All the day’s economic and financial news, as the Chinese stock market drops again but cryptocurrencies keep rallying
- Shanghai share index hits lowest since late August
- Bitcoin surges over $9,000
- Is it just a bubble?
- UK announcing industrial strategy today
Now here’s a thing. Bitcoin’s “mining” network uses more electricity in a year than 19 European countries, including Ireland, according to statistics released this morning.
At a continual power drain of 3.4GW, it means the network consumes five times more electricity than is produced by the largest wind farm in Europe, the London Array in the outer Thames Estuary, at 630MW….
The astronomical power draw is a facet of how the bitcoin network protects itself against fraud. With no centralised authority confirming transactions, bitcoin is instead backed by “miners”, who put specialised computers to work churning through extremely power-intensive computing problems. Solving those problems both rewards the miner, handing them almost a quarter of a million dollars in bitcoin, and verifies all transactions made in the last 10 minutes.
Here’s our news story on Bitcoin’s rally:
Speaking of those stress tests, here’s a video explaining how Britain’s banks have been put under the microscope.
We will release the results of our stress test of the largest UK banks tomorrow. Here’s a short explainer of what stress testing involves. pic.twitter.com/DZc3KDwiFt
Bitcoin is the first, and the biggest, “cryptocurrency” – a decentralised tradable digital asset. Whether it’s a bad investment is the $70bn question (literally, since that’s the current value of all bitcoins in existence). Bitcoin can only be used as a medium of exchange and in practice has been far more important for the dark economy than it has for most legitimate uses. The lack of any central authority makes bitcoin remarkably resilient to censorship, corruption – or regulation. That means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it’s hard (but not impossible) to trace a bitcoin transaction back to a physical person.
Tomorrow is a big day for Britain’s banking sector.
At 7am, the Bank of England will publish the results of this year’s bank stress tests. They will assess whether UK lenders have enough capital to cope with a sterling crisis, a recession, and a housing market crash.
The Bank of England is to reveal the damage inflicted on the UK’s biggest lenders from £30bn of hypothetical consumer loan losses, an economic downturn and a collapse in the pound.
Threadneedle Street’s latest health check on the sector – the first was conducted in 2014 – could have an impact on a bank’s ability to pay dividends and on its business models.
Bitcoin’s rapid ascent towards $10,000 could spur some investors to cash in their gains, suggests the analyst team at FXPro.
Currently, the market is anticipating that Bitcoin will reach $10K, with the lack of warning signals down to the lack of any doubts regarding further growth. It begins to seem that big businesses intended to profit from it. If this happens, there is a huge risk that big players start taking profit, with news provoking panic and sell-off. The cryptocurrency market currently seems like a playground for Wall Street tycoons, with JP Morgan Chase’s Jamie Dimon ‘looking at business opportunities in the planned Bitcoin-futures market’, albeit having labelled Bitcoin ‘a fraud’ just two months ago.
Once speculation is over, it is very likely that only the real business model projects will remain, such as logistics companies, accountancy or statistics firms reliant on blockchain.
There are roughly 16.7 million bitcoins in circulation – that’s the number mined using special software and hardware.
Those coins are now worth $160bn in total (if you accept that a currency can have its own market capitalisation), more than some of the world’s major companies.
At $160 billion, Bitcoin’s market cap just passed GE’s.
Mike’s got a point…
It is not a ‘currency’ in the true sense of the word (store of value/medium of exchange) if you have no idea what it will be worth when you wake up. #bitcoin
Tarzan* has swung into the debate on Britain’s industrial strategy!
Our country is facing years of stagnation, and what is a principal cause of that? It’s that anyone who has got to take an investment decision today is saying, ‘Well how do I know what to invest in? What’s going to happen about Britain and its biggest market of Europe?’ and so they’re hesitating.
Whether they’re British companies or overseas companies investing here, they’re hesitating. And as long as we have this Brexit shadow going over us, that will remain. And what do we get in the Budget? A £3bn bill in order to prepare for this Brexit disaster.
This chart, from Bloomberg, shows how bitcoin has soared this year:
From a fundamental perspective it is still almost impossible to give the cryptocurrency a fair value, however, there has been a strong correlation between the price of Bitcoin and number of users opening new wallets. It is not just retail investors showing interest in the cryptocurrency, but many hedge funds have decided to join the party recently by including Bitcoins in their portfolios.
Given that number of users haven’t exceeded 0.1% of the global population, there’s still more potential for this momentum trade to continue. Whether the price will be justified in the foreseeable future, depends on the adoption and the application of the new currency, but so far it still looks unstoppable.
Bitcoin’s rally is partly due to the established financial world taking cryptocurrencies more seriously.
Last month, derivatives marketplace CME Group announced it will start offering Bitcoin futures in December – letting investors trade Bitcoin without actually buying it.
CME’s decision to launch bitcoin futures in December has undoubtedly fuelled buying. BTC is up more than 50% since the decision was announced on October 31st. The legitimacy this gives Bitcoin as a tradeable asset is very important. The market cap of Bitcoin now exceeds that of IBM, Disney and McDonald’s.
Rather than a commodity or currency, Bitcoin is like owning stock in a company that will only ever issue 21 million shares and never pay a penny in dividends. The only way it has value is if the next guy is willing to pay you more for it – the greater fool. With no intrinsic value to Bitcoin, it’s hard to see this as anything other than a giant speculative bubble.”
Chinese stocks may be sinking, but Bitcoin is on a tear (again) this morning.
The crypto currency has hit a fresh record high of $9,600 this morning, putting the $10,000 mark within its sights.
Bitcoin price increase in number of days.
$0 – $1000: 1789 days
$1000- $2000: 1271 days
$2000- $3000: 23 days
$3000- $4000: 62 days
$4000- $5000: 61 days
$5000- $6000: 8 days
$6000- $7000: 13 days
$7000- $8000: 14 days
$8000- $9000: 9 days pic.twitter.com/kvjAC1dk83
Bullish Chinese investors capitulated this morning, says Mike van Dulken of Accendo Markets.
China equities are turning lower again, led by financials.
This is driven by concerns about rising yields (multi-year highs) amid a bond market sell-off that is likely to raise re-financing costs in an already over leveraged economy, putting pressure on both corporates and consumers, reviving the China credit bubble story.
Chinese stocks have hit this lowest level since the summer, as a government crackdown on risky lending spooks investors.
Selling in China’s stock markets last week had been prompted by a rout in the bond market that pushed yields on government treasury bonds to three-year highs, and by fresh moves to reduce risks in the asset management industry that may bring a sea change for banks and millions of small investors.
But while bond market jitters appeared to ease on Monday, stock market investors continued to unload shares in major firms that have enjoyed strong gains in recent weeks.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The paper will identify four grand challenges, global trends that the government sees as shaping the future: artificial intelligence; clean growth; an ageing society; and future mobility from driverless cars to drones.
Industrial strategy went out of fashion in the Conservative party after the defeat of the 1974-9 Labour government by Margaret Thatcher. But Clark believes a new approach based on competition rather than on picking winners will help address Britain’s long-term problems.