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Almost a decade in the making since the inception of Bitcoin and with a current market-cap hovering around half a trillion dollars USD, Bitcoin, cryptocurrency and blockchain have become common to the tech savvy, but face several challenges in becoming mainstream processes in the payments sphere. Below Alex Mihaljcic, VP of Product Development for, talks Finance Monthly through the challenges and solutions ahead.

While most people don’t understand how they work, Bitcoin and cryptocurrency are not only hot topic buzzwords, but they’ve created thousands of multi-millionaires. Even so, the vast majority of people in the mainstream have no interest or intent to embrace Bitcoin and, as such, it still has veritably no bearing on everyday life as one still can’t even pay for a cup of coffee with any cryptocurrency.

In the last year alone, the cryptocurrency market cap has grown over ten-fold, and even taking into consideration “bubble-effects” of hype speculation, the fact remains that, since the inception of Bitcoin, the cryptocurrency market cap is following an exponential growth curve. Today this amounts today to over $150Bn, and various expert opinions estimate its future growth in the next 5-10 years to be in the trillions of dollars. With these kinds of numbers, it begs the question: With over $150 billon of cryptocurrency already in circulation, why can’t we yet pay for coffee or a slice pizza with crypto?

Not only this, but why is cryptocurrency languishing in a tech world of its own, far removed from adoption by the regular consumer or average business? And why does it exist only in a digital space, largely accessible only to the tech-wise cryptocurrency investors? Perhaps the most fundamental question that everyone is asking—from economic pundits to families around the kitchen table—is will crypto will ever become common currency to be used by the average person to pay for their groceries, bills or the hair dresser? Or are Bitcoin and Altcoins just a fad, doomed to remain ensconced in a cult-like tech realm?

While it’s clear that the only way for cryptocurrency to avoid falling into oblivion is by enabling its widespread adoption and acceptance as a “real” payment method, the reality is that the infrastructure and protocols have not been in place to foster this. In fact, there have been seemingly insurmountable obstacles faced by merchants across the board preventing them from accepting cryptocurrency as a viable form of payment.

Four of those key reasons include the following:

1. High volatility promotes fiscal vulnerability
Businesses are not cryptocurrency investors and, as such, they cannot be expected to accept risky payments that may lead to serious financial losses. Every business operates with supply costs, margins, etc. Therefore it would make little business sense to take on a risk of such magnitude by accepting crypto as payment for their goods and services.  What if the local mechanic accepted Bitcoin for several large jobs and then Bitcoin value dropped 20%? This leaves these sort of business owners, whom have fixed overhead costs, in a vulnerable space where they take payments that fluctuate.

2. Technical know-how
Generally speaking, retail operators and cashiers cannot be expected to possess the technical expertise needed in order to safely process a cryptocurrency transaction. This is clearly one of the largest problems preventing mainstream adoption, since dealing with cryptocurrency transactions does require a determined level of technical expertise for which it would be absurd to expect a critical mass of front-line service staff to possess. The fact is that any new person coming across even a simple Bitcoin address can be overwhelmed by its perceived complexity.

3. Brand Confusion
The very word “crypto” suggests cryptic. Mix that in with all of the other various terms that are used including virtual currency, digital currency, alt coins, and Bitcoin, and it all creates confusion. It will be paramount for industry insiders to adopt consistent language to be consistently utilized in the mass market.

4. Uncertain regulatory environment
Regulations regarding cryptocurrencies are still not even close to being set in stone. As concerning, these same regulations actually discourage the use of such currencies in a B2C environment, regarding them as an “unnecessary risk” that may lead to legal problems for any business down the road.

Collectively, these four points above paint an ominous picture for the future of cryptocurrency. Not only relating to its progress and adoption, but also for its very survival in a very real scenario where an innovative payment technology fails to fulfil its potential. In fact, this isn’t the first technology to be introduced with the aim of creating a major cultural shift. Twenty-five years ago, fax communication was far more common and even preferred over email messages.

The Innovation Life Cycle Must Ensue
In all forms of innovation, there is always a lag between the advent of the actual innovation and the time that the average intended user starts to adopt and employ the technology. As the “technology adoption life cycle” has well established, in order for people to adopt and use a new innovation, technological abstraction layers are needed to hide all of the complexity of the core product and make it unequivocally user friendly. Of course, this takes time and innovation of its own until all the layers have been developed and refined around the core product, which is the main reason why there is always a lag between innovation and mass adoption.

The Game Changer: Crypto-to-Fiat Point-of Sale Solution
The tremendous amount of complexity associated with using Bitcoin and other cryptocurrencies in the real world financial marketplace, as exemplified by the four problems detailed above, has ushered in a new breed of leading-edge technology aimed at wholly solving the glut of mass market limitations. Emerging Point-of-Sale (POS) applications are finally permitting cryptocurrencies to be transacted as easy as a credit card payment, allowing small and large businesses alike to accept and instantly translate crypto into U.S. dollars, thus eradicating any risk and uncertainty. With this advancement, technical or crypto-specific know-how on the part of the consumer or the merchant is rendered unnecessary and businesses can readily convert crypto to real cash. Not only will this Point-of-Sale development quickly shift brand perceptions, but the regulatory environment will also eventually temper given the reduced volatility this POS technology proffers.

Once this business-friendly solution is adopted as a viable transaction method, enabling consumers to very easily spend their crypto currency and retailers to charge and settle crypto payments in the business’ preferred currency—whether dollars, euros or other, technical proficiency will no longer be barrier and volatility will subside since businesses will continue to deal strictly in Fiat currency (government-issued legal tender), resolving any possible crypto-specific regulatory issues that are rendered a non-concern.

Given its extrapolated impact, a POS innovation of this nature would be poised to unlock the full potential of the cryptocurrency industry and its utility in the real-world. A Crypto-to-Fiat business tailored POS solution will effectively allow for cryptocurrencies to penetrate the consumer market and truly disrupt day-to-day payments as we know them. The first business with a minimum viable product (MVP) will be to cryptocurrency transactions what AOL was to email.

Retailers today are accustomed to using Point-of-Sale terminals for processing credit card payments, and are increasingly adopting new solutions in the space such as Square’s retail POS smartphone app, replacing bulky hardware with Android and iOS devices. In order for merchants to accept and adopt a Crypto-to-Fiat POS solution, it must be tailored in a manner that seamlessly accommodates the retailers current understanding and knowledge base, with a near zero effort or learning curve required to adopt the new solution. At the same time, the innovation must demonstrate its ability to drive new value, new customers and, ultimately, new profits by expanding its ability to process transactions—and at a fraction of standard costs.

Such an end-to-end solution can truly catalyze cryptocurrency adoption, finally bringing Bitcoins and Altcoins to “Main Street” and crossing that crucial milestone for blockchain technology—and technology as a whole—to usher cryptocurrency into the modern world is a genuine, viable and enduring way.

Below Finance Monthly hears from David Jones, Chief Market Strategist at, on why Bitcoin's infamous reputation for extreme volatility may be coming to an end.

With the benefit of hindsight, there can be no doubt that the moves seen in Bitcoin, and other crypto-currencies, from the summer of 2017 through to February 2018 has all the hallmarks of a classic bubble - and corresponding bust. No doubt it will become a popular part of market history - just like the technology shares boom and bust of the late 1990s. Somewhat ironically, weekly volatility in Bitcoin recently hit a one year low below 3% - at pretty much the same time as the NASDAQ, that barometer of technology stocks, moved out to fresh all-time highs.

So why has volatility evaporated? There are a few reasons we could point to, but first let's set the scene. From the middle of November to the middle of December the price of Bitcoin increased threefold. After spending years just being something of a niche IT interest, Bitcoin went mainstream and dragged plenty of other crypto-currencies along for the rise. The mainstream media picked up on the story with almost daily coverage on TV programmes and in newspapers that would never have even heard of crypto-currencies just a few months before. The gains in cryptos seemed to represent easy money and individuals, who would never dream of speculating in more traditional markets, were keen to find out how to get involved. Facebook and Google were full of adverts on how to profit. The prices moved ever higher.

It's a classic rule of market psychology - whenever the general public gets involved in a market in large numbers, expecting further rises, then a top could well be near. This of course proved to be the case - at the time of writing Bitcoin is around 60% below its December all-time high.

Why the lack of volatility?

The obvious reason is that the hype has gone from this market. Plenty of latecomers to the crypto currency rally have had their fingers burnt, have taken their losses (or are still sitting on them) and have vowed never to return. Activity amongst the wider public has slowed.

There are not as many new entrants buying and selling as the price has burst - the story of it being a somewhat boring market in recent months, is not going to make people excited about the potential for "easy money". Wider media coverage has dried up, reducing awareness amongst the public.

Facebook and Google have banned crypto currency adverts - so an incredibly important section of the digital media world is not increasing awareness of this market. You can see this in internet searches - Google searches for Bitcoin for example are down by 75% for the year so far, again pointing to a significant shift in interest by the casual investor.

Arguably, the introduction of a listed futures contract for Bitcoin has also calmed the wilder market moves. The additional media coverage resulted in widespread speculation prior to the listing. The unregulated crypto exchanges experienced extremely high numbers of new signups and in some cases stopped on boarding new customers. The futures contract was launched in the first week of December last year and, less than three weeks later, Bitcoin started falling. Now, institutions and more professional investors have a regulated way of gaining exposure to Bitcoin without having to worry about online wallets and the worries over lack of security. The futures contract also gave the ability to "sell short" - so to profit from Bitcoin falling. This has no doubt gone some way to initiate a more orderly two-way market in Bitcoin - making it more like most other markets. But even the official futures market has suffered as volatility has dropped off - current volumes are best described as modest.

The lack of volatility is seen as a positive sign by those who see more adoption of blockchain technology. It's hard to claim that cryptos are a store of value when the price is moving 10% and more in a very short period of time. More price stability and less volatility certainly helps this value arguement. Significant new money continues to move into blockchain, with billion dollar VC investment funds being raised to new blockchain startups. The world’s leading financial regulators and institutions continue to engage and determine how to regulate and participate in what has become a disruptive new area of investment. Although the boom and bust is over (for now, at least), it could end up being one of the best things to happen for the future of crypto currencies.

Despite a swift comeback from the global stocks chaos last week markets have been shaken up.

Dow Jones closed at 24,601 yesterday, up from the 23,860 low of last Thursday. The plunge happened on the 1st of the month, across the weekend, recovered, and dropped further. Dow Jones is now on a recuperating trajectory. The same drop, recovery and further fall also happened within the same time frame for the S&P 500, NASDAQ and the FTSE 100.

All are on their way back up but fears of increased volatility are floating around. Finance Monthly has collated a number of comments and market responses from experts and economists worldwide in this week’s Your Thoughts.

Phil McHugh, Senior Market Analyst, Currencies Direct:

The switch to risk off in the markets was markedly sharp and severe against an air of positive momentum which ran ahead of the fundamentals. The S&P index fell by more than 4% which was the steepest single day drop since August 2011. The rout continued into Asia markets and the spark was growing concerns that inflation will force borrowing costs higher.

The momentum since the start of the year has been bullish with equities pushing higher and the USD selling off. The honeymoon period for equities has now hit a question mark over potential rising borrowing costs. It can be argued that the bull run had ran somewhat ahead of sentiment with overconfidence creeping in. The higher wage inflation from US payroll data on Friday was the beginning of the doubts and this was enough to encourage some profit taking that has now spilled into a wider sell off.

We have not seen a big correction since Brexit and although we could see further selling pressure it should find support soon on the underlying improved global economic optimism and growth.

In the currency markets the reaction was more balanced but we have seen a defined swing into the classic risk off currencies with the Japanese Yen and Greenback gaining ground.

The pound lost ground after a strong start to the year. The pound tends to suffer in a risk off market and the weaker services data yesterday and concerns over the latest Brexit talks have helped it on its way lower. The next focus for the pound will be the Bank of England meeting on Thursday.

Lee Wild, Head of Equity Strategy, interactive investor:

Just as markets cannot keep rising forever, they must also stop falling at some point, but it’s still unclear whether we’ve reached a level where buyers see value again.

Futures prices had indicated a much brighter start for global markets, but early gains were wiped out in Asia and Europe looks vulnerable. Volatility is back, and investors had better get used to it.

While there’s certainly a case to be made against high valuations, especially in the US, there are lots of decent cheap stocks around. Plenty of investors are itching to bet that concerns about inflation and bond yields are overdone and that any increase in either will be much slower than expected. If that’s the case, a 10% correction in the US looks more like a healthy retracement rather than reason to hit the panic button. Long term investors will be amused by it all and are either choosing to ignore the noise or pick up stock at prices not seen for two months in the US and over a year in London.

There are stark similarities between this sell-off and crashes both in August 2015 and in early 2016 when market volatility reached similarly extreme levels. It took several trading sessions played out over weeks to find a bottom, and it’s likely the same will happen here. Only difference this time is that it’s the tune of US economic data, not China’s currency devaluation that markets are dancing to.

Kasim Zafar, Portfolio Manager, EQ Investors:

Pullbacks in markets are (usually) quite normal and healthy, giving moments of pause where everyone pats themselves over, does a quick sense check and then carries on. In the case of the US equity market it hadn’t fallen more than 5% in 404 trading days (back to June 2016). That’s the longest stretch of ‘uninterrupted’ gains in history, with data back to 1928!

There weren’t enough signs of investor heebie-jeebies around, especially not in January when the US index was up over 7% for the month at one point. That’s pretty extreme and entirely unsustainable.

The equity market has finally taken notice that over the last several weeks bond markets have been reflecting a higher inflation and interest rate environment, so it’s not at all surprising to see some adjustment and a return of some much needed investor fear!

We are going through the quarterly reporting season for US companies currently, which is a good test of what’s happening on the ground. With 264 out of 500 US companies having reported so far, most are reporting positive results for both top line revenue growth and bottom line earnings.

So, as things stand, we see this as a long overdue market correction and if it falls much further we would be looking to increase our equity weightings. Increased volatility is a healthy sign of investors becoming more conscious of the risks inherent in markets.

Ray Downer, Trader, Learn to Trade:

Though you may not knowingly own any shares, there is a high chance that you are paying into a pension scheme which invests in shares and bonds. This means the value of your pension pots is dependent on the value of the investments in it and while investment values increase and decrease all the time and this will have very little noticeable difference to your savings, financially turbulent times like this will impact you in some way, particularly if you’re looking to retire this year.

For now, at Learn to Trade we are looking at this in the context of a correction rather than a reversal. Following this week’s FTSE 100 fall, investors should keep a close eye on the stock markets in the months ahead as the value of the pound has gotten weaker with the sell-off. The Bank of England will announce whether or not it plans to raise interest rates because of this ‘bloodbath’ later this week when it publishes its quarterly inflation report. Should the Bank of England announce a rise in inflation rates, British consumers will have less spending power and will start to feel the pinch of higher costs on imported necessities. The inflation report will give us a clearer picture of how this will impact our everyday spending.

Bodhi Ganguli, Lead Economist, Dun & Bradstreet:

It’s a common misconception that stock market activity is linked to the economy. However, an unexpected and ferocious swing in the stock market is disruptive and can wipe out a significant chunk of wealth from the markets – resulting in economic implications. This week’s activity could mean retail investors could see a significant erosion in their nest egg, which would be bad for future consumer spending.

The latest crash was caused by technical or algorithmic trading, most likely computer-generated as at times the stock market was dropping faster than that can be explained by human intervention. These changes were exacerbated by macro-economic triggers such as the recent US jobs report, which was a strong signal of wage inflation returning. This caused market participants to upgrade their inflation outlook with more Feb rate hikes expected. Bond yields also crept up, setting off a bearish shift in the stock market.

We expect the stock market to stabilise in the near future, but the longer term outlook will be determined by how these fundamental macro-economic triggers interact with each other going forward.

Ken Wong, Client Portfolio Manager, Eastspring Investments:

Currently, the market is going through a much-needed correction as valuations were approaching expensive levels for most markets. In particular, China’s equity markets were up 70% over the past 13 months, and this recent 10% correction from its high is actually not that steep.

Despite the recent market correction, investors in Asian equity markets still seem to be in a better position at a time when corporate America seems more hard pressed to deliver elevated profit expectations while also trading at very expensive valuations. Asian equity markets are trading at a P/B ratio of around 1.7x while US equity markets are still trading at 3.2x P/B after this recent price correction.

Asian corporates in general are still expected to deliver strong corporate earnings and most are in good shape as a result of previous cost cutting and balance sheet restructuring that we have seen over the past few years. Despite the recent market volatility, things are still quite sound in this part of the world, Asian corporates are still expecting to see their earnings grow by around 13% in 2018, with China leading the way with earnings growth expectations of over 20% this year.

For investors concerned about the recent market volatility, they should look at investing in a low volatility equity strategy as we have seen these types of strategies outperform the broader benchmark indices by over 2% over the past few days. The benefits of these low volatility equity strategies is the fact that they have bond like risk / volatility characteristics while providing investors with an enhanced dividend yield and market returns which are more in-line with equity returns.

As long as there is still enough cheap liquidity out in the market place, we could start to see some bottom fishing over the coming days as investors start to look for cheap / undervalued stocks. In particular, investors could look toward those sectors that underperformed in 2017, such as financials, energy and consumer staples.

Richard Perry, Market Analyst, Hantec Markets:

Equity markets remain highly attuned to the threat of the increase in volatility across financial markets at the moment. Equities are considered to be a relatively higher risk asset class, so with a huge sell-off on bond markets, equity markets have also come under threat. The concern comes in the wake of the jump in US earnings growth to 2.9%, a level not seen since 2009. A leap in earnings growth has investors spooked that this will lead to a jump in inflation which could force the Federal Reserve to accelerate its tightening cycle. Markets can cope with gradual inflation but inflation running out of control can lead to significant volatility, such as what we have seen recently. The high and stretched valuation of equities markets meant that was the prime excuse to take profits.

For months, analysts have been talking about the potential for a 10% correction and at its recent nadir, the S&P 500 had corrected 9.7%. So is this just another chance to buy, or the beginning of a bigger correction? The key will be the next series of inflation numbers, with CPI on the 14th February and core PCE at the end of the month. If inflation starts to increase appreciably, longer dated bond yields could take another sharp leg higher, perhaps with the 10 year breaking through 3.0%. Subsequently, equities would come under sustained selling pressure with volatility spiking higher once more. However, if there can be a degree of stabilisation in the bond markets, then equity investors can begin to look past immediate inflation fears and then focus back on the positives of economic growth in the US, Eurozone and China.

Alistair Ryan, Senior Dealer, Frontierpay:

This afternoon’s hawkish approach from the Bank of England came as a surprise; I personally – along with many others – didn’t expect there to be any talk of a rate rise in the UK until at least the end of 2018. The services sector, which makes up around 80% of UK GDP, faltered this month and wage growth is slowly increasing but remains low at 2.4%. Both of these factors suggest a slack economy, so I expect we will see many questioning whether this is the right time for a rate rise.

If we were to see some further improvement in the economy over the coming months, then a rate rise would of course be a possibility, but whilst wage growth and inflation slowly start to correlate, I don’t think we will see any movement on the base rate.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

CNBC's Scott Wapner recaps his conversation with legendary investor Carl Icahn on the market volatility and where he sees the market going from here.

According to data supplied by industry website CoinDesk, last Sunday around 8pm London time, the bitcoin hit a record high of $8,101.91, surpassing nay previously recorded price on the prime cryptocoin.

This was a surprising turn of events, though expected in such a volatile market, as on Sunday November 12th the bitcoin had fallen back down to $5,500 following a huge sell-off.

The difference in a week represents more than a 47% price increase.

Nicholas Gregory, CEO of the cryptocurrency business enabler, CommerceBlock, told Finance Monthly: "Bitcoin hit a new high early Friday and has effectively besieged the psychological $8,000 mark in the process.

"Bitcoin surged on the suspension of the SegWit2x hard fork but the current momentum is less technical than systemic.

"The cryptocurrency's momentum is being driven by a growing sense among speculators that the banking industry is firmly in its cross hairs.

"Increasingly, traders and speculators are looking at banks as Blockbuster Video and Bitcoin as Netflix. 

"CME Group's futures launch, which has the potential to open the floodgates of institutional money, has compounded the fundamental narrative within bitcoin that it offers a frictionless and low- or zero-fee alternative to the global banking system.

"By announcing measures to contain the volatility of bitcoin, CME Group ironically boosted Bitcoin even further.

"Again, this represents accommodation rather than repudiation, and the cryptocurrency surged accordingly.

"The message being given to the markets is that while they're not perfect and will need to be treated with kid gloves, Bitcoin futures, and by default Bitcoin, can work."

Below Kathleen Brooks, Research Director at City Index, provides commentary on the latest bitcoin affairs.

Bitcoin is recovering from one almighty correction last week where it dropped from a high of $7,882 to a low of $5,605 in just three days. That is a drop of nearly 30%, which is technically bear market territory. However, this is Bitcoin and due to this it doesn’t react the way other asset classes do. At the start of this week Bitcoin is up $1,000, and has retraced nearly 50% of last week’s decline.

Factors that drove last week’s decline in Bitcoin included:

Looking at the factors that may have driven Bitcoin’s sell off, most appear short term, and indeed, the sharp bounce back on Monday suggests that traders are using any dip as a buying opportunity.

So, where could Bitcoin go next?

This is a tough one to answer as Bitcoin appears to be a runaway train overcoming any obstacle thrown in its path. From a technical perspective, there is nothing to stop Bitcoin hitting $10,000 per USD (see chart 1), as long as we close above $6,500 today. Usually when a price moves through a big psychological level it continues to move higher rather than pausing or reversing course, thus $10,000 could the start of life above 5-figures for Bitcoin bulls. Thus, any future sell offs, and we warn you that they can be severe, could be used as further buying opportunities.

Perhaps the biggest challenge for Bitcoin will come when volatility elsewhere starts to rise. If the Vix was to surge like it did back in late 2015/ early 2016, then traders may lose interest in Bitcoin and pile into other fast-moving asset prices. However, for pure speed and adrenalin, nothing beats bitcoin’s price movements right now. It’s great if you can pick up on the dip and ride the wave higher, but it is not for the faint-hearted.

Source: City Index and Bloomberg

Following this week’s news on a two year high for the Brent crude oil, Richard King, Trading Manager for Inprova Energy, discusses the current impact of oil price volatility on company energy bills worldwide.

Brent crude oil prices hit a two-year high of more than $58 a barrel on Monday 25 September. Although prices have since reduced slightly, analysts don't expect prices to fall back.

Outlook for oil prices

Oil price increases have been largely driven by cutbacks in supply from the oil exporting cartel OPEC. Market experts predict that OPEC will continue its deal to cut production beyond March 2018 as part of its strategy to rebalance oversupply in the global oil market. Market analysts expect the oil price to be within the range of $55 to $60 a barrel for the remainder of the year, with potential for higher levels in 2018.

In a further boost to recovering oil prices, US producers are struggling to fill the supply gap, and the independence referendum in Kurdistan has the potential to disrupt Middle East oil supplies due to the Iraqi government's call to boycott Kurdish supplies. Mounting political tensions between North Korea and the USA could also be a bullish force.

Impact on energy prices

This is having a knock-on effect on UK business energy market prices. Both gas and electricity contracts for delivery in the next few months have posted significant gains of 2-3%. This has reversed recent decreases in energy prices, linked to the currency improvements for Sterling against both the US dollar and the Euro.

Energy market volatility

Oil prices are firmly linked to wholesale energy prices, which will, undoubtedly, increase energy market volatility in future months. In addition, as we head into winter and uncertain weather conditions, and continue to face energy supply reliability problems from continental Europe, further price swings are inevitable.

Such volatility is becoming the new norm. During the past 12 months there was a 45% price swing in the wholesale power market, which was more than twice as volatile as the average movement of the five years prior.

Smarter energy purchasing

While overall electricity and gas commodity prices remain well below the levels reached in 2014, the sizeable commodity price movements underline the imperative of getting timing right when purchasing energy.

Flexible procurement strategies can be less risky than fixed purchasing because there is the facility to buy energy little and often when wholesale prices are favourable, rather than gambling that the prices are best on the day that you fix your purchase. There is also the facility to take advantage of forward prices, which are currently very attractive beyond 2018.

Above all, it is imperative for energy buyers to manage their energy purchasing within a robust risk management strategy, which will set price limits and guard against buying at the top of the market - helping to counter market uncertainty.

After Bitcoin fork, and a huge tech sell-off in July, Snap – the company behind Snapchat - has now joined the circus that is tech giant share prices. In one day in August, Snap Inc. dropped 4%, before bouncing back 6% 24 hours later. What is it about tech shares? Andrew Amy is Investment Manager at Cardiff-based digital wealth management service, Wealthify. Here he talks to Finance Monthly about this modern phenomenon.

One of the initial issues with Snap was, like many other tech companies, it was given a whopping price tag on the stock which, unluckily, was swiftly followed by two bad quarters of results. Despite currently sitting some 46% lower than at its peak in March, the company is still worth approximately $17 billion. That is a hefty price tag for a business that has yet to turn a profit.

Any company with an expensive valuation that fails to beat forecasts for two sets of results is going to struggle, especially as questions loom over the monetization of the business.

It’s not a whole world away from other tech companies. Facebook had a torrid time after its IPO, where its shares pretty much halved in value. Now, its shares are trading more than 300% higher than the IPO price, and its most recent financial updates were impressive. If Snap can replicate the same performance as Facebook, then shareholders may be able to breathe more easily.

So what is causing share volatility within the tech sector? It’s important to remember that, first off, there is volatility in every sector of every stock market, to varying degrees. For example, consumer staples are considered a low volatility sector, but that doesn’t mean there isn’t volatility there.

One way to analyse the tech sector is as two distinct sub-categories – the young guns and the old guard. Apple, Microsoft and Google have been around the block a few times, and so report fairly predictable earnings. They also have a proven track record of fending off competition and remaining at the top of their respective games.

The young guns, such as Netflix, Facebook and Snap, are equally recognisable brands, but are affected far more by volatility as a result of their valuations and competition.

Brand awareness is very powerful, and with some of these guys, especially Facebook, we’re seeing brand become monetised in the form of impressive earnings. However, these stocks don’t come cheap – you’re paying for exponential growth of future earnings.

When expensive stocks don’t deliver the returns that investors expect, the tendency can be to quickly dump them. Perhaps that’s what we’re seeing now, with Snap.

Competition in these fast-moving sectors is hard to predict. Many of the most innovative tech companies have little or zero competition at the outset, so their future earnings remain unchallenged. But, as with every type of business, where there is money to be made, eventually competitors will come.

Look at Netflix – it is currently under pressure from Amazon, but there are more challengers coming. The likes of Disney are set to go live with their own online TV offering, pulling content from Netflix in 2019, and traditional broadcasters are also not resting on their laurels.

Once these markets are more mature, perhaps we’ll see this area of tech become calmer.

While it’s easy to say there’s a tech bubble, it ignores that many stock prices and asset classes are following a similar suit at the moment. Global central banks have kept monetary policy ultra-loose with low interest rates and quantitative easing. This was seen as necessary to keep the economy afloat after the great recession of 07/08. However, when cash is earning you next to nothing, it pushes up the prices of other asset classes, as investors seek out higher returns.

Investment in tech companies such as Uber, AirBnB, or even Wealthify comes because of the innovation we bring to mature markets in terms of scalability, low cost to consumers, and easy access to services via apps and online. Not all startups will survive, but as we’ve experienced from our home in Cardiff, they can thrive, with the right investment and access to expertise and support.

The views above are personal opinions and not intended as financial advice or recommendations.

As part of Finance Monthly’s brand new fortnightly economy and finance round-up analysis, Adam Chester, Head of Economics & Commercial Banking at Lloyds Bank, provides news and opinions on the rise in inflation, the UK’s weakness in productivity, and employment & GDP.

The anniversary of the UK’s decision to withdraw from the European Union has now passed, and who could have imagined the political fallout that would ensue?

One year on, the formal Brexit negotiations have only just begun, yet the nature of those negotiations and their ultimate destination remain unclear.

Despite all this uncertainty, it is remarkable how well business sentiment and the economy has held up.

The resilience of the UK economy however, and UK financial markets, has prompted a very different response from the Bank of England than the one that followed the EU Referendum.

While the bank came out ‘all guns blazing’ last summer, the focus now is on when it will start to take that stimulus away.

Doves taking flight?

Bank of England officials have signalled that above-target inflation may not be tolerated for much longer.

Even Governor Carney – one of the more dovish members of the UK rate-setting committee – has rowed back a little on his earlier stance, suggesting that if the balance between growth and inflation continues to shift, ‘some removal of monetary stimulus’ is likely to be necessary.

The markets now have the August MPC meeting in their sights. That is when the Bank of England takes another detailed look at its GDP and inflation forecasts.

By then, not only is inflation likely to be much higher that the bank was previously forecasting in May, but the committee may also have to factor in the risk of some loosening in fiscal policy.

The decision will come down to the MPC’s assessment of the trade-off between growth and inflation.

BoE Deputy Governor Broadbent noted in a recent  interview that there were many ‘imponderables’ and that he was ‘not ready’ to support a rate hike.

Meanwhile, Ian McCafferty underscored his credentials as the most hawkish member of the BoE’s rate-setting committee, arguing not only for an immediate quarter-point rise in interest rates, but also for the BoE to consider reversing its money-printing programme earlier than planned.

The productivity problem

While all eyes are on Brexit, it is easy to miss what is arguably an even bigger challenge for the UK – the weakness of productivity.

UK productivity (as measured by output per hour) contracted by 0.5% in the first quarter of this year, leaving it at its lowest since before the 2008 financial crisis.

By any measure this is a shocking performance.

There are various explanations for the UK’s disappointing productivity, and some are more benign than others.

Part of the reason may be simple mismeasurement. Recording the productivity of economies such as the UK with large service-sector industries, particularly financial services, is inherently difficult.

As the UK’s official statistics indicate, productivity in some sectors, including financial services, has performed significantly worse than other non-financial service sectors over the past decade. But this does not tell the whole story.

Productivity may have also deteriorated due to changes in the composition of capital and labour.

Since the financial crisis, low wage growth and heightened economic uncertainty may have encouraged more companies to hire new workers to drive output growth rather than undertake productivity-enhancing capital investment.

Going for growth

The rise in the UK’s GDP over the past decade has been driven, almost exclusively, by increases in employment and hours worked.

The UK’s latest labour market data underscores this point. Total employment grew by a stronger-than-expected 175,000 in the three months to May, while the unemployment rate dropped to a new multi-decade low of just 4.5%.

At the same time, pay pressures remain benign, with annual growth in overall pay slipping from 2.1% to 1.8% - the first time it has been below 2% since February 2015.

Based on current data, GDP is likely to have expanded by 0.3% in the second quarter, while total employment is predicted to have risen by 0.3%. As a result, productivity growth is projected to be zero.

The combination of a tightening labour market, weak productivity growth and benign pay pressures pose a major dilemma for the Bank of England.

For now, we expect the Bank to keep its powder dry, but it won’t take much further sign of economic strength to persuade it to reverse last August’s quarter-point rate cut.

As part of Finance Monthly’s brand new fortnightly economy and finance round-up analysis, Adam Chester, Head of Economics & Commercial Banking at Lloyds Bank, provides news and opinions on volatility in the uncertain market and the prospect of a hike in interest rates, both in the UK and the US.

Clearly, the last two weeks have seen political shocks with potentially far-reaching consequences for the UK’s economic outlook.

The aftermath of the General Election has introduced new uncertainty over the implications for Brexit though, so far, financial markets have taken it in their stride.

However, until there is a clearer sense of what the new minority government can achieve, UK financial markets and the pound are likely to be prone to sharp bouts of volatility.

Three wishes

The outlook for the UK’s Bank Rate seems to be changing by the moment.

The surprisingly close June vote on interest rates by Bank of England policymakers saw three of the rate-setting committee back a rise.

Governor Carney seemingly attempted to put a lid on the discussion by stating that now was not the time to raise rates. However, Andy Haldane, the Bank’s Chief Economist, subsequently said he was now close to voting for an interest rate hike.

This is particularly significant as, until now, Haldane was considered to be the arch dove amongst the Bank’s rate setters. Moreover, it is the first sign of a divergence in views between the current permanent Bank employees on the committee.

Up until now it’s only been the so called external members who have voted for a hike. Is that about to change?

Markets certainly think there is something new in the air, as can be seen by the implied probability now put on a 2017 interest rate hike. That has gone up from below 10% just over a week ago to about 50%.

What is most surprising about this sudden shift in expectations is that economic conditions are arguably little changed.  Once you also factor in political uncertainty, including the unexpected result of the general election, then on the face of it, the case for staying put seems strong.

But the hawks amongst Bank rate setters had previously indicated that they have limited tolerance for above-target inflation.

Close to the limit

Two factors suggest that the limit may be close to being breached.

First, Kristin Forbes, one of the hawks, has noted in recent research that the effects of an exchange rate generated inflation shock can persist. This questions whether the Bank is right to prioritise domestic pressures.

Second, the eventual impact on wages of what looks to be an increasingly tight labour market remains a concern. The UK unemployment rate is now at its lowest level since the mid-1970s and there are signs that this is having an impact.

On balance, we expect the Bank to keep interest rates on hold for now. Nevertheless, this is a closer call than for some time.

Over the next few weeks, markets will be paying particular attention to any comments from those Bank policymakers who have yet to make their position clear.

It will be an interesting run up to the next policy announcement on 3rd August.

Fed up again

In the US, a quarter-point rise in interest rates was widely expected, and subsequently delivered.

The Federal Reserve also stuck to its previous ‘dot plot’ forecast to raise interest rates, anticipating another quarter-point rise this year, and three more in 2018, with the key policy rate expected to settle around 3.0% in 2019.

In pre-announced plans, the Fed intends to start unwinding its balance sheet. For the moment, it anticipates deflating its asset holdings by $10bn a month from later this year, rising in small increments every three months to $50bn

Despite this, US financial markets may have other ideas – as they continue to pretty much ignore the Fed’s guidance. The markets are only fully priced to one more quarter-point rise by the end of next year.

With signs of more mixed growth emerging recently and a weakening of core inflation, the markets clearly think the Fed has got it wrong.

This misalignment can only last so long. Either the Fed will have to eat humble pie, or the US, and by extension global, bond markets could be in for a much more testing second half.

Bitcoin, the cryptocurrency built on blockchain technology, is fast becoming a major player in the currency market. Since the beginning of 2017, the value of “XBT” has rocketed by over 150% and the simplistic reason for this would be that there is more demand than there is supply. Vinay Sharma, Senior Trader at ayondo markets tells Finance Monthly more about the current state of the bitcoin and its future prospects below.

Bitcoin uses encryption techniques to regulate the generation of its units and verify the transfer of its funds. It essentially allows people to cut out middlemen and thanks to its supposed security and independence from nations and central banks, its value, along with that of other cryptocurrencies, such as Ethereum and Ripple, has soared in recent months. In the Middle East, Africa, South America and Eastern Europe, for example, concerns over the volatile governments or consistent long-term currency inflation have contributed to Bitcoin's rising valuation.

When you look at Bitcoin’s rise in the last seven years, the mind boggles. An investor who had bought 1,000USD of the cryptocurrency in 2010, would now own around 45millionUSD worth[1]. The question many people are now asking is: is its value increasing due to mere speculation, or is it actually becoming a more widely accepted form of money? The currency is now available to many traders and investors to trade as a standard forex product. At ayondo, for example, we recently added Bitcoin to our product portfolio, meaning clients can now trade on its anticipated price movements without having to actually open up an e-wallet to purchase it on the internet.

While Trading Bitcoin does open it up to speculation, the cryptocurrency is also being accepted more widely as a medium of exchange, which after all, is the purpose of money in the first place. The number of businesses accepting Bitcoin is rapidly increasing, with the likes of Expedia, Etsy, Microsoft and Dell, to name a few, all accepting it as a form of payment, although it’s fair to say the UK is lagging behind in its Bitcoin acceptance.

So what’s next for Bitcoin? At the time of writing, its value is 2,735USD and one thing I am pretty confident of is that volatility lies ahead. Last week, for example, Morgan Stanley released a note saying that it doesn’t believe Bitcoin will be a viable currency in the future, and its value subsequently fell 20%. However, it has since recovered those losses, and whilst I largely agree with Morgan Stanley’s analysis, it certainly offers plenty of upside potential as a trading instrument, as demand in the short to medium term is more than likely to outstrip supply. Whether it will in fact become a viable medium of exchange in the future remains to be seen, but what’s undeniable, is that current interest is immense and its high variation in price offers an excellent trading opportunity.


In this video, Mark Burgess, Chief Investment Officer, EMEA, talks about how the markets view the June 8th 2017, election result and its potential impact on the UK economy. He also discusses what the election outcome signals for the forthcoming Brexit negotiations.

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