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Posts by: Gary Mead

Soapbox: Archegos and more toxic bank lending

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A mammoth container vessel gets stuck in the Suez Canal and creates a bottleneck in global trade. Total trading losses from the grounding are calculated at $54 billion. Meanwhile, a ‘family wealth’ firm called Archegos – from the Greek, meaning ‘the one that takes the lead’ – blows up, leads to mammoth losses for banks, and jolts the stability of the global financial system. With another $10 billion down the drain.

A black swan event is something unpredictable, beyond what is normally expected. The grounding of the container vessel Ever Given in the Suez Canal was unpredictable and unexpected – but surely the implosion of Archegos was built-into the financial system, which seems to have learned nothing from the Great Financial Crash of 2007-09? Given the way that banks still operate, where massive leverages (using debt to invest) are commonplace, an Archegos event was just waiting to surface. What is worrying is that, thanks to banks having learnt little from the 2007-09 debacle, there may be more Archegos’ lurking.

Some recent notable ‘black swan events’: Source: Visual Capitalist


‘Family office’ sounds cozy

Archegos is (or maybe that should be ‘was’) a ‘family office’ that traditionally handles investment and wealth management for a wealthy family, generally with at least $100 million of investable assets. It started life in 2013. As of last year Archegos managed $10 billion.

That definition – ‘family office’ – is important.

After the Great Financial Crash of 2007-09 the US tried to tighten its scrutiny of the financial services industry. It passed into law the ‘Dodd-Frank Wall Street Reform and Consumer Protection Act’. This was intended to restore stability and resilience to the financial system. However, as the former Economist financial journalist David Shirreff said in his excellent short book, which called for a ‘banking revolution’ after the 2007-2009 systemic meltdown, “the Dodd-Frank Act of 2010…lost its edge in the course of implementation”.

Critically all ‘family offices’ are excluded from some of the criteria of the definition of ‘investment adviser’. The Private Investor Coalition or PIC, which was formed in 2009 and is an opaque “coalition of single family offices” proudly lists as one of its ‘accomplishments’ its successful lobbying in Washington D.C. to get family offices exempted from the US Securities and Exchange Commission (the SEC – America’s financial watchdog) registration as financial advisers.

Archegos was created by Bill Hwang, formerly of Tiger Asia Management, a multi-billion dollar hedge fund. In 2012, Hwang pleaded guilty on behalf of Tiger Asia Management to US charges of fraud. The charge was that through insider trading the firm gained $16 million of illicit profits in 2008 and 2009.

The primary holdings of Archegos were in total return swaps, an arcane financial instrument whereby the underlying stocks are held by banks – which meant that Archegos had no obligation to disclose its large holdings, which it would have had to do if it had dealt in regular stocks.



How does a man with a criminal record for insider trading get to manage a ‘family firm’? And is that ‘family firm’ definition a mere fiction, constructed so as to avoid SEC scrutiny?

There could be as many as 10,000 ‘family offices’ around the globe, with around $6 trillion of assets under management. The Investment Advisers Act of 1940 – from which ‘family offices’ are excluded – requires registration with the SEC. Had Archegos not been able to elude the SEC’s supervision, it would never have got off the ground – registration with the SEC fails if “the adviser or one of its employees has” committed a securities-related crime.

What has happened?

As recently as 2018, Bill Hwang was deemed by Goldman Sachs to be so risky that it refused to do business with him. That blacklisting didn’t last long. He soon became a valued (and valuable) client of Goldman Sachs, which was joined by the likes of Morgan Stanley, Credit Suisse, Nomura and other investment banks who formed an orderly line to lend him billions of dollars so that he could make his highly leveraged bets on the US media companies ViacomCBS and Discovery, and various Chinese companies such as the internet company Baidu.

Wall Street analysts had begun to feel uncomfortable about the speed of the stock price rise of some of these companies – ViacomCBS had surged past $100 from $14 and Discovery had climbed from $30 to $80 in a few months – and they started to downgrade them, triggering downward spirals in their price.

By Friday last week, the value of Archegos’ holdings had dropped and his banks started to make margin calls – asking Archegos to deposit additional money, or sell some of stock. Archegos started to sell and is thought to have sold shares worth $3 billion, triggering a wider sell-off and price falls, not just in the shares held by Archegos but also the banks that had extended credit to Archegos. The share price of Nomura and Credit Suisse fell by more than 10% on Monday this week.

As in 2007-09, bankers have again been seduced by greed and shown themselves unable to assess their own exposure to risk. In the words of the Financial Times: “Hwang was seen as a compelling prospective client by prime brokers, the potentially lucrative but risky division of investment banks that loans cash and securities to hedge funds and processes their trades. Concerns about his reputation and history were offset by a sense of the huge opportunities from dealing with him…The fee-hungry investment banks were ravenous for Hwang’s trading commissions and desperate to lend him money so he could magnify his bets”.


What will happen now?

It’s possible – but unlikely – that we could be headed for a repeat of the 2007-2009 years, when banks blew themselves up via complex derivatives based on their over-leveraging. Some are optimistically pointing to the fact that banks are much better capitalised today, so are more able to withstand this kind of shock. Yet it is thought that around 10 banks racked up more than $50 billion of credit exposure to Archegos. The biggest fear is that what happened at Archegos could be the start of a domino effect; another Japanese bank, Mizhuo, has started an internal investigation into possible losses resulting from its involvement. Two others – Nomura and Mitsubishi UFJ – have warned they face losses of (respectively) $2 billion and $270 million.

Scarcely a decade after the last financial implosion regulatory control and banks’ self-supervision has failed once more. David Shirreff wrote that “‘sophisticated finance’ has developed into a self-serving, self-congratulating culture”; a culture that clearly – from the evidence of the banks’ failure to scrutinise Archegos – remains a threat to the preservation of financial value.

And that’s why Glint was created in 2015 – to enable everyone to own gold, to use gold as money, regardless of how rich or poor. And to be free of the kind of banking culture that is too cavalier about risk. Placing money on deposit with banks is no longer as safe as it used to be. Placing money in gold with Glint does not carry those banking risks – the gold is physically allocated to you (meaning no-one else but you can touch it), and is held in a secure Swiss vault.

Soapbox: What are US bonds telling us?

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The consensus about the US (and the global) economic recovery is that it will be strong, fuelled by a successful and widespread vaccination programme which is likely to ensure herd immunity in the UK and US – perhaps Europe won’t be able to join the party – by the early summer.

In the US, the personal saving rate – personal saving as a percentage of disposable personal income, which may “generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences” has reached a record high. All that lovely money waiting to escape!

The US Federal Reserve expects growth to be 6.5% this year, unemployment to be 4.5% by the end of the year and “core personal consumption expenditure inflation”, the Fed’s preferred inflation measure, is expected to rise to 2.2%, above its 2% target. The Fed is taking a relaxed view about inflation; Robert Kaplan, president and CEO of the US Federal Reserve, says that he expects the Fed to “start raising rates in 2022”. In March 2020, the Fed said it was expanding its quantitative easing (QE) to unlimited amounts. The Fed will continue to buy US Treasury bonds at the rate of $120 billion a month until “substantial further progress” is made towards its goals – which are, we remind you, two-fold – “stable prices and maximum sustainable employment”. It deliberately avoids defining what “maximum stable employment” might mean. About 41% of Americans who are out of work have been without a job since last August and are classified as ‘long-term unemployed’; in the Great Recession of 2007-09 it took almost two years for the long-term unemployment rate to reach that level.

In February, Janet Yellen, the US Treasury Secretary said although the official unemployment rate was 6.3%, the effective rate was close to 10%; pre-pandemic it was 3.5%. Getting to 4.5% unemployment by the end of this year is a very tall order. Yellen is super-relaxed; she also said that interest payments on the US federal debt were no higher than in 2007 and stood at about 2% of GDP – i.e. about $429 billion. Others have calculated that the US must pay its creditors $1 million (£725,000) every 1.4 seconds.

The Fed used to hike interest rates in anticipation of higher inflation. Now it’s waiting to see how high inflation goes before any rate rises.

All this sounds like mom-and-apple pie. What could upset the apple cart?

The Biden-Yellen gamble


What happens in bond markets gives a more objective view of the future than given by any central banker, all of whom have a vested interest in taking a rose-tinted view of likely outcomes.

In this respect, it’s worth noting that the yield on the US 10-year Treasury bond, one of the world’s most closely watched interest rates, rose above 1.7% last Friday, up from 0.92% at the beginning of the year, as investors sold the debt. The yield on the 30-year Treasury bond moved above 2.5%.

This run-up in bond interest rates at the long end of the curve reflects expectations of a higher inflation rate – which is precisely what the Fed wants to see happen. Treasury yields are often seen as a barometer of inflation expectations; when investors expect higher inflation, bonds become less attractive and are sold, while yields, which have an inverse relationship with bond prices, increase.

The question is – who to believe? US bond yields are telling us that inflation is coming back, possibly quite strongly. Yellen and the US Federal Reserve Governor, Jerome Powell, are telling us to stay calm, relax, nothing to see here, move along. What President Joe Biden, architect of a gargantuan $1.9 trillion ‘stimulus’ package, thinks, is anyone’s guess. On top of that $1.9 trillion, Biden is now contemplating an additional $3 trillion splurge on infrastructure, clean energy and education.

The temptation for Yellen and Powell will be to ignore the inflation-is-back market signals until the very last minute; if they pushed up interest rates too soon that would choke off Biden’s stimulus efforts. Rudiger Dornbusch, the late German-born economist who worked at MIT for 27 years, once said that none of the US expansion efforts in the second half of the 20th century died in bed of old age: they were all “murdered by the Federal Reserve”.

The latest expansion effort is so closely aligned with Biden’s electoral success and the Democrat Party’s principle mission – “a better, fairer, and brighter future for every American” – that it is unlikely to be murdered by the Fed moving on interest rates.

But leave it too late and inflation might get a grip and move beyond control. In 1965, the US inflation rate was just 1%; 15 years later it hit 14%. Biden’s $1.9 trillion could turn out to be no more than a sugar rush; where will all this free money go? It’s already had a notable impact on the inflows into equity funds – almost $170 billion have gone into stocks and shares in the past month. US money supply has been growing at an annual rate of 30% and in January this year reached its highest level in history.



The free money idea is starting to take hold in the US. The Universal Basic Income (UBI) notion is getting wider attention and grassroots’ support, following a two-year experiment conducted in Stockton, California, which gave all its inhabitants $500 a month, no strings attached. Dozens of town mayors have now joined the Mayors for Guaranteed Income organisation. The Stockton mayor said there was a remarkable increase in reported wellbeing among his citizens as a result of the $500 per month. Who doesn’t like free money?

There are two essential forms of inflation – demand-pull and cost-push. In my view –the Fed and the Biden administration are taking “steps into the unknown” in the words of Larry Summers, President Obama’s former top economic adviser. Pumping money into an economy will increase demand for goods and services, businesses will struggle to increase production; supply could remain constant and hey presto! we have demand-pull inflation.

In any case however, more extreme currency movements are likely, bonds will continue to give us inflationary signals, and – despite some short-term volatility, resulting in a 20% or so decline since gold’s peak last August – using gold as money via a Glint account may help you to withstand a weakening fiat currency; and could help offset the likely continued decline this year in the US dollar’s purchasing power.

Soapbox: Helicopter money floats across the US

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Millions of US individuals and families are receiving their federal gifts, in the form of $1,400 ‘stimulus’ checks ($2,800 for married and joint tax-filers) thanks to the passage into law of the American Rescue Plan Act of 2021. If they are a family of four and have two qualifying dependents they could be getting $5,600. These ‘Biden bonuses’ will go to anyone who earns less than $75,000 (around £54,000) a year; in 2019 that was about 53% of Americans.

Can the US afford to give away $1.9 trillion? An absurd question – the answer is clearly both yes and no. It can because the government controls the printing presses and can obviously just churn out more dollar notes. It probably shouldn’t because the US national debt is now more than $28 trillion, with a per citizen debt of some $85,000; the federal debt-to-GDP ratio is now almost 130% – in 1960 it was some 53%. The US spends about $365 billion a year on interest payments on this debt; in 10 years that interest payment will have doubled at least.

The US government has been hyperactive in giving away money in the past year. In total there have been five stimulus-and-relief packages since the pandemic began to make itself felt in March 2020. This latest, called the American Rescue Plan Act, 2021, which will distribute $1.9 trillion in a confusing multitude of ways, follows the Coronavirus Aid, Relief, and Economic Security (CARES) Act of March 2020, which gave $2.2 trillion to businesses, states, municipalities and individuals. The Consolidated Appropriations Act, 2021 (all 5,593 pages of it, the longest Bill ever passed by Congress) gave out $2.3 trillion. Altogether the largesse has been staggering – about $8.5 trillion.

This is a mind-boggling sum. Some are worried that as much as $30 billion will find its way into the US stock markets, pushing asset-price inflation even higher. American day-traders playing the stock markets could put almost $3 billion into equities when they receive their latest cheques.

Modern Monetary Theory

What is the point of doing this ‘stimulus’? Is it to raise the poor out of their poverty? Or to kick-start economic growth? Or both?

In the US, anyone who has an income of $13,011 a year is defined as living in poverty. Total welfare costs have risen from $722 per person in poverty in 1964 to $22,740 per person in 2019. Yet despite the increase in spending, the poverty level ‘status’ has remained fairly constant at between 11% -15% of the population.

It would be churlish to argue that those who are truly poor should not be helped by the state, but living in ‘poverty status’ – which is about 12% of Americans – is very different from the number actually living in poverty, which one source puts at about 3%.




Proponents of Modern Monetary Theory (MMT), who now seem to be in the driving seat of governments and even international institutions, argue that such state largesse doesn’t matter, and especially doesn’t matter at a time of crisis such as in the Covid-19 global pandemic.

MMT argues that governments can spend as much as they like without worrying about paying for it with higher taxes or increased borrowing – they can pay using new money created by their central bank. The only limit is if inflation starts to rise; in which case the solution is to increase taxation and raise interest rates. But those actions would hamper economic growth – hence the dilemma facing the US federal government, and why it is currently taking a relaxed view about the prospects of inflation.

Bubbles getting bigger

Signs of economic and financial bubbles now surround us. In the US, daily stock trading volumes – which averaged 10.9 billion in 2020, more than three billion up year-on-year – are averaging 14.7 billion so far this year. The total value of SPAC (special purpose acquisition companies) deals rose by 400% between 2019 and 2020. Real estate prices are rapidly rising outside of major cities. While many low-end service workers have lost their jobs, higher-paying professional jobs were unaffected and even prospered. Low-skilled jobs such as warehousing, grocery stores, and delivery services have boomed.

“The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000… this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios”. So said Jeremy Grantham, co-founder of GMO asset management, at the start of 2021.

It’s clear that much of the ‘stimulus’ money is going into speculative fervour. A good example is the rise of Bitcoin, which has hit a new record of $60,000. Governments think that giving away money encourages people to buy stuff and get the wider economy moving again; but vast sums have been ploughed into financial assets, or legitimised gambling. This does not drive real economic production, the production of goods and services actually serving a human purpose.

The mission of the US Federal Reserve is to ensure maximum employment and stable prices. With 10 million jobs still lacking from where we were in February 2020, this latest US ‘stimulus’ may not be the last. ‘Stable prices’ however may fall by the wayside.

No-one can tell when or how this bubble will pop. No-one can tell how it will affect the overall economy. No one can tell the future for fiat money (although if the past is any guide the purchasing power of fiat money has only one direction – down). The uncertainty is profound. Of course, at Glint, we understand that the value of gold against fiat currencies doesn’t always increase and right now we are experiencing a dip, but despite the fall in the gold price by some 15% since its peak last August, we believe that gold remains compelling. Twenty years ago, gold traded at around $275 an ounce; even at today’s lower-than-peak price gold has risen by more than 500% over those 20 years.

Soapbox: A Finite Supply of Fools

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Sometimes it’s hard to stand aside and just watch. What would you have done during the tulip mania or South Sea bubble episodes? Would you have had the fortitude to stand back and let others make fortunes (or lose everything) from things that had little or no intrinsic value? Or might you have succumbed at some point and put your life savings into something that you could not exchange and whose use-value was zero?

Yes, we are back in the land of Bitcoin and other cryptocurrencies.

The price of Bitcoin has surged by almost 10% in 24 hours (as of Tuesday afternoon this week) to above $54,000 and within spitting distance of its record price (so far) of $58,000 on 21 February. Bitcoin’s market capitalisation is above $1 trillion (£720 billion) with some exuberant fans saying it could rise to around $100 trillion.



In the US, Coinbase Global, which claims to have 43 million verified users who can trade Bitcoin and other cryptocurrencies, plans soon to do a public listing on Nasdaq, with a valuation of around $100 billion. On its website, Coinbase, which has been in existence for just nine years, says its genesis was the “radical idea that anyone, anywhere, should be able to easily and securely send and receive Bitcoin”.

As the above chart shows, if Bitcoin is a bubble it’s gone much higher and faster than either tulip-mania or the South Sea version. There’s no conclusive evidence that it either is or is not a bubble. Only time will tell.

The cryptocurrency revolution

One thing is for sure – the 2008 financial crash spawned many profound socio-economic changes and the development and growth of cryptocurrencies is one of them. It’s a revolution and, like many revolutions, the appeal is mostly for younger generations. According to a survey of February this year, 40% of British 18-34 year olds said they had bought at least one type of cryptocurrency, dropping to just 4% for those aged 55+. It’s also more of a male thing – 24% of men have bought some compared to 13% of women. 71% of Brits say they have no intention of ever buying any cryptocurrency.

The most popular reason why people have already bought, or intend to buy, cryptocurrency is that they believe it is going to be very influential in the future (23%). This is closely followed by 21% of people who are frustrated with the interest rates for savings accounts. Other reasons why people include not wanting to miss out (20%). 19% of potential, or existing, crypto buyers said it seems like an easy way to make money. 16% said that influential people, such as Elon Musk, talking about cryptocurrency had convinced them to invest.

Risky investment or money?

We understand why cryptocurrencies were created. It’s about declining faith in fiat currencies, and the desire of people to avoid from becoming hostages to government control over their personal wealth. Fiat money, the money most of us live by, is a currency that a government has simply declared to be legal tender, despite the fact that it has no intrinsic value and is backed by nothing. Cryptocurrencies share those two latter characteristics with fiat money.



But we think that cryptocurrencies are nevertheless going to become a permanent feature of the financial landscape, if only because the temptation for governments to use blockchain technology (which underpins cryptocurrencies) is just too strong. Governments everywhere, from China to the US, are already rolling out their own state-controlled digital currencies (CBDCs and/or stablecoins) or planning to do so.

What do we want from a currency? A number of things:

1. We want it to be stable – or as stable as possible – over time. If it loses purchasing power then public confidence in it will die.

2. We want it to be free, as much as possible from manipulation, so that we can rely on its value.

3. We want to be able to use it whenever we like or need, to buy a coffee or a home.

4. We want to be able to save it for the future.

5. We want to be able to transport it easily and be able to use it when we go travelling.

6. We need our currency to be easily transportable and liquid (i.e. how quickly it can be used).

These minimal considerations are overlapping, crossing both immediate ease-of-use and investing. In our view holding gold with Glint fulfils all these needs while cryptocurrencies meet only 2 and 4 – and perhaps not even those.

Gold is now transportable

A paper published in January this year argues that Bitcoin’s volatility is almost 10 times higher than those of major exchange rates and that therefore “Bitcoin cannot function as a medium of exchange and has only limited use as a risk-diversifier”, although Bitcoin “shows store of value properties”.While cryptocurrencies are invulnerable to bank robberies and counterfeiting, their computer-based development make them a potential target of “denial of service” attacks.

Bitcoin is massively illiquid; 78% of Bitcoin is illiquid. It is a Godzilla of energy consumption; Bitcoin uses more electricity than Argentina. And there is an increasing likelihood of a tightening regulatory noose around the privacy of cryptocurrencies.

One of the old drawbacks against gold being used as a currency was the (previously justified) claim that it was heavy and not easily transported. With Glint this has been eliminated. Glint enables its users to carry with them any amount of gold, from millions to just a few dollars or pounds, which can be spent and used in daily life – or saved if you prefer. For us, the advantages of securely-held Glint-gold easily trump the slow, energy-heavy, vulnerable and hardly usable Bitcoin – or any other cryptocurrency would-be currency.

Bitcoin and many other of the 3,999 cryptocurrencies now in existence are no doubt here to stay. Governments will use the underpinning technology for their own purposes – but gold is not open to government manipulation. With Glint, gold has already become the alternative currency; immediate, transportable and easily accessible as an instant means of payment.

Soapbox: Tip-toeing into the unknown

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Should we all feel a bit of sympathy for Rishi Sunak, the UK’s Chancellor of the Exchequer, who delivered his second Budget on Wednesday this week? It’s an unenviable job, trying to ensure that the 2 million British unemployed are financially supported while simultaneously pondering how the country might pay back the billions it has borrowed and/or created during the Covid-19 crisis. The government’s support to the economy in response to the pandemic will total £407 billion. The Budget announced a further £65 billion in additional spending.

Some commentators believe that the national debt – now £2.1 trillion, which we are adding to at the rate of some £30 billion a month – really is not a problem. It’s certainly not a problem on the US scale, which has a national debt of some $28 trillion. Government debt is not like personal debts on a credit card. Governments always can just roll-over national debt: “when times are hard the whole point of governments is to intervene and support the economy until the private sector comes back” says one financial journalist.

Yet that £30 billion could be spent in better ways than servicing the national debt. It’s about a sixth of the annual budget in 2020/21 for the National Health Service, for example. And the critical point is the presumption that the private sector will come back. It may come back with a vengeance.



The hit from Covid-19

“Coronavirus has caused the largest and most sustained economic shocks this country has ever faced”, said Sunak. Government borrowing, he said, is now on course to reach 97% of the UK’s national income. 97 pence in every pound spent by the government borrowed, in other words.

The Chancellor said the government would do “whatever it takes” to support the ailing economy. So he extended the ‘furlough’ job support scheme (which pays 80% of the wages of those made temporarily unemployed, up to a maximum £2,500) until the end of September; handed out more grants to the self-employed; extended for another six months a £20 increase on universal credit; promised grants worth a total of £5 billion to businesses; and extended a break from the ‘stamp duty’ (the tax payable on buying a home) until the end of June. In the UK, universal credit pays £342.72 a month for single claimants under the age of 25, £594.04 a month for joint claimants aged over 25. There is a complicated maze of other top-ups.

During the pandemic lockdowns, the under-25s have been hardest hit – more than half the total number of unemployed is in that age bracket. But Rishi held out a huge lure for younger people, with his announcement that mortgages will soon be available for as much as 95% of a home’s value for a first-time buyer. That sounds like good news, but memories are short – let’s not forget that 2008’s financial crash was built on “sub-prime” mortgage lending in the US. More young people will be able to buy a home – and more young people who can’t meet the mortgage repayments will find themselves in financial difficulty. Be careful what you wish for.

The can is kicked down the road

The Chancellor made much of his being ‘honest’ in the implications of his Budget, although what he meant by quoting the 19th century poet Tennyson – “That which we are, we are” – is anyone’s guess.

He took a relaxed view when it came to repaying the accumulated debt – personal tax rates will be frozen for four years, which is a stealth tax and will be a pretty big tax grab, especially if inflation picks up. He also raised corporation tax on profits to 25% from 19%; companies with profits of up to £50,000 will continue to pay 19%. That annoyed the Confederation of British Industry, the club of the biggest companies, who fear it may deter investments in the UK.

The Chancellor hopes that the extension of the furlough scheme and cash-flow support for businesses will help keep unemployment from rising above 6.5%. Nevertheless, alarm bells have been ringing among hospitality/consumer services.

Half of firms in this sector say they have less than four months’ worth of cash, while almost a third say they have little or no confidence they can survive the next three months. At some point, the ban on commercial evictions will end, raising the question of what happens to months of unpaid rent for many high-street firms. Repayments on government-guaranteed loans will also begin later this year.

What will happen when the lockdowns finally end? There will certainly be a lot of cash around – Britain’s four big banks took in more than £200 billion in new deposits in 2020. All kinds of firms which have struggled through the months of no customers will be looking to try to claw their way back to profitability. It would be miraculous if some of them didn’t put up prices; and prices which have gone up under Covid – such as dentists charging extra for PPE – are unlikely to come down.

The Office of Budget Responsibility (OBR), which is supposedly independent although is funded by the Treasury (Sunak’s department) thinks the UK economy will grow by 4% this year, 7.3% next year, and 1.7% in 2023. This can only be guesswork.

Let’s suppose Rishi gets lucky, and the UK economy starts to motor again by the summer. A lot of the pent-up savings now sitting in banks will be spent. The markets don’t seem to credit that next year will see a slow-down in government borrowing – the yields on government bonds rose slightly as Sunak spoke. Altogether this is becoming a very heady cocktail, in which more borrowing and a gush of spending might coalesce and cause more headaches down the line. The OBR says that the tax burden will rise to 35% of Gross Domestic Product in 2025-26, a level not seen for half a century.

Rishi Sunak, President Joe Biden, Ursula von der Leyen or any other democratic leader all face an uncomfortable future, trying to square a circle – supporting government give-aways while struggling to reduce government debts. Individuals face an uncertain future too, once lockdown ends. Given that you are not as rich as Rishi Sunak, what can you do?

You could use gold to buy, spend and save as money with your Glint account. Admittedly, the gold price has lost some 15% since it peaked last August at more than $2,000 an ounce; however, compared to late March 2020 the gold price is 15% higher; the price of gold goes up and down. But in its favour gold is no-one’s liability and historically preserves its long-term value. It might just come in handy in the uncertain times ahead.

Soapbox: Why hold gold?

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The conventional answer to this question is that gold is “a form of saving for a rainy day”, a form of “financial insurance. You shouldn’t trade your gold. You wouldn’t trade an insurance policy, so don’t trade your gold”.

On this outlook gold is static, inert, a kind of escape hatch for when everything goes pear-shaped. It’s a mistaken view, or at best only half-true. The escape hatch scenario comes into focus when some dramatic geo-political event occurs and heightens uncertainty, such as the bombing of the Twin Towers on 9/11 2001 – the gold price spiked from $273 per ounce in the morning of 9/11 to $290 but by 24 November it had retreated to around $272. Uncertainty created nervousness which led people to buy into gold’s escape hatch scenario. Those who bought gold on 10/11 2001 will have felt themselves to be mugs come November that year – unless they held onto the gold for much longer.

Of course, gold is not the only, nor even the most commonly-used form of money – fiat money, paper currency defined and legitimised by a national government, is most commonly used today. In 2001 it was not easy to use gold as money.

One of the defining characteristics of a paper banknote is that it is for a set value – a £20 note is ‘worth’ £20, and a $10 bill is ‘worth’ $10. On a £20 note is written over the signature of the chief cashier “I promise to pay the bearer on demand the sum of twenty pounds”. On the back of a $10 bill are the words “this note is receivable by all national and member banks and federal reserve banks and for all taxes, customs and other public dues. It is redeemable in gold on demand at the Treasury department of the United States in the city of Washington, District of Columbia or in gold or lawful money at any federal reserve bank”. But don’t trek to 1500 Pennsylvania Avenue in Washington D.C. to try to redeem your sawbuck for gold. It’s an empty promise. But it is at least a tacit recognition that gold is money, or ought to be usable as money.


30 years of the gold price, inflation adjusted /source


A very different world in two decades

The gold price ended 2020 around 25% (in US dollar and pound sterling terms) higher than at the start of that year and peaked at more than $2,000 (£1,559) an ounce in early August. It’s lost some 11% since that price peak, which has disappointed some gold holders – no-one ever likes to see their assets lose value.

But we need to remind ourselves why we bought gold in the first place. Is it something we acquired simply because we imagined the price would continue to rocket, or because we prefer to use gold as money? Do we buy it with a time-horizon of six weeks – or six years? Do we buy it simply in the hope that – as in the past – it has steadily increased in real (i.e. inflation-adjusted) terms? Or do we want to use it?

The world in 2021 is unimaginably different from 20 years ago. The internet is a genuine social and economic revolution. It has brought solace this last year – we have been able to stay in touch, buy goods and food, exchange information and many of us have been able to keep working, all thanks to the digital age. And yet it has also fostered heightened anxiety, as we have impotently been able to watch the relentless creep of authoritarianism (in the US, Belarus, Myanmar, China, Russia to name only the obvious spots) in a world where the diet of 24/7 information is relentless. Back in 2001, this newsletter could not have been sent to you instantly. It’s almost as if we are daily bombarded with mini-9/11s; we have experienced two major financial disasters, in 2008 and 2020, the repercussions of which are far more profound for everyone than 9/11. As we emerge into a post-Covid world, the uncertainties will not end.

Glint stands for stability

At Glint, we believe that gold is money – a means by which individuals and businesses can exchange goods and services – and is not a purely speculative asset. This is, for us, one of the greatest contrasts with cryptocurrencies, which cannot easily be used as money and which – although currently largely independent from government interference – are nevertheless a human creation and therefore open to manipulation.

Gold no doubt still has its escape hatch qualities, particularly perhaps in an era when asset bubbles seem to be building everywhere – since March last year, world stocks have risen in value by $6.2 billion an hour, ten times faster than the growth seen after the 2008 financial crisis. Meanwhile, 10 million jobs that existed in the US at the start of 2020 have disappeared and the UK unemployment level has reached more than 5%, with younger people being the worst affected in both countries.

Money ought to be something which is prized and held in esteem, a cornerstone of democratic stability. Yet under the weight of Covid-19 the fiat money aid packages now planned are likely to take the shine off that US dollar, thanks in part because they are inequitably distributed; President Joe Biden’s $1.9 trillion making its way through the US Congress will (if unaltered) dish out 61% of the aid to states that voted for him last November.

One of the many benefits of the development of the internet was that it enabled a rash of innovative thinking and practice around money, banking and financial services. It enabled the creation of fintechs such as Glint. Glint’s long-term mission is to restore gold to its ancient role as money. With Glint you can use the gold you buy as money, i.e. you can spend it in your daily life or save it. You don’t have to indulge in celebrity-driven asset bubbles, or watch as your fiat money steadily loses value – today’s dollar will buy you just 15.5% of what it did 50 years ago. With Glint gold is no longer just an asset – it’s also something you can use as money.

Soapbox: All in this together?

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“We’re all in this together” has become a familiar phrase during the Covid-19 pandemic, an alleged commitment to shared responsibility and collective endeavour. The singer-songwriter Madonna has told us that “Covid is the great equaliser”, while sitting in a petal-filled bath.

Few of us are in the Madonna wage-bracket; some are more equal than others. After all, when was the last time you took a dip in petal-strewn bathwater? The path back from Covid-19 and government lockdowns is likely to be long, stony and will leave scars.

In the UK the Financial Conduct Authority (FCA) has just published its ‘Financial Lives 2020’ survey, which had more than 16,000 respondents and asked them are things “improving, worsening or staying the same”? This survey ended in February 2020 so largely pre-dated the pandemic. The FCA also ran a survey of more than 22,000 people in October 2020, taking into account the impacts of the Covid-19 pandemic.

The last time the FCA did a ‘Financial Lives’ survey was in 2017. Over the last three years, there were some positive results – in 2017 51% of UK adults “showed one or more characteristics of vulnerability”, which had dropped to 46% by February 2020. By February 2020 – shortly after the pandemic struck – more people had financial resilience, neither over-indebted and with a better “capacity to withstand financial shocks”. By February 2020, according to the FCA, one in twenty had persistent credit card debt and a fifth of mortgage holders – up from 14% in 2017 – had mortgage debt at least four times their annual household income. Trust and confidence in the UK financial services industry marginally improved, from 38% in 2017 to 42% by February 2020. But over the course of 2020 the number of UK citizens with “low financial resilience” – able that is to survive shocks – grew from 10.7 million to 14.2 million; 11% of those surveyed said that were now “likely” to use a food bank and 16% said they expected to take on more debt in the next six months. The Resolution Foundation, a British think-tank which aims to improve the standard of living of low and middle-income families, says that as many as 450,000 out of an estimated 750,000 people in arrears in housing payments have fallen into debt as a direct result of the pandemic.

We’re really not ‘all in this together’.


Mind the gap

The European economic think-tank Bruegel reminds us that epidemics have always tended to raise income inequality – the gap between rich and poor widens as people lose their jobs or are put onto part-time work. The digitisation of the world has merely heightened the divide: “in the United States, in industries heavily exposed to the pandemic, employment fell by a staggering 42% for those who cannot telework, and by 22% for those who can, between February and April 2020…the COVID-19 pandemic has increased income inequality between the rich and the poor even in Europe, where governments put in place massive employment protection programmes”.

The pandemic has also exacerbated the difficulties facing young people. Bruegel reported last November that: “young active jobseekers are two or three times less likely than those aged over 55 to be able to find a job” and that “youth unemployment is significantly connected with poorer mental health”.



This divide between rich and poor is not simply generational, it also exists between emerging and developed countries. The International Monetary Fund said last October that during 2002-19, “emerging markets and developing economies enjoyed welfare growth of almost 6% percent” but that the pandemic “could reduce welfare by 8 percent in emerging markets and developing countries”, ‘welfare’ being defined as a combination of life expectancy, leisure time, consumption growth and consumption inequality.

Yet the advance of distance working, or ‘work from home’ (WFH) is becoming entrenched. In January this year, the CEO of the fast-moving consumer goods (FMCG) giant Unilever said its 155,000 office workers will “never return to office work five days a week. Others are certain to follow suit”.

And the super-rich have got richer, powered in part by the extremely loose monetary policy led by the US Federal Reserve; in the second week of February, investors put a record $58 billion into US stocks, prompting fears from some that investors are extending into higher and higher risk. The spectacle of a gleeful pack pushing the previously moribund US stock GameStop way beyond conventional wisdom and the chasing of cryptocurrencies to fresh heights are symptoms of asset bubbles and disaffected younger people, enraged at the sight of the growing wealth and power of an older generation, armed with Covid-19 savings that have mushroomed.

The world’s 10 richest billionaires increased their wealth by $319 billion in 2020. According to the Financial Times, this was fuelled partly by the success of companies that have experienced a demand boost because of the pandemic, but also because central banks’ efforts to cushion the unprecedented slowdown in activity by pumping massive waves of stimulus into the global economy helped drive up asset prices. “Inequality was bad and the Covid-19 pandemic is making it worse” was the view of a fellow at the US Brookings institution last November.




What will follow the end of this pandemic? Mass relief at a restoration of free movement, of course, and perhaps it will unleash a wave of spending, which is what governments want.

But Covid-19 has stress-tested governments everywhere – and they are being tested when public distrust was already at a low level. In 2019, 60% of Europeans felt that mainstream parties and politicians did not care about people like them. The latest Edelman Trust Barometer, which surveyed more than 33,000 people in 28 markets worldwide between October 19 and November 18, 2020, claimed that people distrust the information they’re being given from most sources in an “information bankruptcy”.

Voices questioning how much longer the US dollar can maintain its dominance are becoming louder, with the US economy now burdened with its biggest ever sovereign debt of $28 trillion and a federal budget deficit of more than $3 trillion. Under President Biden, fiscal spending on different ‘must-have’ programmes looks set to go into over-drive. Academics have studied the connections between pandemics and social unrest. While there is no conclusive evidence that mass pestilences (such as Covid-19) cause mass protests, there is a strong correlation between pandemics and civil disorder.



There is no point in being apocalyptic about this – but neither is it wise to sit idly by and do nothing. Conservation of what you have in terms of value will become increasingly important in the choppy waters ahead. Preservation of purchasing power against further erosions will become critical. Cryptocurrencies are not just an interesting extension of technology – they are a form of protest, an attempt to find a means of protection against the decline in the value of money. The trouble is, there are many obstacles to be overcome in the day-to-day use of private cryptocurrencies – and governments everywhere are planning to roll out their own central bank digital currencies (CBDCs), and could steamroller private cryptocurrencies into the ground. After all – what ‘backs’ a cryptocurrency except faith and despair? Glint was created to democratise the oldest form of money – gold – and through Glint, you can buy, spend, and save that oldest form of money, gold, which will last longer than a petal.

Soapbox: Living in a bubble

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My working-class parents – who lived through the dark days of the Second World War – were terrified of living on what they called the “never-never” – i.e. buying stuff today for which they would have to pay at some point in the future. They had a horror of debt.

Today, in our world where instant gratification has become the norm, we are all (including governments) living on the never-never. Who of us does not have and use a credit card? From Klarna, which allows you to buy today and pay later, to government debt mountains, the world has forgotten to live within its means. It now lives in ‘bubbles’, whether the ones aimed at preventing the spread of Covid-19, or the bubble of the credit economy. With Klarna, if you pay four equal instalments every two weeks you will be charged no interest. But if you take out a loan to finance your purchase you could face as much as almost 30% in interest payments.

Governments like consumer debt. They see the expansion of credit as fuelling economic growth, giving everyone a comfort blanket; the ‘feelgood’ factor will, they hope, ensure victory at the next election.

According to the US Federal Trade Commission, “a person with good credit will be able to borrow money at better terms… Lenders are less likely to loan more money to a person with bad credit…” This makes sense for the lenders but absolutely no sense for the ‘have-nots’, those who might be most in need of a loan. They can find themselves taking out loans from ever-riskier lenders who charge extortionate rates of interest.


Living in this unreal world, where credit is king – even though the charges for consumer credit cards are astronomical – one can easily lose sight of Shakespeare’s wisdom in Hamlet, when he had the loquacious buffer (yet sound adviser) Polonius tell the Prince of Denmark “never a lender nor a borrower be”. It was an exhortation to Hamlet to guard his finances. Guarding your finances will become more difficult in the months and years ahead, as the bubbles expand, Tesla and Bitcoin-fashion. US consumers appear unconcerned about credit card debt, which has expanded from $660 billion at the start of 2013 to more than $1 trillion today, aided in part by the sheer convenience of mobile payment systems.



Guard your finances

On 4 February, the Bank of England (BoE) made a very odd public statement. It said UK banks and building societies should prepare for negative interest rates in six months’ time – which would be the first time in its 327 years that it moved to negative interest rates.

The statement was odd because the BoE also said it was not intended to send any signal that “it intended to set a negative bank rate at some point in the future”. So – prepare but actually, it might not happen.

Negative interest rates; instead of paying interest on deposits, banks may start charging interest on deposits they hold. So instead of the measly rate of interest, you currently get you could find yourself paying the bank to hold your money. It’s all about trying to get cash out and spent in the system, to try to stimulate the overall economy. Instead of parking excess reserves at the BoE banks will supposedly be incentivised banks to lend to households and firms to boost economic activity. You can be sure that your credit card interest rate will not be going negative, however.

This has already been tried once before and didn’t work. In the Great Financial Crash of 2007-2009, when recession and global deflation threatened, central banks slashed their interest rates to near zero and failed to stimulate the economy. That’s when a new phrase, ‘Quantitative Easing’ began to be more familiar. The BoE explains QE on its website as involving the creation of “digital money. We then use it to buy things like government debt in the form of bonds… The aim of QE is simple: by creating this ‘new’ money, we aim to boost spending and investment in the economy”. It’s a trick in other words; one part of government (the central bank) ‘creates’ money and lends it to another part of government. It’s never-never land in spades.

The Swedish experiment

Sweden’s central bank was the first to introduce negative interest rates after the 2007-09 crash. It was followed by the European Central Bank, the Danish Nationalbank, the Swiss National Bank, and the Bank of Japan. A couple of Swedish economists have recently concluded that “at this early stage… the costs of negative interest rates to society most likely exceeded the wider benefits”. They go on: “Imbalances which had already begun to materialise before the Global Crisis have worsened. Real estate prices have risen rapidly, contributing to rising wealth inequality. Household debt has reached record levels… The Riksbank, the oldest central bank in the world, has just terminated its most recent experiment. In our opinion, the clear message from the Swedish experience of negative policy rates is: ‘don’t do it again’, at least not when the domestic economy is booming, domestic inflation is determined by foreign inflation, and the financial imbalances are rising through high asset price inflation”.

Say no to never-never

Last December Carmen Reinhart, vice-president and chief economist, wrote a blog in which she anticipated a credit crunch this year, “disproportionally hitting low-income households and smaller firms that have fewer assets to avert insolvency… The hope is that because the health crisis is temporary, the financial distress of firms and households will be, too”. She worries about insolvency for firms and households.

She is right to do so. The level of global corporate debt rose by almost 25% to a new annual record of $5.35 trillion in 2020. While the level of borrowing is expected to be much lower in 2021, the risk involved in such vast lending to even “junk-rated” companies is excessive.

Are we living in a bubble? It’s generally accepted that there are five stages to a financial bubble – displacement, when investors become entranced by a new paradigm shift (such as, arguably, Tesla and cryptocurrencies) followed by a price boom, then euphoria, then profit-taking and finally panic. With zero-to-negative interest rates, if a bubble exists (which seems likely given the recent sky-high valuations of many stocks and cryptocurrencies) then it can endure for a lot longer.

What is required right now for richer or poorer households and individuals is vigilance and avoidance if possible of the never-never. And if keeping an eye on things all the time sounds exhausting you have another option – gold.

Gold is trusted as a safe haven and an unparalleled store of value by many. Gold is the solution to secure your long-term financial security. Gold is security and Glint its key. We strongly believe that gold is the fairest and most reliable currency on the planet, but we obviously need to point out that it isn’t 100% risk-free. The value of gold can fall, which means the purchasing power of the customer can also fall.

And keep your eyes peeled.

Soapbox: Disruption, nihilism and sticking it to the man

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Google search “disruption exponents” and within less than a second – no hanging around with Google – you will get 2.63 million results. Around 20 years ago that kind of research would have taken years to accomplish. There can be no finer example of disruption than that.

The Harvard Business Review claims to have introduced the “theory of disruptive innovation” in 1995, but in fact, disruptive innovation has been around at least since Stone Age peoples started using rocks to kill animals or to build shelters. Where does disruption come from? Probably not consumers. As Henry Ford supposedly said: “If I’d asked customers what they wanted, they would have said a faster horse”.

Except that in the past week consumers have shown that, if sufficient numbers of them think and act in the same way, disruption can happen in a profound and possibly disturbing way.

The disrupter disrupted

Robinhood is a broker, has only existed since 2013 and itself is a ‘disruptor’. It advertises itself as providing ‘commission-free investing’ and it makes its money by payments for order flow. That’s a fairly common practice whereby a broker gets paid by parties through whom it directs orders for trade execution. Robinhood (the name is a giveaway) aims to “democratise finance” and traces its heritage to the ‘Occupy Wall Street’ movement of 2011.

Last week a pack of day-traders using a sub-group (called wallstreetbets or WSB) of the Reddit social media site coalesced and decided that they would take on ‘the Man’ (for example Wall Street hedge funds) and storm into a previously moribund stock called GameStop, an American video game, consumer electronics, and gaming merchandise retailer.’

GameStop’s share price languished at sub-$5 a year ago; large investors, guided by hedge funds (some of which can invest billions of dollars), had decided that GameStop was dead in the water and ‘shorted’ the stock (i.e. sold shares they did not have, in anticipation that the price would go down further whereupon they could buy those cheaper shares to ‘close their book’ and thus make a profit).

The wave of money that swept from WSB followers into GameStop’s shares had several dramatic effects – not least that the price rose to more than $400, crushing some of the hedge fund ‘shorters’ in the process.

GameStop hasn’t been the only Reddit-fuelled target – the world’s biggest maker of rubber gloves, the Malaysian company Top Glove has been picked out by another Reddit sub-group, BursaBets, and seen its share price rise too. Silver too has been subjected to the attention of a retailer-investor hoard and in three days rose to an 8-year high of almost $30 an ounce. Ross Norman, a veteran precious metals’ trader, summed it up: “I am just not persuaded by this move… but I do remain impressed by this new dynamic in financial market[s]… it is compelling but also just a little unsettling”.

Robinhood’s holier-than-thou mission became a little tainted when it ran into a regulatory rock – the Depositary Trust & Clearing Corporation (the DTCC) last week. The DTCC is part of the US Federal Reserve system and is a registered clearing agency with the US Securities and Exchange Commission (SEC). The DTCC is owned by its member financial institutions (including Robinhood) and it clears and settles most stock trading, essentially making sure that money and shares end up in the right hands at the end of the day. The DTCC also tries to insulate the market from extreme risks, by making sure that if a single entity goes broke there’s no contagion. It therefore requires that its members keep a cushion of cash (a margin) that can be used to stabilise the system if needed. In a flurry of trading, such as seen around GameStop, the DTCC notified members last Thursday morning that the $26 billion cushion needed to be raised within hours to $33.5 billion.

As most of the trading was by Robinhood customers, that broker was nabbed for a large amount of the extra cushion. This demand was not negotiable. A broker that cannot meet its margin call is out of business. For good.

Nihilistic capitalism

The Slovenian (and socialist) philosopher Slavoj Žižek has characterised WSB behaviour as “nihilistic capitalism” in that one of its guiding slogans is YOLO (‘you only live once’) – and that a lot of WSB adherents seem indifferent as to whether their gambling makes or loses money; the thrill of challenging ‘the haves’ – the heart of capitalism – is gratification enough. One irony of all this (there are several) is that Robinhood has been forced to raise an extra $3.4 billion in capital to meet its obligations to the DTCC; and this emergency funding was raised from hugely wealthy venture capitalists already invested in the firm. Žižek concludes (perhaps hopefully) that an “explosive mixture is in the making”.

The original Russian nihilists did not “bow down before any authority… [and did] not take any principle on faith, whatever reverence that principle may be enshrined in”, according to Ivan Turgenev in chapter five of his novel Fathers and Sons. Today’s nihilists have a lot in common with their ancestors – not the least of which is despair.

The weight of student debt, the apparent impossibility of ever being able to save enough to buy a home, the lack of solid job prospects, the decline in the purchasing power of money, the widening gap between rich and poor, the collapse of trust in media sources, a spread of disinformation, an overall sense of impotence – all these bear down on young people today. The Covid-19 pandemic has only exacerbated their feelings of isolation and anomie, as well as wreaking havoc on part-time employment.

But what distinguishes today’s nihilists from their Russian forbears is that, while the latter demonstrated their rejection of established values by throwing bombs, today’s nihilists have technology at their service. The emergence of cryptocurrencies, the flash mob walloping of Wall Street, the formation of protest groups of all types, have all been facilitated by technology, social media, and instant communications. The disruption goes very deep indeed, on both sides of the Atlantic. The danger is that faith in democracy is today weak.


Source: University of Cambridge’s centre for the future of democracy


Nihilism is no answer

Nihilistic protests against ‘the system’ when you apparently have little to lose are therefore no surprise, and we should ready ourselves for more of the same. How to keep your head when all about you seem to be losing theirs?
If – as seems likely – we are in for a period of socio-political turmoil, which inevitably will make itself felt in the wider economy – we need to protect ourselves against the looming shadows. Given that we are not nihilists – and even they had to eat, have shelter, and keep themselves warm – we have no choice but to participate in the financial system we have. That is precarious, with the only solutions being put forward by governments to the massive global debt to load on still more debt. But we have one advantage, as a disrupter ourselves. For the first time in centuries, with Glint, we can buy, sell and use gold in our everyday life. We at Glint believe that gold, even though we are aware that its value can also decrease, represents a stable rock which is less pervious to the surrounding hurricane. No need for bombs or flash mobs onslaughts. We think that a more reliable and effective protest is at your fingertips.

Soapbox: Irresponsibly long

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With cryptocurrencies now being used to pay for the transfer of a professional Spanish football player – David Barral is going to DUX International de Madrid, the transfer performed via (an unrevealed amount of) Bitcoin – it might seem like a further sign that cryptocurrency has become a truly alternative currency, and is consolidating its legitimacy. But dig a little deeper. Inter-Madrid’s sponsor is Criptan, a Spanish platform for the buying and selling of cryptocurrencies, so the club has a vested interest in doing this kind of deal. It’s a common practice for soccer clubs to be sponsored – selling their ‘soul’ is perhaps a better description – by enterprises who wish to advertise themselves.

A more interesting case perhaps is the professional US football player Russell Okung – the offensive lineman for the Carolina Panthers – who is now reportedly getting half his $13 million a year salary in Bitcoin. It’s not clear if his salary moves up and down when Bitcoin does so. US veteran investor Warren Buffett called Bitcoin “probably rat poison squared” but that isn’t bothering Okung. Last November Okung tweeted that he was “irresponsibly long [i.e is heavily invested in] bitcoin”. After the news broke about Okung’s pay he said: “Money is more than currency; it’s power. The way money is handled from creation to dissemination is part of that power. Getting paid in bitcoin is the first step of opting out of the corrupt, manipulated economy we all inhabit”. To which Glint says a cautious ‘Amen’; but does Bitcoin (or any other of the more than 5,000 cryptocurrencies that existed last April – more than 1,000 cryptocurrencies have been created and died) have all the qualities needed to truly oppose fiat currencies?


Financial vertigo

Source: Nasdaq

Traders love volatility – they make money only when markets move up or down: a static market is no good to them – but people who need to use money in their daily life cannot afford to see the value of that money going up and down like a yo-yo.

While we support the thinking behind cryptocurrencies – that national currencies (aka fiat money) have lost their value and are likely to see their purchasing power further deteriorate, cryptocurrencies replace dollar (or pound or euro) disappointment with financial vertigo.

The volatility in the price of Bitcoin over the last 24 months has ranged between 75% and 125%, while gold’s has been between 8% and 24%. Such are the dramatic swings in Bitcoin that you could find yourself (if you use Bitcoin) paying for a lunch or a basket of groceries and discovering that said lunch/groceries have become much more expensive than when you first set out. Alternatively then when you leave the restaurant/store you might discover that Bitcoin has soared in ‘value’ and that you have paid more than you might have done.

The concentrated ownership of cryptocurrencies is another problem. The top 2.8% of Bitcoin addresses now control 95% of the supply. This is a market without liquidity. More than 2,000 wallets contain more than 1,000 Bitcoin each. At the start of January, a sale of around 150 Bitcoins resulted in a 10% drop in the price. Very few Bitcoins ever come to market – around 63% of the supply has not moved in the past year. The price is underpinned by “sheer faith”, the “hope that other people will keep having the faith”, according to a Financial Times writer.

Then there is the slowness of transactions. In 2017, Bitcoin transactions took up to 12 hours to be confirmed and at the height of the Bitcoin frenzy of 2018 they took more than a week. Bitcoin can process just five transactions per second, while transactions using Glint complete within 200 milli-seconds. Transaction speeds are critical for wider adoption of a ‘challenger’ currency. Cash is instant – Glint is instant – while with cryptocurrencies you have to hang around while the transaction is recorded and accepted on the blockchain technology that underpins cryptocurrencies. The more who use them the greater the bottlenecks will become – and the higher the fees. Cryptocurrency ‘miners’ require large fees to process and confirm transactions – for Bitcoin the fee charge per transaction was around $7 at the end of last year. Against that, Glint’s Mastercard and P2P transactions are free to its users in their country of residence.

Security is an important factor to consider. The internet is littered with stories of how people have either forgotten or lost the keys to unlock cryptocurrency fortunes. That’s not an issue for the gold you hold with Glint, which is physically allocated (meaning no-one else but you controls what happens to it) and is stored in secure vaults in Switzerland. You never have to worry about forgetting how to access your gold with Glint – our client services team is around to help sort out any problems.

And one other overlooked drawback of cryptocurrencies, concerns energy use. Mining cryptocurrency via dedicated computers is very energy-heavy. One estimate suggests that in 2020 the Bitcoin network alone consumed around 120 gigawatts per second, or about 63 terawatt-hours per year; that’s enough to switch on around 630 billion 100-watt light-bulbs at the same time and is the amount of electricity generated by almost 50,000 wind turbines working flat out. With the world’s policymakers driving hard to curtail our energy use, or at least to make it derive from more sustainable sources, it’s difficult to see the mining of cryptocurrencies escaping greater environmentalist scrutiny.

Governments are stepping in

The Covid-19 pandemic has helped accelerate change in many directions, including how governments think about money. Okung is right – money is power. Politicians have ‘locked down’ societies and quite rightly have been handing out money to people who have suffered from being unable to work. Simultaneously the use of cash is dying out.

Those ‘free’ checks (or cheques if you’re British), aren’t really free, but are mortgages against the future. The uncertainty about that debt – how it will be paid for or indeed if it will be paid for – has created additional anxiety.

The pandemic, plus the death throes of cash, plus the injection of vast sums into people’s pockets is distorting lots of things and has helped drive sky-high valuations of companies that have never made profits, pushed as much by fear of missing out (FOMO) as anything else.

This conjunction of interacting events is stimulating a lot of government interest and private thinking about the nature of money. We could be poised on the edge of a momentous turning point, when a new monetary paradigm will be set, one in which governments will seek to retain control over money/power by adopting the latest technological innovation – blockchain – and creating their own digital currencies and requiring us all to use them for our money. This is already happening in China. Governments who promote their own digital currencies are unlikely to tolerate rival privately-created cryptocurrencies.

It’s far too premature to know how all this will pan out – if uncertainty was a stock then its valuation would be sky-high right now. But if an alternative form of money is what you want, and you consider that the drawbacks of cryptocurrencies that have been identified are correct, then Glint’s gold may well be for you.