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Hedge Clippings | Friday, 04 June 2021
Each Friday we ponder while considering the topic for the week's Hedge Clippings. When Donald Trump was in office, he was generous enough to provide plenty of fodder, or at least food for thought (one way or another). For the past 15 months or so COVID-19 has dominated the news - and in fact has dominated all our lives, as well as the global economy.
Other themes have come and gone, while some - rising inflation and potential interest rates for instance - remain bubbling along below the surface, waiting their turn which will, sooner or later, arrive, we suspect, with a vengeance.
One theme that has gained traction in recent times has been the world of digital assets, or cryptocurrencies. Until recently Hedge Clippings would rightly have been considered a dinosaur when it came to crypto, but the level of commentary over the past six months or so has risen to such an extent that interest, and information, is now available. The difficulty is, and remains, finding information that is easy to understand.
To begin with, the language surrounding crypto is foreign to most investors, particularly those over 40. Much of the hype comes from those who, genuinely or otherwise, have a commercial interest in selling something - be it a new car, a new trading system or platform - and therefore could be viewed as being biased, or wanting to impact the market one way or another.
This week Fund Monitors held a webinar on the subject and were joined by Clint Maddock from Digital Assets Funds Management (DAFM) to try to lift the level of understanding for those interested or intrigued by the opportunity, but unsure where to start or who to listen to. The subject is complex, the risks considerable, but what emerged was that there are also opportunities to achieve returns without taking the levels of directional risk symptomatic of Bitcoin and other digital currencies.
One issue highlighted by Clint was that of counterparty risk in a largely deregulated and emerging market, and dealing globally with parties with limited history and track record. Overnight the Guardian reported that up to 50 companies in the UK dealing in digital assets such as Bitcoin could be forced to stop trading immediately after failing to meet the UK's anti-money laundering rules.
For the average investor - even those considering themselves to be sophisticated or professional traders - this makes investing in digital assets somewhat like pinning the tail on the donkey.
Clint's background, gained over 17 years, is in algorithmic high frequency trading (HFT), which given that crypto currencies now number almost 10,000 and trade 24/7 across literally hundreds of exchanges would make DAFM ideally suited to focus on this market, its inefficiencies and volatility, using computer algorithms and HFT to trade up to 20,000 times per day, without directional risk.
You can view a recording of the webinar (approximately 30 minutes) here.
For those who think the disruption of digital assets is a fad, or will pass, remember the end of the dot-com boom over 20 years ago. Then only around 10% of the world's population had access to the internet, and around the same level had a mobile phone. Both are now over 90%.
Or consider online banking, when this week ANZ Bank announced only 8% of their clients used a branch as their sole interaction with the bank.
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