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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.

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Lykke Creates Investment and Advisory Spinoff BVV

Swiss fintech group Lykke on Friday launched a spin-off company, Blockchain Valley Ventures (BVV), which will operate as a venture capital investor and accelerator in addition to providing advisory services for blockchain enabled businesses and exchange listing.

Based in Zug, Switzerland’s ‘Crypto Valley’, BVV said its partners include Heinrich Zetlmayer, former Vice President and Country Leader of IBM Global Business Services in Switzerland and Oliver Bussmann, former UBS and SAP Group CIO.

According to a statement, the company will make capital investments through its own funds and vehicles, such as the “Blockchain Investment Opportunities Note”, in cooperation with Swiss asset management company Vicenda, a boutique firm with a focus on private debt investing. Other services will focus on business, financial, initial coin offering (ICO), and marketing support until projects have reached critical size and can operate independently. Additionally BVV will assist in token technology design and creation, and implementation of Lykke’s Open Source Technology.

According to the company’s statement, BVV’s hybrid funding model combines traditional venture capital with ICO’s. This will optimize the capital-raising of BVV portfolio companies but also accelerate growth and business development, offering significant benefits to conventional investment, the company said.

BVV, supported by Lykke, will give portfolio companies assistance and advice in launching and scaling blockchain-enabled businesses. By collaborating with partner companies, BVV said it will be an integral part of their respective business models, resulting in an ecosystem of promising blockchain-based projects, which maximizes each partner’s success potential.

“As ICOs have become the new normal, it is no longer necessary to wait until you have accumulated significant revenue to make your dreams into reality,” said Richard Olsen, Founder and CEO of Lykke Corporation, in the statement. “However, many would-be token-issuers need guidance which is neutral, independent, and unbiased. BVV provides this quality support, offering the necessary advice and assistance so that inspired businesses may fully recognize their potential.”

“Blockchain technology has already shown itself to be a highly disruptive force across all manners of the industry – from supply chain management to e-commerce, and fintech,” stated Heinrich Zetlmayer, BVV General Partner. “Our long-term vision is to develop BVV into a leading management holding in the crypto space, offering assistance to projects we believe have real potential to have lasting effects on industries primed for disruption.”

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Credit Suisse finalises new global legal panel with four firms winning spots

Swiss banking giant Credit Suisse has finalised its new global legal panel, with four firms winning places on the roster.

Ashurst, Allen & Overy, Linklaters and Latham & Watkins have all been appointed to the line-up, which replaces its EMEA and UK panels.

In addition to the global panel, which is expected to handle the bulk of the bank’s work, Credit Suisse has also appointed a number of firms to sub-panels covering practices such as employment, litigation, M&A and securities work. It also has a separate panel for Switzerland, and countries in Asia where it may require specific local expertise.

Credit Suisse’s Zurich-based corporate general counsel Julian Gooding led the review, with the global panel expected to run for two to three years.

The move to a global panel structure is in line with wider organisational changes at Credit Suisse, with the bank moving away from regional divisions in 2016.

A spokesperson for Credit Suisse said: “The driving principle of how we now run our panels is to manage our firm relationships in a holistic way more consistent with our organisational strcture. We’re happy that what we’ve put in place is a more coherent way of managing firms – we want to make sure all parties get the most out of the relationships by managing them globally.”

The bank’s review had been delayed by several months, with firms initially hoping to have heard if they had been successful in August last year.

Confirmation of Credit Suisse’s panel comes after fellow banks Societe Generale and Santander recently completed their international legal panels.

Societe Generale appointed DLA Piper, Norton Rose Fulbright and Mayer Brown among its ‘preferred’ advisers.

The French bank’s panel comprises 12 full-service firms – split into eight ‘preferred’ firms and four ‘selected’ firms – alongside six others appointed specifically to handle large litigation and tax advice.

Santander, meanwhile, has agreed terms with 46 firms, understood to include global firms DLA Piper, Baker McKenzie and Dentons, and US firms including Latham & Watkins and Cleary Gottlieb Steen & Hamilton.