The Lex Newsletter: FTX collapse rhymes aptly with tulip mania


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Dear reader,

Tulip mania was a bubble in fancy bulb costs that gripped Dutch society between 1634 and 1637. Ever since, we consider tulip mania every time speculative exuberance comes a cropper. The present instance is the chapter submitting of FTX, the Bahamas-based crypto platform based by Sam Bankman-Fried.

Jamie Dimon condemned bitcoin as “worse than tulip mania” in 2017. Back then, Lex concluded that the JPMorgan Chase boss was solely half-right. Tulip mania left contributors with some very ornamental flowers. Investors who purchased bitcoin at peak costs wouldn’t even have these when the market crashed, we reckoned.

Another distinction is that revisionist historians can’t discover proof of serious monetary collapses on account of tulip mania. In distinction, it’s clear that FTX, at one time valued at $32bn, is a useless duck in its present incarnation.

Investor Sequoia famous that FTX generated $250mn in working income in 2021. That creates a slim likelihood of a restructuring below cowl of Chapter 11 safety. However, many chastened traders will now not want to trade cryptos by means of FTX, or wherever else.

It is FTX’s FTT token — as manipulable as the value of fancy tulip bulbs and dangerously entwined with different SBF ventures — that has laid FTX low.

For the second, the larger situation is how a enterprise that’s supposedly simply an alternate and custodian seems to have mislaid billions in buyer belongings. That raises questions on Alameda Research, the funding automobile of Bankman-Fried. Regulators are accordingly eager to speak to the fallen wunderkind.

Lex has all the time had a really clear view that cryptos have simply three foremost features: as a speculative medium; as a way of exchanging worth secretively; as a badge of ideology.

We all the time assumed crypto costs would drop much more steeply than US equities in a bear market. We have been proper.

We made a jokey video some time again on the topic, animated by graphic artist Russ Birkett and narrated by silver-tongued Lex analysis boss Alan Livsey.

Contagion from FTX could knock over another crypto ventures. It is not going to damage “TradFi”, as crypto bros contemptuously name regulated banking. Indeed, the woes of FTX and tumbling crypto costs take stress off banks and regulators to welcome digital belongings into the monetary mainstream.

Revisionist historians imagine the bulb worth crash didn’t damage standard, periwigged Dutch finance both. This had taken pains to maintain flower buying and selling separate from markets the place its volatility could be harmful.

As an apart, we have been amused to watch how Coinbase, the biggest publicly listed US cryptocurrency alternate, has restricted losses from slumping buying and selling charges. It is incomes respectable sums in curiosity on money and Treasury holdings.

To touch upon this, on FTX, or another facet of our protection, please electronic mail me at

Sheikhy premises

Low bitcoin costs and excessive vitality prices are making crypto mining unviable. This is nice for the planet since every $1 of bitcoin has exacted $0.35 of environmental harm in keeping with one estimate.

Far greater carbon financial savings are wanted to limit anthropogenic world warming to 1.5C. This was the topic of the COP27 local weather summit in Sharm el-Sheikh, Egypt, this week.

Lex thinks nations have to co-ordinate their efforts higher, with the US in a management function. We, due to this fact, welcomed John Kerry’s proposal for a world scheme for giant enterprise to purchase carbon credit that might finance decarbonisation within the growing world.

The drawback with the Kerry plan is that it’s voluntary and applies non-public capital not directly. We assume this may pay for a a lot greater slice of decarbonisation if it was raised and deployed utilizing enterprise strategies.

Treat vitality transition as a capital challenge, with the planet as consumer and the US as prime contractor. Subcontract components of the duty to different nations to take advantage of native aggressive benefit. Syndicate the challenge finance.

The transition plan appears fairly intimidating, I admit. But the problem is much less terrifying when cut up into smaller sub-assemblies, for instance decarbonising air journey.

How net zero by 2050 can be achieved

COP27 has been a muted affair partly as a result of speedy safety of provide is so urgent.

Steep costs for hydrocarbons have produced windfall income for companies resembling Centrica. The UK vitality utility has diverted £250mn of bumper 2022 income right into a share buyback. The UK could punish such giveaways with larger windfall taxes

The context for Centrica is that it’s turning spherical after a interval when it couldn’t afford to make capital returns.

Charts showing how Centrica has tidied up its balance sheet and also how capital returns will resume

Oil and fuel explorers stay within the doghouse. Ithaca Energy was priced on the decrease finish of its vary this week. But it’s a miracle that the enterprise has been in a position to get its preliminary public providing away in any respect. Its bosses should pull off one other coup by refinancing $625mn of 2026 notes to take away payout restrictions.

Dual-scale chart showing that UK exploration and production groups are out of favour. Share prices (rebased in $ terms)

Stuff I learnt this week

Germans are completely different to English folks. False correspondence is simple for UK-based client companies to think about as they hungrily survey Germany’s bigger, stronger financial system. There are some cultural similarities together with pragmatism, beer, stodgy meals and a love of Mediterranean holidays. But bosses of British consumer-facing companies, resembling Primark, are sometimes dissatisfied after they export a product that works in Doncaster to Düsseldorf.

It is OK to be wildly optimistic about your online business within the US. Despite the litigious tradition of the US, legal securities fraud is difficult to show. There is a particular exemption for “puffery”. But instances have gotten extra judgmental. Perhaps a lawyer ought to maintain up an indication emblazoned with the phrase “puffery” each time a chief government indulges in it throughout investor displays, simply to be clear.

It is mathematically powerful for traders to present alternate options managers extra money. Many backers have a proportion restrict on the worth of their publicity to buyouts and the like. The costs of their quoted belongings have dropped. But the presumed costs of unquoted belongings haven’t, eradicating any headroom to purchase extra.

Higher rates of interest are an issue for cash-strapped tenants in addition to buy-to-let landlords, Cat Rutter-Pooley identified. I additionally preferred Camilla Cavendish’s well-balanced piece on Ukrainian refugees within the UK, six months after a authorities help scheme was launched.

The seven-year-old staying with his household in our home has picked up cheap English in that point. He is a mother-tongue Russian speaker like many Ukrainians. The drawback, he tells me, is that he can’t bear in mind all his Ukrainian. This issues, he says, as a result of he now has to assist a brand new classmate — who solely speaks Ukrainian — alter to life in an English faculty.

Enjoy your weekend, no matter language you communicate at house.

Jonathan Guthrie
Head of Lex

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