Monday 26 July 2021 11:50 am Schroders Talk

Johanna Kyrklund: why bitcoin reminds me of the office’s appeal

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Chief Investment Officer and Global Head of Multi-Asset Investment

In the UK, 19 July was what some people called “Freedom Day”, as most Covid-19 restrictions were lifted.

For the millions who have been working from home during this pandemic, this marks a significant change as the government has recommended a gradual return to the office.

There are benefits to WFH and WHO

Here at Schroders, working from home (WFH) will remain a major feature of our routines. The firm has committed to flexible working indefinitely. We’re convinced that a combination of WFH and working from the office (WFO) is how we can make the best investment decisions on behalf of our clients and ensure a thriving investment community.

Looking back, it seems funny that before the pandemic, some of our investment meetings were constrained by how many people we could physically fit into a meeting room.

But working through the lockdowns, we have found that for some meetings virtual is best, particularly when we are sharing information across investment divisions. We now routinely get more than 100 investors dialling into some of our investment meetings.

That’s not to say that WFH is always best. Far from it. My recent days in the office have reminded me that we cannot underestimate the benefits of personal, face-to-face interaction.

I often hear of the need for senior investors to come into the office so that they may share their knowledge with and train the more junior team members. I think this is important, particularly at a company like ours where we are very committed to developing and growing our own talent. 

But this knowledge exchange goes both ways and what may be sometimes overlooked is when it goes in reverse. That is, the benefit to senior investors of interacting with more junior members of the team. I have certainly missed the challenges and ideas you get from impromptu chats with the diverse range of people in the office.

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Betting on bitcoin

Bitcoin is a good example. I am perhaps typical of my generation in that I have been sceptical of cryptocurrencies.

I don’t see them as an alternative to gold, as their history is too short, their correlations unstable and their price moves too volatile. I have also wondered about the money laundering aspects and worry about the environmental impact.  

However, the millennials in the office just won’t let the matter rest. They have led a significant research project to create a framework for valuing and assessing cryptocurrencies. They are right to do so as, while we won’t invest today, the research we are doing now is an investment in our capability in the future.

At some point bitcoin and the rest of the cryptocurrency asset class might be more mature and ready for institutional investment. After all, it’s better to be prepared for an opportunity that never arises, than for one to arise and you to be unprepared.

These younger members of the team also tell me that, until I’ve bought some bitcoin myself, it’s hard for me to fully understand how it works and its appeal.

That’s not to say that these younger colleagues of mine are all die-hard bitcoin evangelists. Indeed, they share some of my scepticism about some aspects and do not think it is appropriate for professional investors with a fiduciary duty to their clients.

Bitcoin could be the next Nokia

Their enthusiasm for bitcoin – or indeed its brethren such as ethereum – comes from the view that it represents an option on the future.

Buying bitcoin – to them – is a recognition that most of the innovations that have made the biggest disruption to the way the world works have been dismissed in their early years. Think the internet, the lightbulb, the aeroplane – all were initially mocked. 

They don’t advocate putting a significant chunk of one’s personal savings into bitcoin, but in their view the upside of a small investment outweighs the downside of potentially losing everything. Which they admit is a real possibility.

It’s not just the price of bitcoin that matters to them, more that it’s a way of getting exposure to disruptive technology such as blockchain, which might change the world.

Currently they say bitcoin is a bit like the reserve “currency” on which a whole digital finance platform may or may not sit in the future. Bitcoin could turn out to be the Nokia of the industry, but the fact that Nokia faded into relative obscurity does not alter the fact that the mobile phone industry has fundamentally changed the way we live.

“Where do I stand on bitcoin?”

In my sporadic office visits in recent months it’s been interesting to get out of my bubble once again to hear such thought-provoking opinions. That’s not to say I agree with them, but they’re views I need to hear.

So where do I stand on bitcoin and cryptocurrencies in general now?

I think that digital currencies will increase in importance as a medium of exchange. However, it is too early to see bitcoin as a safe haven considering – among other factors – its immaturity and the risk of regulation. I also don’t consider it a currency; it remains a speculative investment, at least for now.

Blockchain technology, on the other hand, is important and a major trend in digital banking.

So, while I don’t consider bitcoin to be a sensible investment, I think the collection of technologies it represents could have major impacts on our future.

Perhaps I’ll buy £100 worth just to shut the millennials up …

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