Billions of dollars in crypto holdings have disappeared this year in a series of business collapses. According to Bloomberg News, the combined value market capitalisation of crypto assets has fallen by an estimated 73% since peaking in November 2021, wiping out $2 trillion in value. Casualties and/or failures have included TerraUSD, Luna, Three Arrows Capital and, most recently, the spectacular overnight evaporation of Sam Bankman-Fried’s FTX crypto exchange earlier this month.
As contagion from the fallout has spread through the crypto realm, Bloomberg News has highlighted four lessons that stand out: To beware of assets denominated in crypto because the “assets “ may not be real, have no associated cash flows or practical uses; that market capitalisation does not necessarily equal value, as the methods to determination of the pricing of digital tokens are not traditional and are often spurious; that, unlike cryptocurrencies on public blockchains which are highly transparent, crypto intermediaries in general do not publish financial statements to generally accepted standards, leading to investors and customers having little information on the true value of their investments; and that consumer protections are essential as almost every intermediary in the crypto world is not regulated.
With regards to the future of crypto, it is worth noting that there are definite game-changing merits in the underlying blockchain technology, but that cryptos themselves were touted as a non-correlated alternative to traditional asset classes and that they have failed miserably in this sense during 2022. Proper regulation is required to ensure that crypto does not pose a threat to the broader financial system, but it remains to be seen how much regulation the crypto sector can withstand.
“We’ve had a cascade of failures in the crypto industry. The centralised players seem to have systemic failure because of greed, because of over-leverage, and stuff like that.”
– Ran Neuner, Host and founder of Crypto Banter
“Good ideas, carried to wretched excess, become bad ideas. Nobody’s going to say I got some s*** that I want to sell you. They say – its’ blockchain!”
– Charlie Munger, Vice Chairman of Berkshire Hathaway
Global News
- The Republicans have managed to secure a slim majority that gives them power in the House, which pours cold water on any legislative agenda Joe Biden may have had for the last two years of his presidency. Whichever party reached 218 seats; control would be difficult given the potential for internal dissent. The harsh reality is that control will be influenced by which party has fewer deaths and fewer resignation-inducing scandals among its representatives. Speaker Nancy Pelosi, the first woman to serve in the post and the face of House Democrats for two decades, will not pursue a leadership post in the next Congress after Republicans take control.
- Ahead of the G20 Summit being held in Bali, president Biden met Chinese leader Xi Jinping in person to discuss US concerns over Taiwan, Russia’s war in Ukraine and North Korea’s nuclear ambitions. While they are still on a collision course, the meeting did yield positive outcomes: A joint position that Russia must not use nuclear weapons in Ukraine and an expected resumption of talks on climate between American and Chinese negotiators, a boost for the COP27 global climate conference in Egypt.
- In the ongoing assault on Ukraine by Russia, Poland was hit by a missile that was probably a stray fired by Ukraine’s air defences and not a Russian strike, easing global concern that the Ukraine war could spill across the border. Meeting in Indonesia, the G-20 nations—including Russia and China—unanimously endorsed a declaration saying the war is hurting the global economy and calling for the fighting to end.
- Meanwhile, during the summit, leaders of the world’s biggest economies agreed to limit the extent to which they raise interest rates despite surging inflation. This is to avoid increased volatility in currency moves.
- A Fed official has said that due to an overheated job market, reducing inflation without a recession will be difficult and has warned against too much optimism that inflation has peaked.
- The UK is facing painful budget cuts and tax increases, leading to a gloomy mood under the new cabinet. A recession that could last two years is highly likely. Inflation has hit a 14-year high at an increase of 11.1% in October.
- The failure of Bahamas-based crypto exchange FTX, which was recently worth $32 billion, has placed the entire industry under scrutiny. It failed because clients pulled all their deposits over concerns that two funds, FTX and a separate one that was an investment fund, weren’t kept distinct.
- Berkshire Hathaway has bought a stake of about $5 billion in the Taiwan Semiconductor Manufacturing Company, a sign legendary investor Warren Buffett thinks the world’s leading chipmaker has bottomed out after a disposal of shares worth more than $250 billion. Berkshire’s shares surged. Apple, however, is moving away from Asia for its chip needs, but the transition is likely to take several years.
- Billionaire Elon Musk, on trial for his compensation package, has floated the chance of a successor at Tesla. He also expects someone new to run Twitter, which he recently bought out for $44 billion. However, he has told Twitter staff that they had until Thursday to decide if they wanted to stay on for working ‘long hours at high intensity’ or be deemed to have quit with a severance package of three months’ pay.
- As at Thursday’s close the S&P 500 was down 1.2% for the week.
Local News
- President Cyril Ramaphosa has dodged impeachment scrutiny for now over the theft at his Limpopo farm, as the impeachment committee has been granted a two-week extension, meaning it won’t progress ahead of the ANC’s elective conference as the report into his alleged corruption will only be reviewed by the National Assembly on 06 December and will thereafter be subject to parliamentary procedures. Co-author of a new book on Ramaphosa, commentator Richard Calland has stated that the motion to impeach will not impact his presidential ambitions.
- At the same time, Ramaphosa’s backers in the ANC won’t even consider the possibility of him not being re-elected as president of the ruling party. Speculation though is that the president may have to cut in treasurer-general Paul Mashatile, the kingmaker of the conference, into his top six in order to get through the onslaught from the ANC-RET faction. This could pose significant political risk from our perspective, as according to columnist Anthony Butler, “the treasurer-general is seen to be amenable to a coalition with the EFF, a vision among some of the party’s youth.”
- Retail sales dropped 1.9% in the third quarter, increasing the chances that the local economy has entered a recession. Any meaningful recovery will be arduous, not least due to another year of rolling blackouts in 2023.
- The bankrupt post office needs funding of R1 billion before end-March 2023 to meet its cash flow deficit and avoiding closing branches, as well as R2.4 billion more to roll out its new strategy of its operating model.
- Gidon Novick has resigned as the CEO and board member of a consortium that plans to buy a majority shareholding (about 51%) in SAA from the government, which announced 18 months ago that it wants to give up control of the ailing airline, leaving the rescue in the air. Novick has quit over a lack of transparency about the deal, with the PIC holding a 30% stake in Harith, which has a majority stake in Takatso, the entity that was going to sort out the airline.
- South African chief executive officers are seeing disruptive technology as their biggest risk and greatest threat to organisational growth over the next three years, according to the KPMG 2022 CEO Outlook South African edition.
- Naspers shares gained 10% on Wednesday on news shared during quarterly results by Tencent, which said it planned to distribute its R345 billion stake in Chinese food delivery business Meituan, to shareholders.
- The Competition Tribunal has cleared the way for Impala Platinum (Implats) to acquire Royal Bafokeng Platinum (RBPlat). However, rival platinum miner Northam has also put in a bid for RBPlat after months of hinting at the possibility. Implats’ bid values RBPlat at R50 billion. Conditions imposed by the competition authority include no retrenchments. The PIC have come out saying that they are not selling their stake to either party, which might lead to an unlisted joint venture between Impala and Notham.
- The rand has been one of the best performing emerging market currencies month-to-date, gaining 6.7% against the dollar in the first two-and-a-half weeks of November 2022 and is now down only 7.4% year-to-date compared with 13.2% at the end of October 2022. This has outperformed Analytics’ (our research partners) Emerging Market Currency Index (3.8% month-to-date). A move from “risk-off” to “risk-on” investor sentiment typically supports emerging markets with valuation gaps or countries with strong economic fundamentals, or in SA’s case, sophisticated financial markets. Nonetheless, most major central banks are likely to continue with interest rate hikes in their ongoing efforts to control inflation. This suggests that while risk-on sentiment can persist in the short-term leading to further rand strength, there is a way to go to get global inflation back down to targeted levels. Analytics currency model has current fair value at R17.46/USD,
- As at the time of writing, the rand was 0.2% weaker for the week and the ALSI was 0.4% lower.
Sources: Dynasty, Reuters, Bloomberg, BusinessLIVE, ITWeb, Daily Maverick, TechCentral, New York Times, Wall Street Journal, UBS, ACFx Solutions, etc.
