Newsletter dated July 14, 2017

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Financial markets have experienced a moderate technical correction since our last report. Overall stocks are nearly the same level versus 3 weeks ago. Crude oil and gold are still lower. Yields of major governments are slightly higher. We have entered summer season, with few financial news. Let’s take a look at one of this year’s financial rockets: Bitcoins. See also our report one year ago.

The digital currency have roughly quadrupled for the last 12 months. See also our chart of the day for the price of one Bitcoin in US Dollar. So is there a major breakthrough of the currency in trading real goods? The quick answer is no. The long answer sees usage of Bitcoins for daily payments rather decreasing. Bitcoin is accepted at just three of the top 500 online merchants. Transactions become slower and more costly. The high volatility is adding to transaction costs. Bitcoins turn out to be more an asset than a currency. Thus some call it internet gold.

Bitcoin is the millennial generation’s apocalypse insurance. Crypto-currencies are marketed as a direct expression of opposition to central-bank and government policy. In fact, crypto-currencies are booming in the environments of financial instability. That’s why in Venezuela the demand for digital coins is soaring. Triple-digit inflation, currency devaluation and political crisis provide one of the highest potentials for Bitcoin adoption in the world, according to the London School of Economics. The other top country is Argentina.

Financial markets have been trying to catch up in offering related products. The first investment funds are hitting markets. In Switzerland the first bank has just been authorized to let clients access, acquire, hold and liquidate Bitcoin directly through their e-banking platforms or account managers, and monitor holdings in custody directly in online portfolios or as part of standard account statements. They offer Bitcoin asset management to clients and even will install a Bitcoin ATM in Zurich.

Erwin Lasshofer and his INNOVATIS team repeat our outlook from one year ago: We see a huge potential for a technological and financial revolution here. It is certainly big enough to be taken very seriously. It will change the way we pay and thus the financial sector. For the next few years we see no direct effect on the way we design structured products. However, we will watch this development closely and select underlyings accordingly.