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Welcome to the Matthew Feargrieve blog

Matthew Feargrieve is an investment management consultant with more than twenty years’ experience of advising managers of investment funds operating in the leading jurisdictions of the United Kingdom,  Luxembourg, Ireland and the Cayman Islands. His extensive experience of advising fund managers makes Matthew a valued member of the boards of investment funds in various jurisdictions, on which he acts in a non-executive capacity. 

Before becoming an independent financial services consultant, Matthew worked for leading financial services firms in the UK and in Switzerland.  Learn more about Matthew Feargrieve here.

India’s New Covid Vaccine: Life Saver or Political Tool?

As India rolls out a home-made coronavirus vaccine to 300 million of its 1.4 billion people, and sells it to other countries, Matthew Feargrieve asks whether the drug is less a preserver of life and more a political tool to promote business in India.

IN AN EMOTIONAL address to the Indian nation, Narendra Modi has launched one of the world’s most ambitious Covid-19 vaccination programmes. Appearing at times to get carried away with his rhetoric of deliverance, the Prime Minister told the watching millions that “the nation has been desperately waiting for this moment”.

India, with its population of 1.4bn people and its recorded Covid infections running at some 11 million, has experienced some of the most draconian lockdowns which, so far, have had only limited efficacy in controlling the spread of the coronavirus across its villages, towns and cities. The pandemic has plunged India into recession and millions of Indians have been plunged further into worsening poverty as industries have faltered and jobs have been axed.

So Modi was naturally jubilant at the development, in record time, of the Covaxin vaccine that has been entirely developed and made in India, with the roll-out targeting 30 million key workers in its initial phase and another 270 million people by July. The vaccine, he said, is a triumph of Indian science, and – by extension – his Make in India policy.

The euphoric text of the Prime Minister’s speech was, however, spoiled somewhat by the warning that followed: beware, he said, the “false propaganda” about the vaccine’s safety. The very fact that Modi had to pay lip service to the existence of such propaganda is a clear indication of the growing political pressure to which he has subjected himself with his policy of atmanirbhar bharat.

Covaxin Controversy

Covaxin has been developed by an Indian biotech firm, working in partnership with the Indian government. It has been fast-tracked for roll-out to the Indian population in record time and, troublingly, before its phase 3 trials – the standard procedural checks for any new medicine- were completed. The expedited launch has been criticised by Indian and international healthcare experts. In a very short space of time, an anti-vax movement has sprung up in India, fuelled by scepticism about the effectiveness and safety of the vaccine.

The parallels between Covaxin and its counterpart coronavirus treatments in Russia and China, which were similarly approved for public use before phase 3 trials had been completed, are all-too obvious. The Indian people have been quick to spot this.

Activists allege that Covaxin’s manufacturer, Hyderabad-based Bharat Biotech, did not follow normal trial protocols. A trial volunteer died in December. Some volunteers claim that they were induced to accept jabs by being told that they would cure ordinary coughs and colds. Some were paid Rs750 (US$10) to take the jab. A worrying number of these volunteers have suffered side effects, including lethargy and vomiting.

Bharat Biotech has said publicly that the death in December was unrelated to the trial, and that it had conducted the Covaxin trials in compliance with the applicable protocols. The parameters and controls of these protocols have not been disclosed publicly by the company or by the government. The opposition party to Modi’s Bharatiya Janata Party (BJP) have made much political mileage from the fact that only, they say, 755 individuals participated in the trial.

Political Controversy

There is a pervading sense that the government has been hiding behind the biotech firm in an effort to avoid scrutiny of the way in which the vaccine has been developed and the thoroughness of the tests it has been put through. The opposition Congress party has aimed several questions at the government, focusing on the safety, pricing and availability of the vaccine, and stressing that an effective vaccination programme is “an important public service and not a political or business opportunity”. Congress is particularly exercised by the government‘s decision to export Covaxin before the majority of the Indian population has received jabs.

The Congress party has also highlighted the fact that the government will pay Rs95 more to Bharat Biotech for each Covaxin jab than it would for an Oxford/AstraZeneca jab, a striking anomaly given that Covaxin has been developed and produced in India and in conjunction with government scientists. The Serum Institute of India, the world’s largest vaccine manufacturer, has a contract with the UN-backed vaccine alliance Gavi to provide 200m doses of the Oxford/AstraZeneca vaccine. In response, the BJP has deployed the rhetoric of atmanirbhar bharat by accusing Congress of disparaging India’s achievements instead of sharing in a sense of national pride.

One central line of attack being followed by Congress is the detail surrounding the commercial aspects of Covaxin. Modi has made no secret of his intention to mobilise Indian industry to produce and supply Covaxin to global buyers, and Bharat Biotech has signed a deal to supply the vaccine to Precisa Medicamentos, a leading Brazilian pharma company.

A looming Public Health Disaster, made in India?

The rhetoric deployed by the Congress party to question the propriety and the economics of Covaxin is rooted in genuine concern amongst Indians that the vaccine has been produced in a hurry, in a non-transparent manner, and is fundamentally not safe. The jab is not yet approved for children, and amongst adults there is anxiety and scepticism. A poll conducted in January reported that some that 70 per cent of respondents were hesitant about receiving the Covaxin jab. The state of Chhattisgarh has refused to accept Covaxin until the phase 3 trials are completed and the test data have been made public.

The surprisingly swift and geographically pervasive growth throughout India of anti-vax sentiment has not been entirely whipped up by the Congress party‘s questioning and criticism of the government. The main dynamic motivating this social phenomenon, so significant that Modi was obliged to make reference to it in his national address and to dismiss it as “false propaganda”, is a groundswell of unease about the Prime Minister’s policy of Make in India, or Indian self-reliance. Indian-made goods are all well and good, but what if they are dangerous or defective? What if they put people’s lives at risk? Is this in effect what the Indian government is doing?

Could the political unwillingness of the Modi administration to rely on a foreign-made vaccine have led to what many now believe is a real danger, an untested and unsafe drug, made in India and sold by India, to be injected into the bodies of hundreds of millions of people in India and around the world?

In our earlier piece on Cofounderstown, Modi at a Crossroads, we discussed how increased political pressure from China has exposed the fault lines in Narendra Modi’s personal world-view of India. A policy drive to resist the US$75 million of cheap Chinese goods imported into India every year led to India‘s withdrawal from the RCEP. This move, we argued, is a manifestation of the deeper psychological level at which Modi views the rest of the world, which is (to some extent, post-Covid) still in awe of China and which relies on cheap Chinese imports to satisfy its consumer demands. And here we find the genesis of the policy of atmanirbhar bharat.

As soon as these words had left the Prime Minister’s lips in 2020, there was confusion as to the precise meaning intended to be conveyed. Several Ministers were quick to add qualifiers, pointing out that the intended sentiment was one of self-reliance, not self-containment or isolationism. Their admission of the darker connotations of the mantra atmanirbhar bharat was indeed portentous. These muddled words are a verbal manifestation of profoundly muddled thinking, which has led to several foreign and domestic policy twists that have entangled major international investors.

We discussed in our earlier blog “Why atmanirbhar bharat is not the way” the way in which the Make in India policy is busy frustrating potential inward investors like Amazon and Apple. Constant policy changes by the Modi government will alienate foreign companies, just at the time when the Indian government should be doing everything to smooth the entry of these players into the country.

But now though, with the rapid emergence of the Covaxin vaccine, and Modi’s personal sales mission to promote it not only to his own people but to foreign governments, we have to consider whether Make in India has taken a darker, and altogether more dangerous turn.

Because, if this vaccine is not effective, and is not safe, it will be ordinary people, in India and elsewhere, who will pay the immediate price. And thereafter, a bigger, longer-lasting price will be exacted by the rest of the world, both on the Modi administration and – more devastatingly for India’s economy – on the country’s industrial players and exporters.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his business blog here and see his Twitter feed here.

Matthew Feargrieve investment management consultant

Bitcoin Q1 2021: Time to Buy, or Say Goodbye?

Investment management consultant MATTHEW FEARGRIEVE discusses the huge inflows of investor money into Bitcoin as prices nudge US$40,000 this week, and asks: is Q1 Time to Hold, or Sell a Bubble?

The growth of the world’s leading cryptocurrency over recent months has seen price hikes of more than 300% over 2020 (by comparison, the S&P 500 rose 18%). In less than a month, it doubled its value to pass the $40,000 (£29,500) mark for the first time since Bitcoin’s inception.

Banks and investment firms are now cashing in to the surge in demand, by offering proxy access to cryptocurrencies via ETFs (exchange traded funds).

BTCetc Bitcoin Exchange Traded Crypto (BTCE), a German product, has recorded average daily trading amounting to €57m in the first 11 days of January, according to data from Deutsche Börse. Börse trading data show a number of trades above €30,000, which were unlikely to have been placed by mere day traders or other retail investors.

Elsewhere in Europe, VanEck and 21Shares also offering bitcoin ETNs on Deutsche Börse. The Swiss exchange now lists 34 crypto exchange traded products from six issuers.

On the other side of the Atlantic, Grayscale’s Bitcoin Trust, which like its German counterpart tracks the price of the digital currency, has posted average daily turnover of almost $1bn in the first two weeks of this year, amounting to more than nine-times the average in 2020, Bloomberg data show. Its assets under management have boomed to $23bn from $17bn at the end of December and $2bn at the start of 2020.

The sharp rise in trading in the securities highlights how investors are increasingly looking to gain exposure to or bet against cryptocurrencies on traditional markets rather than buying the digital currencies outright. The trading surge in BTCE this year — a sharp pick-up on the €15.5m daily average in December, the previous record — comes following a tenfold rise in the price of bitcoin since March to a peak of $42,000 earlier this month, before it gave back some gains.

ETF proxy access to crypto circumvents some of the regulatory concerns and counterparty risk involved in trading bitcoin and surely increases the appeal of cryptocurrency investments for both retail and institutional investors who can invest in the ETF without needing to set up specialised digital infrastructure or use an unregulated crypto platform.

It is worth bearing in mind, however, that cryptocurrency trading is the preserve mainly of retail players, and more speculative firms including hedge funds, as opposed to traditional money managers like pension funds, which remain nervous about bitcoin’s extreme volatility.

And let’s not forget the crypto warning issued this week by the UK financial regulatory body, the FCA, that investors should be prepared to “lose all their money” when invested in risky cryptoassets. The FCA also warned that some cryptocurrency investment firms may understate the risks and overstate the gains involved.

Christine Lagarde, president of the European Central Bank, joined in the doubters, calling on 13 January for global regulation of cryptocurrencies to help combat their use in “totally reprehensible money laundering activity”.

So what are the risks of Bitcoin and other cryptocurrencies, and should you invest directly through an unregulated platform (like Coinbase, for example, and you can read all about my problems using their platform here) or via a regulated ETF?

The primary factor that prospective investors should be aware of is that Bitcoin – and other cryptocurrency – is not equivalent to cash. Money converted into a cryptocurrency should be treated like money invested in any other investment product or asset – as capital at risk.

Resist at all costs the temptation to view the parabolic curve in Bitcoin prices as a personal get-rich scheme. For two reasons. First, because prices might not get much higher, and you are likely buying at a peak. Secondly, Bitcoin is like any other risky asset: and at the moment, crypto investors are caught up in a mindless buying frenzy, one which you should naturally be slow to join.

For me, Bitcoin has Bubble written all over it.

Don’t be fooled by some commentary into thinking that crypto has had overall buy-in by traditional allocators. There is plenty of talk of mainstream houses getting in, but the fact is they have shown with little action so far. For every institution interested in, or buying, crypto, there are several that are staying away.

Crypto and Bitcoin in particular is a risky, highly speculative market. Bitcoin is hardly regulated anywhere in the world, and the money you invest in it will likely not be compensated under government protection schemes (like the one in the UK, which the FCA warned this week would not protect crypto investors in the event of loss).

The persistent narrative underpinning Bitcoin has been that it is a decentralised currency that is somehow liberated from central bank tampering. The reality is that it is an (alternative) asset that has profited as much from an environment of incredulity as financial sense.

Coronavirus has played a part in this. Crypto is starting to look like an attractive alternative to currencies that may be devalued by the stimulus packages. The packages are needed but there are real concerns they may set inflationary forces in play. This also creates a new dimension of interest in Bitcoin, that of the cryptocurrency being a Safe Haven asset for 2021.

It is true that Bitcoin can, in theory, serve as a safe haven in such times of frenzy. Its rise in recent months has been driven primarily by concern over the sums that governments have thrown at the pandemic and the prospect of inflation that looms in their wake. To protect against the value of their investments being eroded by inflation, investors often like to hold a real asset (e.g. gold), to serve as a hedge.

Bitcoin can serve a similar role. Its supply is finite – only 21 million coins will ever exist. Unlike US dollars that can be printed, or gold that can be mined. Bitcoin is easier to transact than gold. In times of uncertainty, this gives it some – maybe purely notional- value.

Enter Goldman Sachs, who have reassured their clients that Bitcoin does not pose an existential threat to gold, (Bloomberg reports 18 Dec): “We do not see evidence that Bitcoin’s rally is cannibalizing gold’s bull market and believe the two can coexist“. Goldman did, however, admit that Bitcoin’s ongoing rally could steal some demand from gold investors: “Gold’s recent underperformance versus real rates and the dollar has left some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice. While there is some substitution occurring, we do not see Bitcoin’s rising popularity as an existential threat to gold’s status as the currency of last resort“.

This, from Goldman Sachs, is clearly significant. The traditional move in markets as tumultuous as 2020’s would be to hedge against stock volatility with gold. This has proven an effective method in the past, but Bitcoin has ushered in a new era of digital currencies. As the leading cryptocurrency, Bitcoin has many of properties of a currency, but with some unique features that can make it a viable haven. You can read more about how Bitcoin stacks up against gold in my blog here.

For me, Bitcoin’s Safe Haven attributes are limited and should not be overstated. As for buying it now? Prices are too high, and in my view are unlikely to go much further. You would be buying at the peak.

The inflow of monies from small consumers, and the unease of national regulators, could contrive to render Bitcoin not only a Bubble, but a highly regulated Bubble. For many investors, big and small alike, Bitcoin is a risk asset that has Bubble written all over it. More of my personal 2021 outlook for Bitcoin and crypto in my investing blog here.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his business blog here and see his Twitter feed here.

Federalism and the Tragedy of Covid in Switzerland

Expat MATTHEW FEARGRIEVE explains why half of the population of Switzerland are suffering badly from the Second Wave, whilst the other half enjoys life as normal; and why the Swiss political system of Federal Government is at the root of this Covid Apartheid.

The coronavirus pandemic has exposed social and political fractures across Europe centred on the rights of citizens during state-imposed social restrictions and lockdowns.

But in Switzerland, which is currently in the grip of the Second Wave of Covid-19, the government’s response to the pandemic has exposed deep cultural fault lines that exist within Swiss society, and is now being challenged by a referendum. This in a country where the rights of the individual are treated as sacrosanct and government powers are strictly proscribed by law.

According to the country’s Federal Office of Public Health, Switzerland recorded 3,001 new Covid-19 infections on 12 January, a rate of 477 per 100,000 citizens. Numbers have been slowly but steadily falling since the New Year, and are sharply down from a peak of 10,558 daily new cases recorded on November 2 last year. The country had a population of some 8.6 million in 2020, according to United Nations data.

The trajectory of the Second Wave in this small alpine country is really a story of two countries: the regions (known as cantons) where Swiss-German is spoken, and the francophone areas known collectively as Suisse Romande.

There are significant cultural, as well as linguistic, differences between these two regions. A stereotype that is deeply entrenched in Switzerland is of the Swiss-German lands being prosperous, clean and efficient, with the Suisse Romande on the other hand being poorer, shabbier and less productive. Economic data for the cantons of Switzerland is supportive of this profound cultural division.

Perhaps unsurprisingly, the epidemiological situation in Switzerland has followed this geographical and cultural division. Life in the principal cities of the Swiss-German speaking areas (Bern, Basel, Zurich, Luzern) has largely continued as normal since the Second Wave first hit the country in November, with restaurants open and bars serving alcohol until 11pm.

Life in the principal cities of Suisse Romande (Geneva, Lausanne, Montreux) has been starkly different. Hospitals have been full with Covid patients and civic life has been subject to stringent lockdown. Covid cases have been four times higher in this region than in the German-speaking cantons. The region’s main city, Geneva, established itself as Europe’s biggest Covid hotspot in November.

And so it is that a state of Covid apartheid has been established in Switzerland. This “apartness” that separates the poorer francophone cantons from their German-speaking neighbours is encapsulated in people’s consciousness in Switzerland by a culinary metaphor that speaks of the röstigraben (essentially signifying the regions where the German dish of rösti is eaten) and the coronagraben (meaning the rest of the country where Covid is rife).

In our earlier blog here, we discussed how the röstigraben and the coronagraben were the product of the Swiss political system of Federal Government. We explained how the country’s federalism is a key component of this cultural and epidemiological division, and how a large devolution of administrative powers to the cantons has placed these small civic decision-makers under a large amount of pressure to formulate and implement a Covid policy (both in terms of public health and economic) without much guidance from the federal government in Bern.

This ability of the twenty-six different cantons in Switzerland, spread across the Suisse Romande and German-speaking regions, has led to Covid apartheid in the country, wherein a French-speaking official in Suisse Romande can force local businesses to close, whilst her German-speaking counterpart can sit a mile away in a restaurant and have fondue for lunch.

The autonomy of the cantons and the way they represent the local interests of the different peoples of Switzerland, is highly prized. But medical thought is clearly of the view that this disparate approach to Covid control and lockdown is no way to fight a pandemic. There has, says the scientific community, to be a centralized, uniform approach to lockdown.

No political party or senior politician (committee men, all of them) in Switzerland has publicly called for the introduction of a centrally-led lockdown. It took a petition in early November by fifty Swiss economists to focus some pressure on the lockdown issue. The petition reasons that, whilst a lockdown causes economic loss, the bigger picture is that  “the economic costs of a pandemic staying out of control are borne later, as the economy stalls, and spreads to other sectors”. The economists opined that what Switzerland needs is “a swift second lockdown”.

The petition is dated 2 November. Its conclusion is an explicit exhortation of the Swiss federal government to put local fiscal interests to one side and impose a blanket, country-wide lockdown:

There seems to be a pervasive misunderstanding regarding the economics of COVID-19: an argument is often made as to the economic costs of a lockdown, invoking a tradeoff between the economy and health. In our opinion, and especially in the kind of situation Switzerland is in now epidemiologically, this is a false dichotomy: there is no such trade-off. The choice is between 1) a big recession, overwhelmed hospitals, and many excess deaths under current policies; and 2) a big recession with fewer deaths and a manageable health system under a second lockdown.”

It is not as if the Swiss government lacks the legal power to impose a blanket lockdown across the cantons. The Covid-19 Act, approved by lawmakers in September, provides the government with the legal framework enabling the imposition of restrictions to handle the Second Wave. Before this new Act, the government had power to restrict public life only through unilateral emergency decrees under Switzerland’s Epidemics Act. Those powers were strictly time-limited and subject to onerous parliamentary oversight, constraints that do not apply to the new Covid-19 Act.

In true laissez-faire style, however, the federal government has not used these powers. Until late December, Bern’s governing Federal Council had been reluctant to impose any restrictions. Although the Second Wave being well underway, opposition from many Swiss to further curbs, and dire warnings from several of the country’s most powerful and influential lobbying groups about the economic consequences of another shutdown (see our blog “Business is always Business in Switzerland” here) deterred any government lockdowns in the run-up to Christmas, even as Covid numbers rose.

The inability of the federal nature of decision-making in Bern led to a diplomatic stand-off in early December, when the government refused to force its ski resorts to close, an act of defiance that angered Switzerland’s covid-respecting alpine neighbours.

By mid-December, however, the reported numbers of Covid infections and related deaths, and the rapidly-filling hospitals, particularly in the Suisse Romande, finally spurred Bern into action. On December 18 the government ordered a country-wide shutdown of restaurants, bars and leisure facilities that will remain in force until the end of February. On 13 January, this shutdown was extended to cover shops selling non-essential goods.

So, you may be thinking: the government has taken the right decision, federalism will not be allowed to impede the control of coronavirus in Switzerland and the state of Covid apartheid in the country will be brought to an end? Yes?

Well, not quite. Amazingly, the Swiss think that the government’s actions go too far. That the new Covid-19 Act is a dangerous precedent because of the extent to which it confers emergency powers on the government. And that the autonomy of the cantons and, indeed, democracy itself, is under attack.

And so it is that a campaign group called “Friends of the Constitution” submitted a petition in Bern on 13 January, containing no less than 86,000 signatures collected over the past three months (being well in excess of the 50,000 minimum) formally to initiate a referendum vote to repeal the Covid-19 Act.

A spokesman for the group said “We are a movement that says crisis management cannot be done without the will of the sovereign: the people. You cannot govern without the people. In our opinion, the [government] is taking advantage of the pandemic to introduce more control and less democracy“.

The petition is legally binding on the federal government, and the people’s vote is scheduled for June, at which point Switzerland would be the first and perhaps the only country ever to have given its citizens a direct vote on coronavirus restrictions. 

Critics of the campaign to repeal the Covid-19 Act note that by the time the referendum is held, not only will the pandemic likely be in remission, but many of the legal provisions granted under the Act will automatically have lapsed in accordance with limitations hardwired (in true Swiss style) into the legislation. The retort of the Friends of the Constitution group is that say the point of the referendum is to prevent a precedent being set for future national emergencies.

All the same, the campaign and its outcome, the referendum, is surely a side-show to the burning issue, which is that Switzerland desperately needs a centralized, uniform approach to Covid control and social restrictions, one that is imposed top-down by the government in Bern across all of the country’s administrative regions.

It is ironic that, just as federalism and the autonomy of the cantons were beginning to be put aside in mid-December, in the face of appalling, spiralling Covid infection and death rates in the country, the divisive, fracturing sacred cow of Swiss local government has been preserved. For now, Covid apartheid in Switzerland continues.

MATTHEW FEARGRIEVE lives in Switzerland. You can see more of his blogs about Switzerland herehere and here. You can read his blog here and see his Twitter feed here.

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Covid Apartheid in Switzerland

British Expat MATTHEW FEARGRIEVE explains why half of the population of Switzerland are suffering badly from the Second Wave, whilst the other half enjoys life as normal; and why the Swiss political system of Federal Government is at the root of this Covid Apartheid.

The coronavirus pandemic has exposed social and political fractures across Europe centred on the rights of citizens during state-imposed social restrictions and lockdowns.

But in Switzerland, which is currently in the grip of the Second Wave of Covid-19, the government’s response to the pandemic has exposed deep cultural fault lines that exist within Swiss society, and is now being challenged by a referendum. This in a country where the rights of the individual are treated as sacrosanct and government powers are strictly proscribed by law.

According to the country’s Federal Office of Public Health, Switzerland recorded 3,001 new Covid-19 infections on 12 January, a rate of 477 per 100,000 citizens. Numbers have been slowly but steadily falling since the New Year, and are sharply down from a peak of 10,558 daily new cases recorded on November 2 last year. The country had a population of some 8.6 million in 2020, according to United Nations data.

The trajectory of the Second Wave in this small alpine country is really a story of two countries: the regions (known as cantons) where Swiss-German is spoken, and the francophone areas known collectively as Suisse Romande.

There are significant cultural, as well as linguistic, differences between these two regions. A stereotype that is deeply entrenched in Switzerland is of the Swiss-German lands being prosperous, clean and efficient, with the Suisse Romande on the other hand being poorer, shabbier and less productive. Economic data for the cantons of Switzerland is supportive of this profound cultural division.

Perhaps unsurprisingly, the epidemiological situation in Switzerland has followed this geographical and cultural division. Life in the principal cities of the Swiss-German speaking areas (Bern, Basel, Zurich, Luzern) has largely continued as normal since the Second Wave first hit the country in November, with restaurants open and bars serving alcohol until 11pm.

Life in the principal cities of Suisse Romande (Geneva, Lausanne, Montreux) has been starkly different. Hospitals have been full with Covid patients and civic life has been subject to stringent lockdown. Covid cases have been four times higher in this region than in the German-speaking cantons. The region’s main city, Geneva, established itself as Europe’s biggest Covid hotspot in November.

And so it is that a state of Covid apartheid has been established in Switzerland. This “apartness” that separates the poorer francophone cantons from their German-speaking neighbours is encapsulated in people’s consciousness in Switzerland by a culinary metaphor that speaks of the röstigraben (essentially signifying the regions where the German dish of rösti is eaten) and the coronagraben (meaning the rest of the country where Covid is rife).

In our earlier blog here, we discussed how the röstigraben and the coronagraben were the product of the Swiss political system of Federal Government. We explained how the country’s federalism is a key component of this cultural and epidemiological division, and how a large devolution of administrative powers to the cantons has placed these small civic decision-makers under a large amount of pressure to formulate and implement a Covid policy (both in terms of public health and economic) without much guidance from the federal government in Bern.

This ability of the twenty-six different cantons in Switzerland, spread across the Suisse Romande and German-speaking regions, has led to Covid apartheid in the country, wherein a French-speaking official in Suisse Romande can force local businesses to close, whilst her German-speaking counterpart can sit a mile away in a restaurant and have fondue for lunch.

The autonomy of the cantons and the way they represent the local interests of the different peoples of Switzerland, is highly prized. But medical thought is clearly of the view that this disparate approach to Covid control and lockdown is no way to fight a pandemic. There has, says the scientific community, to be a centralized, uniform approach to lockdown.

No political party or senior politician (committee men, all of them) in Switzerland has publicly called for the introduction of a centrally-led lockdown. It took a petition in early November by fifty Swiss economists to focus some pressure on the lockdown issue. The petition reasons that, whilst a lockdown causes economic loss, the bigger picture is that  “the economic costs of a pandemic staying out of control are borne later, as the economy stalls, and spreads to other sectors”. The economists opined that what Switzerland needs is “a swift second lockdown”.

The petition is dated 2 November. Its conclusion is an explicit exhortation of the Swiss federal government to put local fiscal interests to one side and impose a blanket, country-wide lockdown:

There seems to be a pervasive misunderstanding regarding the economics of COVID-19: an argument is often made as to the economic costs of a lockdown, invoking a tradeoff between the economy and health. In our opinion, and especially in the kind of situation Switzerland is in now epidemiologically, this is a false dichotomy: there is no such trade-off. The choice is between 1) a big recession, overwhelmed hospitals, and many excess deaths under current policies; and 2) a big recession with fewer deaths and a manageable health system under a second lockdown.”

It is not as if the Swiss government lacks the legal power to impose a blanket lockdown across the cantons. The Covid-19 Act, approved by lawmakers in September, provides the government with the legal framework enabling the imposition of restrictions to handle the Second Wave. Before this new Act, the government had power to restrict public life only through unilateral emergency decrees under Switzerland’s Epidemics Act. Those powers were strictly time-limited and subject to onerous parliamentary oversight, constraints that do not apply to the new Covid-19 Act.

In true laissez-faire style, however, the federal government has not used these powers. Until late December, Bern’s governing Federal Council had been reluctant to impose any restrictions. Although the Second Wave being well underway, opposition from many Swiss to further curbs, and dire warnings from several of the country’s most powerful and influential lobbying groups about the economic consequences of another shutdown (see our blog “Business is always Business in Switzerlandhere) deterred any government lockdowns in the run-up to Christmas, even as Covid numbers rose.

The inability of the federal nature of decision-making in Bern led to a diplomatic stand-off in early December, when the government refused to force its ski resorts to close, an act of defiance that angered Switzerland’s covid-respecting alpine neighbours.

By mid-December, however, the reported numbers of Covid infections and related deaths, and the rapidly-filling hospitals, particularly in the Suisse Romande, finally spurred Bern into action. On December 18 the government ordered a country-wide shutdown of restaurants, bars and leisure facilities that will remain in force until the end of February. On 13 January, this shutdown was extended to cover shops selling non-essential goods.

So, you may be thinking: the government has taken the right decision, federalism will not be allowed to impede the control of coronavirus in Switzerland and the state of Covid apartheid in the country will be brought to an end? Yes?

Well, not quite. Amazingly, the Swiss think that the government’s actions go too far. That the new Covid-19 Act is a dangerous precedent because of the extent to which it confers emergency powers on the government. And that the autonomy of the cantons and, indeed, democracy itself, is under attack.

And so it is that a campaign group called “Friends of the Constitution” submitted a petition in Bern on 13 January, containing no less than 86,000 signatures collected over the past three months (being well in excess of the 50,000 minimum) formally to initiate a referendum vote to repeal the Covid-19 Act.

A spokesman for the group said “We are a movement that says crisis management cannot be done without the will of the sovereign: the people. You cannot govern without the people. In our opinion, the [government] is taking advantage of the pandemic to introduce more control and less democracy“.

The petition is legally binding on the federal government, and the people’s vote is scheduled for June, at which point Switzerland would be the first and perhaps the only country ever to have given its citizens a direct vote on coronavirus restrictions. 

Critics of the campaign to repeal the Covid-19 Act note that by the time the referendum is held, not only will the pandemic likely be in remission, but many of the legal provisions granted under the Act will automatically have lapsed in accordance with limitations hardwired (in true Swiss style) into the legislation. The retort of the Friends of the Constitution group is that say the point of the referendum is to prevent a precedent being set for future national emergencies.

All the same, the campaign and its outcome, the referendum, is surely a side-show to the burning issue, which is that Switzerland desperately needs a centralized, uniform approach to Covid control and social restrictions, one that is imposed top-down by the government in Bern across all of the country’s administrative regions.

It is ironic that, just as federalism and the autonomy of the cantons were beginning to be put aside in mid-December, in the face of appalling, spiralling Covid infection and death rates in the country, the divisive, fracturing sacred cow of Swiss local government has been preserved. For now, Covid apartheid in Switzerland continues.

MATTHEW FEARGRIEVE lives in Switzerland. You can see more of his blogs about Switzerland here, here and here. You can read his blog here and see his Twitter feed here.

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The Mystery of Jack Ma, and Why Chinese Stocks are Uninvestible

Investment management consultant MATTHEW FEARGRIEVE discusses the mystery disappearance of billionaire Jack Ma, and what its implications are for investing in Chinese companies.

Farewell, Jack Ma?

At a publicity event in Shanghai for the listing of Ant Group in October last year, as Jack Ma prepared for its dual listing in Shanghai and Hong Kong, he told the assembled crowd and world media: “This is the largest listing ever priced in the history of the entire human race, and the pricing happened in a place other than New York City”.

The flotation of Ant Group, which was to be the financial services arm of Ma’s vast business empire, was cancelled by the Chinese authorities, just days before it was due to list. Beijing’s competition regulators then launched an investigation into Alibaba, in which Ma still holds a 5 per cent stake, sparking the share price fall. 

Why? Because Ma had made comments critical of the way Chinese state-owned retail banks are run, as part of the pre-listing publicity hype around Ant Group.

At the Shanghai event, he China’s financial system as operating “with a pawnshop mentality” and that the regulatory environment was akin to trying to “use the way to manage a railway station to manage an airport”.

You could almost hear the collective intake of breath as Ma’s audience sat, visibly uncomfortable at his remarks. This, after all, was China.

The State’s rebuke was swift.

On November 2 Ma, alongside Ant’s executive chairman Eric Jing and CEO Simon Hu, was summoned and interviewed by regulators. When this interview was made public by the China Securities Regulatory Commission, the Shanghai Stock Exchange decided to halt Ant’s IPO on November 3, just two days before it was supposed to go live.

By the end of 2020 Alibaba’s shares had fallen by almost a quarter. Ma’s net worth dropped by almost $10 billion over the same period, according to data from Bloomberg. Ma Huateng, the founder of rival tech firm Tencent, has pushed Ma from the top spot to become China’s richest person,

And then there is the small matter of Jack Ma’s disappearance.

Speculation about Ma’s whereabouts was triggered by a failure to appear on the finale of an African TV show he created. Filming was conducted in November and Ma’s picture has been removed from the Africa’s Business Heroes website. 

Reports last week claimed Ma is not missing, but lying low. Beijing has ordered Chinese media to censor coverage of the Alibaba probe. 

In 2018, Wu Xiaohui, who founded Anbang insurance, was convicted of fraud and abuse of power, and sentenced to 18 years in prison. In March, the property tycoon Ren Zhiqiang went missing after writing an essay critical of China’s Covid response and appearing to call Xi a clown. In September he was sentenced to 18 years in jail for corruption.

In 2019, China’s most famous actress Fan Bingbing similarly vanished from view for four months. She emerged with a Weibo post pledging loyalty to the communist party and a fine of nearly £100m for tax evasion and other offences.

Could the same thing be happening to Ma? In early November, sources confirmed to the Wall Street Journal that Xi Jinping himself had been involved in halting Ant’s IPO. On realising that Ma had been absent from public view for a while, the rumour mill quickly cranked itself into overdrive.

Ma may just be lying low in one of his many homes, possibly somewhere in Hangzhou, the city where he founded Alibaba.

Even if Jack Ma is alive and well, his disappearance, whether voluntary or due to some other, unseen forces, raises serious questions about how healthy an investment in China really is.

It is felt in many circles that the companies from China that are publicly traded in the US are committing accounting fraud to some extent, overstating profits, often revenue, and cash. There is frequently the suggestion, when reading the sales pitch, that the numbers do not add up.

There were red flags around Alibaba long before Ma’s disappearance. The company listed in 2014 in the world’s largest stock market flotation at the time, raising $25billion. In 2011, Alibaba was still private. The largest outside shareholders were SoftBank and Yahoo. It appears that Ma simply transferred legal ownership of Alipay from Alibaba into his own name.

Many major stock market listed Chinese companies are working hand in glove with the Chinese government and their military industrial complex.

These niceties do not trouble many managers of retail mutual funds, however. Scottish Mortgage Investment Trust, the Federated Hermes Global Emerging Markets fund and a State Street Global Advisors fund are among some UK-run mutual funds with large and valuable stakes in Alibaba.

These managers will no doubt now be worrying about how far the Chinese government will go to punish Ma and his business empire. This major chunk of uncontrollable and unknowable uncertainty and risk is – scarily – in addition to the intrinsic volatility and drawdowns to which Chinese large caps and Tech have always been susceptible. 

The saga of Jack Ma highlights what many business and finance professionals have known all along, but chose to forget; that the Chinese Communist Party always wins.

Fund managers invested in Chinese large-caps are putting a brave face on matters. They point to the “tremendous growth” to be found in China.

The Ant listing and the way it was pulled so quickly raises questions about how mature Chinese stock and capital markets really are, and at a time when China’s government is desperate to boost innovation and maintain steady economic growth, and growing increasingly wary of giving away too much autonomy to private enterprise.

The fact that there are also a lot of powerful vested interests in Ant and Alibaba has also acted as a brake on any regulation.

In the shadow of the failed IPO, it appears regulators are keen for Ant to be seen as a financial services provider. Draft rules have already been drawn up which would place a $45,000 cap on microloans and that lenders will have to put up 30 per cent of the capital in any trade.

This will mean a huge reallocation of assets and liquidity within Ant Group. If it is understood as a financial services company and not a tech company it will also create profound downward pressure on its future valuation if it ever does manage an IPO.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his blog here and see his Twitter feed here.

Matthew Feargrieve investment management consultant

Just How Risky is Bitcoin?

Investment management consultant MATTHEW FEARGRIEVE looks at this week’s 28% slump in the price of Bitcoin and asks how stable it really is as long-term investment for 2021 and beyond.

As soon as the UK’s financial watchdog, the Financial Conduct Regulator, issued its warning on 11 January to consumers about the risks of investing in high-risk cryptoassets and cryptocurrencies (see our earlier blog here), the price of Bitcoin slumped 28% to US$32,300.

FCA, has said that investors should be prepared to “lose all their money” invested in the asset. Any money held in it is unlikely to be protected by UK schemes that help investors reclaim losses made when companies collapse. The FCA also warned that some cryptocurrency investment firms may understate the risks and overstate the gains involved.

This is still a very high price for the leading cryptocurrency. But a flash crash of nearly one-third of its value? What other kind of investment is so volatile?

According to the crypto community, a correction of sorts has felt inevitable. The last time Bitcoin enjoyed this sort of run, back in 2017, it fell from $20,000 to around $3,000. It’s those concerns that may have fuelled today’s reversal as investors look to lock in their profits.

Its mad volatility has always been the biggest drawback of Bitcoin for its critics. The yo-yoing of its price since its inception has spooked would-be investors, who see the dramatic price swings as being demonstrative of a dangerously unstable, untested, alternative “bubble” asset.

The mini-crash this week, together with the FCA’s warning of looming regulation for cryptocurrencies, will not have won Bitcoin many new investors. The FCA was right to highlight the dangers involved in an essentially deregulated market.

Bitcoin’s growth over recent months has been remarkable. Its price rose more than 300% over 2020 (by comparison, the S&P 500 rose 18%). In less than a month, it doubled its value to pass the $40,000 (£29,500) mark for the first time.

But Bitcoin is a very risky asset. There are little in the way of fundamentals behind it, and next to nothing in terms of regulation. The underlying narrative of Bitcoin – that of a decentralised currency free from central bank tampering – is an uneasy one. It’s an asset that’s profited as much from an environment of incredulity as financial sense. Often such speculation serves as the basis for a good investment – often it backfires.

Although 2020 may have been the year of the Bitcoin, some experts still believe gold remains the overwhelming ‘safe haven’ of choice among most savers.

They also forecast that its price will rise this year as interest rates remain at rock bottom and governments continue to print money to avert a painful global recession.

Low interest rates negate the fact that gold does not pay an income – thereby increasing its attractiveness – while monetary stimulus means more money pouring into assets such as shares and gold. 

Gold finished last year at £1,382 a troy ounce, 19 per cent higher than it started 2020. Although it fell back from its record high in August (£1,570), gold specialists believe the price could reach a new high of £1,600 in the coming months.

The major driver of this advance in the gold price will be the printing of money on an unprecedented scale by the US and to a lesser extent other central banks. Investors will respond by putting more money into precious metals in order to preserve the value of their assets.

As well as the gold price advancing, he believes that the silver price should move upwards – from £19 a troy ounce to around £26.

Many investors are concerned that Bitcoin has been badged ‘digital gold’ because like the precious metal it is of limited supply and does not pay investors an income.

Cryptocurrencies such as Bitcoin couldn’t be more different from gold. Physical gold cannot be stolen by a hacker nor destroyed or lost forever simply by forgetting your password. Global bullion trading today represents a deeper, more liquid market than anything except US equities and government bonds.

Purchases will be driven in part by concerns over inflation and the precious metal’s increasing use as a portfolio diversifier.

Investors would be mistaken for thinking that gold’s run as a Safe Haven asset is finished because the Covid-19 virus might soon come under control. The upswing in the price of gold began 18 months before Covid-19, and its prime mover remains the slow but relentless devaluation of cash savings, with central banks committed to holding interest rates below inflation.

Exposure to gold can be obtained in various ways. It can be bought via an online trader. Alternatively, investors can buy into an investment fund that either tracks the price of gold or holds shares in companies involved in gold mining.

Consumers should also be aware that Bitcoin is not equivalent to cash. Money put into a cryptocurrency should be treated as you would any other risky asset – money that can be lost as well as grown.

But bitcoin does have some role to play, potentially, as a Safe Haven asset for 2021. Its rise in recent months has been driven primarily by concern over the sums that governments have thrown at the pandemic and the prospect of inflation that looms in their wake. To protect against the value of their investments being eroded by inflation, investors often like to hold a real asset (like gold), to serve as a hedge.

Bitcoin can serve a similar role. Its supply is finite – only 21 million coins will ever exist. You can’t just print off more Bitcoins like you can US dollars (or mine more gold). It’s easy to transact – not as easy as established currencies, but easier than gold. In times of uncertainty, this gives it value.

Yet that all comes with a big ‘but’. We’ve seen global markets soar to new heights this year, but all this fervour is founded on unease. The pandemic is rife; US democracy appears shaken; much of the world flounders in recession; many are not working. Yet optimism abounds.

This strange cocktail has brewed something of a perfect storm for stock markets and cryptocurrencies alike. If it all feels too good to be true, that’s probably a good instinct to trust. When it looks like something’s entering a bubble that’s destined to burst, chances are you won’t be the only person thinking it.

Let’s not get too carried away too by its sudden acceptance into the investment industry. There’s plenty of talk of mainstream houses getting in, with little action so far. For every institution that’s interested, there’s one that’s staying well clear.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his blog here and see his Twitter feed here.

Matthew Feargrieve investment management consultant

UK Regulator Issues Crypto Warning

Investment management consultant MATTHEW FEARGRIEVE considers the implications for the future of Bitcoin in the UK – and elsewhere – as the country’s financial regulator issues a stark warning about cryptocurrency.

The price of Bitcoin has slumped 28 per cent since Friday’s all-time peak, as the UK’s financial regulator warned investors betting on the cryptocurrency that they “should be prepared to lose all their money“.

In a statement posted to the markets yesterday (11 January), the UK’s Financial Conduct Authority (FCA) said that if investors investing in crypto should be prepared for massive losses. The statement says:

The FCA is aware that some firms are offering investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns. Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money.’

The volatile nature of these “cryptoassets” was highlighted again yesterday (11 January) as Bitcoin dropped 28 per cent from Friday’s record high of US$42,000, having doubled its value in less than thirty days.

Despite the closing price of US$30,200 yesterday, Bitcoin is still only at its lowest level since the 1 January.

The FCA statement assets that the “significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably” put investors at high risk of financial loss.

The FCA’s warning comes only a day after new UK regulations came into force requiring cryptocurrency firms to comply with anti-money laundering rules. All UK crypto players must register with the FCA under regulations to tackle money laundering. Operating without a registration is now a crime in the UK, punishable by financial penalties and/or imprisonment.

Notwithstanding these new crypto-specific AML regulations, the FCA’s statement of yesterday makes plan the watchdog’s concern that some firms that promise high returns may not face any regulation beyond basic money-laundering requirements.

This growing regulatory burden on crypto is seen by many as a worrying development, one that will lead to significant drags on value, together with operational problems such as those currently being experienced by thousands of users of the leading Bitcoin exchange Coinbase.

Yesterday’s statement will be of particular concern to the growing number of crypto brokers and exchanges in the UK, and the thousands of financial advisers who will have felt emboldened by the growing value of institutional allocations to Bitcoin to recommend cryptocurrency as a punt for their customers. The FCA statement makes clear and deliberate reference to crypto investment firms which may be overstating potential payouts, or understating the risks, entailed by investing in cryptoassets.

The UK regulator’s statement yesterday is the latest – and most explicit – manifestation of growing concern amongst its chief staffers that the explosion of interest in crypto during the Covid-19 lockdowns of 2020, fuelled by institutional investors and hedge funds, together with stuck-at-home retail investors with time on their hands, is ballooning into one big systemic risk that the regulator barely understands and is, so far, really regulated only by anti-money laundering rules and by little else.

The FCA banned the sale of derivatives and exchange traded notes that reference certain types of cryptoassets to retail consumers in October 2020, after months of work examining consumer risk in the sector. In February 2020, the watchdog probed Sipp providers over their exposure to cryptocurrencies. And in 2019, it had canvassed the views of financial advisers in a targeted survey about their interest in cryptoassets.

As the popularity of cryptocurrencies grows, the FCA has urged consumers to understand what they were investing in and the financial risks involved, given they were unlikely to be protected by UK schemes that help investors reclaim cash when companies go bust, but up to a maximum of £85,000.

The FCA said the complexity of some services and products linked to cryptoassets made it hard for consumers to understand the full risks. There was no guarantee that cryptoassets could be converted back into cash, putting consumers at the mercy of supply and demand in the market.

As posters advertising Bitcoin have started popping up on the London transport system (see our earlier blog here) there is growing concern that retail investors may be being seduced by false promises of easy returns. The FCA warns that “consumers should be wary if they’re contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true“.

The worry is that ordinary consumers are being taken in by glossy marketing that hypes the meteoric rise of bitcoin, and decide to invest in cryptoassets without first grasping that they are a relatively highly complex and high risk alternative asset class, compared equities and bonds that comprise the vast majority of savings and pension plans in the UK and worldwide. Many consumers will be misled by their advisers, and many will not have been informed that cryptoassets should only be a small proportion of a portfolio.

For many crypto sceptics, the FCA’s intervention will only amplify their long-held concerns about the viability of Bitcoin and other cryptocurrencies as a stable long-term investment.

The parabolic curve in prices over 2020, that is being sustained to some extent in January, is still haunted by the crash of 2017. Many investors big and small, and many market commentators, are thinking ‘this time it will be different’, whilst others still find it hard to ignore the fact remains that the asset is extremely volatile.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his blog here and see his Twitter feed here.

Matthew Feargrieve investment management consultant

Coinbase Customers Locked Out of Bitcoin Surge

Investment management consultant MATTHEW FEARGRIEVE looks at the plight of Coinbase customers as the crypto exchange blames “technical issues” for freezing their accounts in December and January.

In a much publicized and embarrassing service failure, California-based cryptocurrency exchange Coinbase have only just resolved the account freeze that presented thousands of customers trading Bitcoin over the historic helter-skelter ride of the world’s leading cryptocurrency.

Whilst Bitcoin broke through record after record in 2020, and has sustained its momentum so far in January (notwithstanding a small crash last week), some Forty Thousand customers of Coinbase found their accounts frozen.

The crypto exchange, which is based in California, feebly blamed “technical” and “connectivity” issues” for the failure in service, without volunteering any further details. This has, understandably, left thousands of Coinbase users fuming.

The Coinbase website says that the company has more than 35 million users in over 130 countries worldwide, with more than US$320 billion traded since the exchange’s inception in 2012.

The exchange is popular with casual investors, who are able to buy bitcoin with smaller sums of money than the thousands of professional traders who rely on the exchange being fully accessible and operational.

Many of these frustrated customers are still being told by Coinbase that their accounts are “under review”, despite having provided the customary KYC checks and documents on account-opening.

This, for thousands of Coinbase users, including professional traders of Bitcoin, has been the unhappy backdrop to a period of several weeks at the end of 2020 when the price of the world’s leading cryptocurrency went from strength to strength. The number of customer complaints being handled by the company’s service team in San Francisco is said to have peaked this week, as Bitcoin briefly broke through US$40,000.

Coinbase circulated a customer update on the morning of Friday 8 January: “We’re aware that some customers experienced issues while using Coinbase today. We know that we’re letting many of you down and we’re committed to doing better. We appreciate you bearing with us during this exciting time for the cryptoeconomy“.

The exchange’s customers first began reporting difficulties accessing their money in October, with even those who had been with the platform for years told they needed to re-upload identity documents like their passport and driving licence, after which they were told their accounts were under review and were unable to access their money.

Since the end of October, when customers began reporting their accounts were frozen, the price of Bitcoin has risen from just under US$13,900, a rise of around 133 per cent.

This week, thousands of traders using Coinbase were unable to access their deposits, being told that their accounts could not be accessed pending resolution of account-opening checks that they thought had been put to bed months ago.

Many traders saw the December dip in Bitcoin and wanted to take advantage of it. Trying to buy directly on the Coinbase app, they received a notification that their account had been restricted, with the result that they were completely unable to buy and sell. Many lost out on lucrative market opportunities, whilst others were unable to hedge and sell when the market moved down, their deposits losing value in the process.

Many traders withdrew their deposits and closed their accounts as soon as they were allowed back in.

It is the case that regulation of cryptocurrency trading has been increasingly tightened in recent years, with traders now having to provide more information than they would have previously. Notwithstanding this backdrop, Coinbase has in the past made somewhat oblique references to the increase in Bitcoin regulations as being the cause of enhanced due diligence and KYC checks being carried out on its users.

This increase in documentary requirements from customers has coincided unhappily with the recent massive surge in the price of Bitcoin which naturally opened the flood gates to thousands of new customers joining the platform.

The problems at Coinbase are apparently not common to its competitors, notably Malta-based Binance and California-based Kraken. Nonetheless, the service failure at Coinbase has been significant enough to have caused large amounts of bitcoin and ethereum to have been blocked out of the whole crypto system.

Coinbase, evidently feeling the pressure, issued a statement in the following terms:

Unfortunately, we’re aware that some customers are still having issues accessing their Coinbase accounts. These customers, often for no fault of their own, are being hit by a confluence of factors.  As a regulated financial services company, we’re required to maintain rigorous compliance standards in line with other financial institutions in the UK. To ensure compliance with recent regulations, we’ve had to seek additional documentation or information from some customers. While we appreciate that this is a burden for some, it’s our responsibility to meet the standards set by regulators. In addition to this, over the past two months we’ve seen a sustained market rally that has brought a significant number of new customers onto our platform and re-engaged many existing, yet passive, customers. These two factors combined have led to an unacceptable lag in our customer support response times.”

This will be small comfort to the thousands of Coinbase users who have lost money, many of whom will no doubt be scanning the terms and conditions they agreed when they joined the platform.

Whilst causing Coinbase a large degree of public embarrassment, this highly-publicized service failure is bad news for the crypto industry as a whole, and not just because of the thousands of Bitcoin trades that were unable to be transacted by Coinbase customers.

For Bitcoin to be taken seriously as a viable, long-term investment, it must shake off niggling concerns about its seemingly-intrinsic price volatility, and the reliability (even legality) of its underpinning operational systems. These concerns are still widespread in the investment management industry, notwithstanding the large amount of institutional allocations that Bitcoin has received in the last two quarters.

The Coinbase service failure does nothing to help assuage the worries that traditional, mainstream management firms, as well as smaller investors, continue to have about the operational soundness of crypto systems.

As a double whammy, Coinbase’s system problems also stem from the increasing regulatory burden that crypto providers must learn to deal with – and fast.

So the unhappy experience of Coinbase users compounds two of the three biggest turn-offs about Bitcoin and cryptocurrencies: one operational, the other regulatory.

The third, of course, is Bitcoin’s tendency to a high degree of sudden and unexpected volatility. The price trajectory of Bitcoin over 2021 is entirely another matter (and is addressed in our blog here). In part, 2021 prices will turn on how much the institutionals and hedge funds allocate over the course of the year. But jitters caused by Coinbase’s failure of service will not help Bitcoin’s bid to the become a serious, long-term investment in 2021.

MATTHEW FEARGRIEVE is an investment management consultant. You can read his blog here and see his Twitter feed here.

Matthew Feargrieve investment management consultant

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