Man Group CEO Luke Ellis on blockchain and making money in volatile crypto markets

Ellis said there was no evidence that the much-hyped distributed ledger or blockchain technology underpinning cryptocurrencies had real benefits for society or the economy. “I have yet to see a practical implementation of blockchain as a real technology, where it has made a difference to the operation of things,” he said. “I want to believe that the technology may have some value when I see evidence.”

The comments run counter to the fashionable convention among business leaders to extol the virtues of the blockchain while decrying the speculative nature of spot markets for crypto tokens.

In a submission to the Treasury dated June and released last month, the Commonwealth Bank claimed there is “huge potential flowing from crypto-assets and distributed ledger technology”. CBA, along with ANZ and Westpac, is an investor in the Lygon project, which moves paper-based bank guarantees to the blockchain.

Blockchain technology, which records transactions in an immutable and verifiable way, has been variously credited with helping to tackle corruption, climate change and even cancer.

Commenting on the collapse of FTX – in which an estimated one million people, including 30,000 Australians, lost money – Ellis said the incident highlighted widespread misunderstanding about the nature of trading crypto assets via digital exchanges, also known as “hot wallets”.

“If you’re trading cryptocurrencies in a ‘hot wallet’, you’re not trading cryptocurrencies, you’re not trading the blockchain – what you’re trading is a delta one derivative with a counterparty,” he said. (A delta one derivative moves in line with the underlying physical asset).

“Well, that’s fine. I like derivatives – I built my career on them – but you have to understand the counterparty risk.”

Simply storing crypto-assets offline in a so-called “cold wallet”, as anecdotal evidence suggests that a growing number of crypto-investors are choosing to do, does not provide a solution, but only introduces different counterparty risks that investors must be attuned to. , he said.

More broadly, Ellis said the incredible rise of cryptoassets – bitcoin’s value has risen more than 5,000 percent since 2015 despite a 60 percent decline in the 12 months to December – was a function of the era of cheap money that supported by. monetary policy.

He said an environment where “kids in the bedroom” could outperform professional investors had not been the norm in historical markets, which Man Group’s data analysts are tasked with assessing.

“The last 12 years since the financial crisis have been the easiest time to be an investor I think the world has ever known,” he said.

“The truth is: you just had to buy something, it didn’t matter what you bought. The more you bought, the better you did. The more influence you put on it, or it had built into it, the more speculative it was, the better.

“I imagine the next five years will look very different.”