Bitcoin, the world's largest cryptocurrency, dropped on Friday, falling to $41,000 as China intensified a crackdown on cryptocurrency trading, calling it an “illegal” activity.
Bitcoin was down more than 5 per cent on Friday to $41,368 at 3.23pm UAE time. Ethereum, the second largest cryptocurrency, was down 9.40 per cent to $2,784.
China, the world’s second largest economy, vowed to root out “illegal” activity in the trading of bitcoin and other virtual currencies as it renewed its tough talk on cryptocurrencies.
The government will "resolutely clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people's properties and maintain economic, financial and social order," Reuters reported citing a statement from the People's Bank of China (PBOC).
PBOC said cryptocurrencies must not circulate in markets as traditional currencies and that overseas exchanges are barred from providing services to mainland investors via the internet.
The PBOC also barred financial institutions, payment companies and internet firms from facilitating cryptocurrency trading.
It’s not the first time China has got tough on cryptocurrencies. Earlier this year, Beijing announced a crackdown on crypto mining, the energy-intensive process that verifies transactions and mints new units of currency.
The news is not “unusual” and Beijing has always had a very tough stance towards cryptos, Naeem Aslam, chief market analyst at Ava Trade, told The National.
There is clear evidence of capital flight from China, due to massive chaos taking place because of Evergrande and “China wants to tighten up the screws further for capital flight and one of the major vehicles which are used for capital flight is cryptos and China wants to make sure that it has a full control of Chinese Yuan and hence sent this very strong message to the market,” he said.
The Bank for International Settlements (BIS), the global body for central banks in a report in June called cryptocurrencies speculative assets that in many instances enable criminal activity and "work against the public good”.
"It is clear that cryptocurrencies are speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes," the BIS said.
Bitcoin in particular has “few redeeming public interest attributes when also considering its wasteful energy footprint,” it said.
Central banks around the world have been reluctant to endorse cryptocurrencies because of their speculative nature, lack of value and regulatory oversight. The Central Bank of the UAE also does not recognise cryptocurrencies as a legal tender.
“China ruling crypto transactions illegal would be disastrous for the cryptocurrency sector,” George Monaghan, an analyst at GlobalData company said. “Being excluded from the world’s largest market is terrible for any product, and this is the strongest demonstration yet of China’s anti-crypto sentiment.”
The next few weeks are expected to be “rough for crypto markets that were already on edge after the SEC’s (US Securities and Exchange Commission) recent comments, but only actual legislation will have a long-term effect”.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Will the pound fall to parity with the dollar?
The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.
Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.
New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.
“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.
The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.
The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.
Bloomberg
