Crypto and crashes?

Jamie Dimon – the Big Cheese at JP Morgan – sounded a warning note about stock markets yesterday, telling the BBC he was “far more worried than others” about a market correction in the next 6 months to 2 years.

He’s not the only worrywart in town. On Wednesday, the Bank of England compared today’s market with the dot.com boom and bust of the late 1990s, saying that the value of AI tech companies look stretched with a rising risk of a "sharp correction".

Is this fair? Valuations indeed look astonishingly high, but there is an important difference to the dot.com days.

This week, I heard a very smart hedge fund manager make the case for US equities and for AI. He looks at the huge wave of money sloshing around. OpenAI has committed to roughly $1 trillion in spending agreements – including deals with Nvidia and Microsoft. This is to secure tens of gigawatts of computing power over the next decade. At the same time, they are losing about $10 - $15 billion this year. Hmmm. At face value, this is like my teenage daughter who ends each month with about 15p in her bank account committing to buying a horse.

However, if my daughter could convince people that she would be a global superpower in years to come, enough people would write her a cheque to buy Dobbin, whatever the parlous state of her current finances.

The point is that there is a lot of capital looking for an AI home and huge amounts of money flowing into the US. At the same time, we can also see how much demand there will be for gigawatts. ChatGPT has about 800 million weekly users. Demand is growing, and the scope of what we’re asking it to do is going up. To quote the posh hedge fund manager, “there is parabolic growth in inferencing demand.” Which translates as “millions of people trying to show off to their boss and still knock off early are asking it to do more grunt work.”

Look at this another way. AI is responsible for about half of the growth in the US economy this year.

This is nothing like the dot.com boom when many greedy people like me invested in nonsense businesses called things like Sausage Software which didn’t make much and consequently weren’t worth much.

Well, come on then, so what?!

We’re in the foothills of AI growth. Europe is struggling as the US grows. I think it’s very hard to eclipse the story of US technology.

I do believe we have to diversify and there are other global and sectoral stories. Banks. Defence. Aerospace. I haven’t talked much about China – this video from Baillie Gifford shares some of their top picks.

If there is a market correction, AI will sneeze and everything else will catch the cold. At some point, a fall in markets is inevitable. Global politics are like a tinderbox and uncertainty is high. But do I see a good long-term reason to sit out markets and worry away on the sidelines as the world funds technology and growth? No.

Shorter-term time horizons?

There is an important caveat to the above. People with shorter-term goals and a need for their money in 2-3 years, for example, might take a much more defensive stance.

Although gold is at an all-time high, it is a natural home for people who want something tangible which will typically do well when flashier things have a wobble.

We also can’t ignore the fact that 10-year bonds are paying about 4.65%. If interest rates fall next year, bond prices will rise. And any gains on UK bonds (‘gilts’) are tax-free. Higher rate taxpayers with cash and short time horizons should at least look at short-term bonds. You could buy a bond for 99.07p today which you know would be worth £1 as at 30 January 2026. Giving you nearly 1p tax-free from every £1 next January.

Enter crypto stage left

He’s behiiiiind you! Not any more. He’s on a platform near you. From this week, the regulatory ban on buying crypto on investment platforms and in our ISAs has been lifted. We can now buy something called an Exchange-Traded Note (ETN) to get exposure to Bitcoin and other crypto assets via FCA-approved exchanges which like the London Stock Exchange.

Some think crypto ‘slaps’ (to quote the kids – for those at the back, this means good) but it has no intrinsic value and is a speculative play, not an investment. In my opinion. It triggers our FOMO as we only hear the Posts’n’Boasts from those talking about gains, not the stories from ashen-faced people who bet the house on crypto and lost. I might ‘invest’ £200 into one for interest, but I’m comfortable with the fact that it might blow up in my face and I could stomach the loss.

Where can you buy this? Freetrade, Saxo UK and interactive investor (from Monday). Hargreaves will offer them early next year and others will follow. These will be classified as RMMI (Restricted Mass Market Investments) which means you’ll need to do a wee quiz to make sure you understand the hardcore nature of these before you buy them.

Over and out from me for this week. Have a great weekend everyone. I can’t bring myself to watch the ‘celebriddies’ on Strictly yet but I’m sure I will succumb in a few weeks’ time. I usually capitulate when the clocks go back and I fall lemming-like into hibernation mode.

Holly