Implications of switching to assets of tomorrow - Jim Duffy comment

We are certainly living in unprecedented times.

This generation is moving away from investing in older industries into newer, sexy ones, says Duffy. Picture: John Devlin.

For those of us who remember the financial crisis of 2009, we are fairly used to dealing with volatility. But that was a financial crisis and it was fixable – to an extent. This current global pandemic, which is not over by a long way, has triggered an economic crisis. And unfortunately it is not as easily remedied by central banks and governments. It has caught out even the most experienced operators and precipitated some hard talking in boardrooms.

The stalwarts of the FTSE have long been the oil companies. Pumping oil and priming stock markets with massive dividends that have shored up pension schemes. However, the global pandemic may now have brought oil-producers to their senses. It is time to take stock.

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BP recently sent another shockwave through broker trading rooms, downgrading its forecasts for the price of a barrel of crude, potentially costing it $17.5 billion (£14bn). These new assumptions are playing right into the hands of the new generation of investors.

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Will Covid-19 crisis finally drive a Bitcoin revolution? - Jim Duffy

Retail banks are struggling to turn a profit and we can think of these as the BPs and Shells of the banking industries. Huge monoliths with legacy systems to turn around to become competitive. But the new generation is already moving elsewhere. Monzo the digital banking app, for example, reportedly had 3.5 million customers in February of this year, for example.

A significant number of people choosing a new way to bank. Of course, and to be fair to the legacy banks, the likes of Monzo ain’t turning a profit either, operating on massive tranches of investment from equity players who see an exit in the future. But the point here is that folks are switching away from what was deemed “traditional”.

And this is where outflows of money and cash in investing become interesting, especially for Scotland. Not only are this generation moving to new digital banks, they are also moving away from investing in older industries into newer, sexy ones. Industries that have been created for them and by them. No, their £1,000 is not going into BAT, BP or Wood. It’s headed into the likes of Bitcoin, Cardano, VeChain and Tezos.

Double-whammy

And these are not available on the FTSE or Aim. No, these “assets” can only be bought on cryptocurrency exchanges. Yes, a whole new world of investment is being created. And this is a double-whammy to traditional market players who are downsizing balance sheets. Markets need liquidity or new cash to keep them going.

But if investors are retreating from what has been the meat and two veg of investing – Shell, for example – and into digital assets, it creates a problem. Who is going to want the shares of these big institutions? And Scotland has a great lump of them operating, for now, on its shores.

It’s fair to say, I’m a cryptocurrency enthusiast and hold at least ten different assets. Many of you might think crypto is a flash in the pan, unsafe and will fizzle out like the Delorean motor company. Ten years ago, one could have argued strongly for that, but with a market cap of more than $273 billion, this new asset class is growing.

But it’s not just the “kids” adopting a new way to invest and a new crop of 21st century companies in which to invest. Large family offices, high-net-worths and millionaires are also piling into cryptocurrencies as they hedge and venture into new ways to make cash.

Currently, Grayscale, a global investment broker, offers products to those of means who wish to invest in the likes of Bitcoin, but which their traditional bankers and brokers can’t access. Even the wealthy are diversifying, it seems, in times of great uncertainty and money-printing. And if you can’t show you have a million handy, you can’t get in the door.

We could be witnessing a new industrial revolution, but it isn’t clear yet. I do hope those charged with keeping Scotland current are not pinning their hopes on one investment bank to buy into old asset classes. It is time to bring ourselves up to speed…

Jim Duffy MBE, Create Special

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