It’s been a busy start to the year – and a while since The Treasurer’s last selection of online news. So here are some stories of relevance to the profession that have emerged in the past few weeks…
Federal Reserve chair Jerome Powell refused to raise US interest rates in response to a January short-selling spree around videogames retailer GameStop. Widely assumed to be a zombie company, thanks to changing consumer habits and the pandemic’s impact on retail, GameStop had its share price artificially pumped as stock market watchers on social platform Reddit took a subversive swing at conventional traders.
Essentially, a key member of Reddit group r/wallstreetbets had noticed that a major hedge fund had taken a large number of short positions against the retailer – so urged the group’s other users, or Redditors, to snaffle up as much GameStop (GME) stock as possible. As a result, the retailer’s share price rocketed and the hedge fund began to make serious losses – a haemorrhage that quickly eclipsed the fund’s $13.1bn total value.
On 12 January, GameStop’s share price stood at $19.95. As at 27 January, however, it was $347.51. Amid the brand’s spell in the spotlight, controversy erupted over moves by certain popular trading apps to block users from trading in GME, citing market volatility. Many commentators on social media and in the press observed that the Redditors had simply beaten the traders at their own game. As the row escalated, White House press secretary Jen Psaki confirmed that President Joe Biden and his team were keeping an eye on the situation.
In a late-January press conference, Powell rebuffed journalists’ suggestions that the Fed’s extraordinarily low interest rates – introduced as a contingency for the pandemic – had encouraged the formation of ‘asset bubbles’, such as the one the Redditors had spawned around GameStop. “I think the connection between low interest rates and asset values is probably something that’s not as tight as people think,” he said, “because a lot of different factors are driving asset prices at any given time.”
Powell added: “In a world where, almost a year [after the outbreak], we’re still nine million jobs at least… short of maximum employment, it’s very much appropriate that monetary policy be highly accommodative.”
Cybersecurity failures came fourth in the latest Global Risks Report from the World Economic Forum (WEF), published on 19 January. The ranking puts cyber-related mismanagement just behind extreme weather events – and three places above terrorist attacks – in the WEF’s annual roundup of clear and present dangers to the world economy that businesses and governments must face in the near term.
In an accompanying blog, the WEF noted: “The pandemic has precipitated an unheralded tech revolution for big and small businesses alike. Rapid digitalisation transformed social and work interactions overnight. Ecommerce, virtual conferencing, gaming and streaming all underwent unprecedented growth. It has been estimated that worldwide internet usage in 2020 increased by 30%, while ecommerce grew by upwards of 20%.”
That rapid digitalisation, the blog stressed, has also “exponentially increased companies’ cyber exposures and created more complex and potentially less secure networks… And throughout 2020, we’ve seen increasing cyberattacks on government agencies and companies globally – many leveraged the COVID-19 crisis to infiltrate networks. Globally, the attack volume doubled from the second half of 2019 to the first half of 2020.”
Reacting to the report, Bob Huber – head and chief security officer of Texas-based cybersecurity advisers Tenable – said: “Computational power was instrumental in the research and development of vaccines. Operational technology within critical infrastructure continues to underpin the cold supply chain and logistics, facilitating the safe delivery and storage of vaccine vials. While the power of technology was on full display in 2020, so too were the potential pitfalls.
“The issue with this kind of reliance is that, if we continue to steam ahead without first ensuring the security of this technology, the threats to our digital economy and very way of life will take hold.”
He added: "In 2020, we saw that threat actors weren’t afraid to take aim and exploit weaknesses in security practices for financial and even political gain. While regulation and globally accepted frameworks can be effective in raising the importance of cybersecurity efforts, alone neither is enough. Any cybersecurity initiative has to look beyond meeting minimum standard requirements to address the actual risks organisations face. It must elevate cybersecurity’s role as a strategic business function and critical enterprise risk.”
Bitcoin’s latest rally may persuade corporate treasurers to diversify their firms’ assets into the cryptocurrency and use it increasingly as a store of value, according to prominent US investor and fund manager Bill Miller.
In his Q4 2020 Market Letter, the chair of Miller Value Partners dubbed Bitcoin “the best-performing asset category in 2020,” noting: “At this writing, it is trading at over $31,000, up more than 50% since the middle of December. It has outperformed all major asset classes over the past one, three, five and 10 years. Its market capitalisation is greater than JPMorgan and greater than Berkshire Hathaway and yet it is still very early in its adoption cycle.”
In words that chime with the first story in this roundup, Miller explained: “The Fed is pursuing a policy whose objective is to have investments in cash lose money in real terms for the foreseeable future. Companies such as Square, MassMutual and MicroStrategy have moved cash into bitcoin rather than have guaranteed losses on cash held on their balance sheet. Paypal and Square alone are estimated to be buying on behalf of their customers all of the 900 new bitcoins mined each day.”
With that in mind, Miller drew a tantalising comparison: “Bitcoin at this stage is best thought of as digital gold yet has many advantages over the yellow metal. If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into bitcoin instead of cash, then the current relative trickle into bitcoin would become a torrent. Warren Buffett famously called bitcoin ‘rat poison.’ He may well be right. Bitcoin could be rat poison, and the rat could be cash.”
Miller’s view on Bitcoin puts him in a significantly more bullish camp than the UK’s Financial Conduct Authority (FCA), which warned on 11 January that those who invest in cryptoassets should be prepared to lose all their money. The FCA’s sentiments were echoed in subsequent remarks from European Central Bank Governing Council member Gabriel Makhlouf, who told Bloomberg TV on 29 January: “As the UK authority said a few weeks ago, if people want to invest in Bitcoin, they have to be prepared to lose all their money – that’s certainly my view.”
Further words of caution surfaced in the wake of Miller’s letter, with Goldman Sachs senior executive Sharmin Mossavar-Rahmani telling Bloomberg: “Something with a long-term volatility of 80% can’t be considered a medium of exchange… Just because everybody piles into an idea and talks it up doesn’t mean it’s a store of value.”
Crypto-focused TMS takes flight
As if acting under the direct influence of Miller’s missive, Dublin-based fintech Custody Digital has launched an advanced treasury management system (TMS) specifically to help treasurers manage digital asset holdings. Designed to work in tandem with the treasury function’s fiat activities, Ledgermatic enables users to keep track of traditional and cryptoassets in the same solution and unlock liquidity from both asset types via a single portal.
In a press release, Ledgermatic CEO Luke Sully said: “As the world moves towards a token economy, finance teams are faced with an opportunity to modernise their business today so they can safely integrate digital assets tomorrow.”
Blockchain-based metal ETCs launch on LSE
A Russian tech enterprise has launched four, new physically backed metal exchange-traded commodities (ETCs) on the London Stock Exchange (LSE). Covering gold, silver, platinum and palladium, the outlets operate on a system in which data for each bar in the underlying, physical asset store has been recorded on to a distributed ledger, providing tight security and proof-of-ownership protocols. Stemming from Global Palladium Fund – a spin-off of diversified mining corporation Norilsk Nickel – the ETCs are aimed at wealth managers and institutional investors. They made their LSE debut on 20 January.
Distribution specialist NTree International Ltd is leading the ETCs’ global rollout. Its CEO and founder Timothy Harvey said: “We are excited to have helped design and manage such an innovative investor proposition… We see growing investor appetite for commodities that will be driven by the cyclical recovery out of the pandemic and, perhaps more importantly, by the push towards a net-zero carbon economy.”
Bolero and Incomlend team up on trade solution
Trade digitalisation specialists Bolero International has joined forces with global invoice marketplace Incomlend on an as-yet-unnamed project that aims to close the ever-widening trade finance gap. Aimed at SMEs, the solution will simplify and streamline Cash Against Documents transactions via the Bolero platform, eradicating delays and errors associated with paper and reducing vulnerability to forgery and fraud. With access to Incomlend’s supply chain finance resources, SMEs will have access to a flexible, non-bank trade finance.
Bolero CEO Andrew Raymond said: “Our exciting new joint project with Incomlend expands our ecosystem into the non-banking finance sector and brings our services to a wider range of clients who find it difficult to access trade finance from well-established institutions. Incomlend is as committed to the democratisation of trade finance as Bolero.”