: Best Best-Practice in Financial Advisory

The best examples of excellence within the international finance industry will come into focus on 4 October at the 19th annual International Fund & Product Awards, which is held at the Merchant Taylors Hall, London.

In recognition of the extraordinary talent in the industry, the Award for Best Best-Practice in Financial Advisory/Wealth Management is now receiving entries.

This category is intended to recognise wealth management/financial advisory firms located in and/or operating in any region of the world, which have not only adopted best practices on behalf of their clients, but have gone the extra mile to put in place practices that serve as a beacon for others looking to improve their own businesses. This perennially popular award will be presented to 8 regional winners from which an overall category winner will be selected:

– North America
– Latin America
– Europe
– Middle East
– Africa
– Asia
– Australasia
– United Kingdom

To cast your nominations, DO NOT DELAY: for further information and the full list of this year’s categories, please visit www.ifpawards.net

The deadline for entries is 22 June.

Last year’s International Fund & Product Awards took place at the Four Seasons Hotel Park Lane.

For any questions regarding the awards, please contact Christopher Copper-Ind at [email protected] or telephone +44 (0)20 3892 7910.

Click here to view the online version of our magazine’s supplement edition, featuring highlights of the event and a list of all of the winners of last year’s awards.

Maritime Trade PHOTO

The calm before the storm in International Trade?

A narrowing in the trade deficit in back-to-back months means good things for Q2 GDP, but this report is not yet capturing the extent of the steel and aluminum tariffs and survey data about trade is signaling a warning.

Trade Poised to Boost Second Quarter GDP

As the second quarter began, the U.S. trade deficit narrowed as exports increased 0.3 percent while imports declined 0.2 percent in April. After having widened for six consecutive months and now having narrowed in back-to-back months, trade is positioned to be additive to GDP in the second quarter, perhaps substantially so.

Our latest forecast published earlier today (prior to this morning’s trade report) looks for trade to add seven tenths of a percentage point to headline GDP in the second quarter. If that is indeed the contribution from net exports, it would mark the biggest quarterly boost to GDP from trade in more than four years.

Given the preoccupation that financial markets have had with tariffs and the potential for a broader trade war, might the flattering trade numbers be a salve for worried markets that there is nothing to fear in protectionist trade policies? Not so fast, keep in mind that this data is only through April and the broader extension of tariffs to our NAFTA trading partners and Europe was not effective until June. So the only impact observable for those countries in today’s report (and next month’s as well) would be to the extent that those countries scaled back in anticipation of eventual tariffs.

It is also useful to remember that international trade figures evolve with long lead times and a glacial pace. It takes a long time to build trust, relationships and global payment infrastructure between trading partners, and it remains to be seen if those bonds can be broken down more quickly. On that basis, it is unclear how long the shadow of tariffs will be cast on trade dynamics in coming years.

Steel and Aluminum Imports

If there is a storm coming, this might be the calm before it. Imports of iron and steel mill products increased $228 million in April alone and have increased more in the first four months of 2018 than they did in the same period of 2017. Meanwhile imports of bauxite and aluminum increased $44 million in the month. In the first four months of the year, the United States has imported better than half a billion dollars (or roughly 20 percent) more in bauxite and aluminum products than it did during the same period in 2017.

Softening in the Soft Data

U.S. manufacturers still report expansion in both exports and imports, but not to as broad an extent as they were just a few months ago. In the past three months, the ISM imports component has slipped 6.4 points, the largest slowing over a 3-month period since 2014, and the ISM exports component has come down 7.2 points, the biggest 3-month slowdown for this series since 2012.

Freshfields PHOTO

Freshfields to create 100 new jobs in Berlin as they up recruitment

Freshfields is to create a new legal support and technology development hub in Berlin, in a move that could lead to the creation of 100 new roles.

The planned hub will be based in Freshfields’ existing Berlin office and, according to the firm, will not result in any job losses.

About 60 of the new roles will be legal support positions, with the remainder expected to be fintech or legal tech jobs. The hub is expected to serve the whole of continental Europe.

Freshfields currently has six partners and some 130 staff in Berlin.

The planned new support hub in Berlin comes after the magic circle firm opened a back-office and legal support centre in Manchester in 2015, which now houses about 700 staff.

This number is set to expand as Freshfields prepares to hire in its first qualified lawyers in Manchester, as well as launching a new local apprenticeship route to qualification as a solicitor.

It plans to hire 10-15 associates into the office – which will represent its first local hires of qualified lawyers – as well as offer apprenticeships to some of the existing legal support assistants currently based in the office. It currently has about 60 legal support assistants in Manchester.

Freshfields previously considered launching a low-cost base in Canada but later scrapped this plan, with Legal Week also previously reporting that it was considering opening such a base in Asia-Pacific.

In 2015, the firm made 30 Duesseldorf IT support staff redundant after announcing plans to merge the office with Cologne.

Meanwhile, at the start of last year Freshfields offered voluntary redundancy to all of its London secretarial staff, amid a push by the firm to overhaul its business to increase efficiency.