Opportunity in Chaos

We are in some strange times; I fully expect my children and grandchildren to ask me what it was like to live through the Coronavirus era.  It is the black swan event to dwarf all others.  

The Bank of England has forecasted a fall in GDP of 30% due to the pandemic – the worst in 300 years.   By way of comparison to previous recessions in living memory, the pre-recession peak to trough fall in GDP was around 5% for the mid-1970s and early-1980s recessions, whilst the early-1990s recession was relatively shallow at around 2%.  

The major economies are drunk on printing money like there’s no hangover tomorrow.   Again, for some context on the size of the problems we are facing, America has printed more money in one month of this year than in the first two 200 years of existence. This means that during 2020 the U.S. budget deficit — 3.3trillion USD — was larger than the total debt incurred from 1776 through the end of 1979.  In the interest of perspective, with the first trillion dollars, the US managed to defeat British imperialists, bought Alaska and the Louisiana Purchase, defeat fascism, end the Great Depression, built an Interstate Highway System, and get mankind to walk on the moon.

Overall, economically, we are fairly well up poop creek with no paddle and a hole in the boat.  In the UK, we currently have the lowest base rate on record, and there is much talk about negative interest rates forthcoming in the near future.  The property market is forecasted by the CEBR to drop by 14% next year, the FTSE is down 22% for the year to date – frankly there aren’t many places for cash to lie low and wait it out.  The politicians are quick to point out there is no “quick fix” – Boris Johnson’s Conservative Party conference speech last week was the first senior politician, that I am aware of, to point out there is no going back to our previous normal.  As Prime Minister one assumes that he’s privy to information the average man on the street isn’t.  More worryingly, Sunak has already warned the British public to steel themselves for taxation increases due to the “once in a century” nature of the crisis.

The historian in me cannot help but notice that boom and bust are cyclical.  After every major event there have been enormous social and economic change, and that there is huge opportunity in the current scenario – the two world wars being an obvious example.  Whilst the devastation of coronavirus is particularly felt in the margins of society, in the most physically and economically vulnerable of our community, there is huge opportunity for evolution, particularly in our financial infrastructure.  Already, arguably, this is taking place. 

At the top of the list is The Global Economic Reset initiative from the International Monetary Fund, with no small remit, in their own words to “build a world that is greener, smarter and fairer”.  The vast majority of central banks are looking to digitise their currencies, which gives crypto a starring role.  The EU has pledged a new set rules by 2024 with the aim of streamlining cross border payments and “enabling the uptake of distributed ledger technology (DLT) and crypto-assets in the financial sector”.  As the acceptance and use of crypto grows, particularly in the coins with a fixed supply (ie bitcoin), I would hazard an educated guess, will the prices. 

For the savvy, there is huge opportunity in the current environment.  I take no offense that the ever-growing number of retail and institutional investors would not be joining the crypto party if the economy was a bed of sweet-smelling roses. Fidelity estimates a third of institutional investors now own crypto; the FCA’s research shows that the uptake from retail investors has doubled over the last year.   The growth patterns in both gold and crypto shows a flight to safe haven assets as a hedge against inflation.  Gold futures climbed past $1,900 per ounce over COVID to tally their highest settlement and intraday on record at the height of COVID, and the blue chip cyrpto Bitcoin and Ethereum are up 54% and 202% respectively.  Interestingly, it was only over the COVID summer that industry titans came on record in praise of bitcoin as a hedge against inflation; for example, Hedge Fund superstar Paul Tudor-Jones pledging: “If I am forced to forecast, my bet is it will be Bitcoin”.  Similarly, over COVID, investment guru Raoul Pal pivoted hard to bitcoin, grimly noting that coronavirus will be ‘the largest insolvency event in history”. 

We are in for a rocky ride, the best defence for the average person appears to be: financial education, diversification, reasonable cash reserves, and emotional resilience.   See you on the other side, in what I hope will be an improved version of our previous systems. 

Adventures of a unicorn is a business blog documenting the daily life of tech start up in hypergrowth.  Dacxi is a unique crypto business in the crowd lending space.  

DISCLAIMER:
All views expressed in this blog are my own and do not represent the opinions of any entity with which I have been, am now or will be affiliated.

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