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17 January 2022

Redmayne Bentley Market Update

On January 3rd 2009 Satoshi Nakamoto executed the first lines of code on the Bitcoin blockchain. One year later, Bitcoin was being used to make its first ‘real’ purchase, buying two pizzas with 10,000 Bitcoins, equivalent to approximately US$30. Today, at 10,000 Bitcoins, these pizzas would cost the equivalent of roughly US$44m. It is not only Bitcoin’s value that has rocketed, however. Mining one Bitcoin in 2009 would require a few seconds’ worth of household electricity, whereas now it takes nine years’ worth.

So what is mining, and why has the amount of energy it takes increased by so much? When a person purchases Bitcoin it must be validated by the Bitcoin network which consists of Bitcoin miners from all around the world. Every time a Bitcoin transaction occurs, these miners compete using powerful computers to be the first to seek out and validate the transaction because they will receive the highly rewarding newly created Bitcoin.

As more miners compete, the more difficult the ‘game’ becomes and essentially the more computer power one has, the higher the likelihood of winning. It is only giant data centres that have the capacity to successfully mine today and with their need for the most up-to-date and fast machinery, it is no wonder that Bitcoin mining uses more electricity than Finland does in a typical year. Given that coal-reliant China has been the central hub for most Bitcoin mining, the emergence of cryptocurrency, with its mighty carbon footprint, has contributed to the worsening climate crisis.

But this may soon cease to be true. A recent collaboration between a coalition of roughly 200 cryptocurrency organisations and environmental lobbyist the Rocky Mountain Institute has created a Crypto Climate Accord, agreeing to cut crypto carbon emissions to net zero by 2030. This will be done by using carbon offsets renewable energy sources for all blockchain technology.

An increase in crypto regulation by Beijing has already pushed many miners to relocate from China to countries that are not so reliant on coal and choose to adopt renewable energy sources. Furthermore, the current ‘proof of work’ (PoW) process used to verify transactions is too inefficient for crypto’s large scale, therefore, many of the newer cryptocurrencies are using a much less energy intensive process known as ‘proof of stake’. Yet, there is still a problem. Bitcoin, which accounts for around half of the crypto cosmos, is still tied to PoW, meaning if alternative cryptocurrencies are transitioning, it is unlikely to have a large offsetting effect. So, despite investment in crypto appearing to have a greener future, it is certainly not yet clean.

Yorkshire-founded Marks & Spencer (M&S) has regained its spot as the UK’s biggest clothing retailer after losing it in 2020 when emerging fast-fashion retailers Boohoo and Asos hit record high share prices. This comes after M&S announced its strongest Christmas in years, with the share price rising almost 80% in 2021. Major transformation plan ‘Never the Same Again’ closed or relocated 59 stores to reflect changing customer behaviour resulting from the COVID-19 pandemic. Online growth has led clothing sales to surge by 67% since the plan was announced in 2020.

There was huge investment over the Christmas period in a TV advertising campaign in which Spider-Man’s Tom Holland voiced an animated Percy Pig, Marks and Spencer’s confectionary brand. Despite this promoting their food retail offering, it brought attention to M&S as a whole, with director Autumn de Wilde simultaneously creating a musicals-inspired Christmas spot for its clothing and home range. This built on its ‘Anything but Ordinary’ strategy which promises long-lasting quality clothing using Stormwear technology.

The brand has come a long way since founding partner Michael Marks migrated from Belarus to the north of England. With poor English language-speaking skills and not very much money, he began as a pedlar setting up a stall in Kirkgate Market in Leeds. After incorporating Tom Spencer as partner, they created admission-free store Penny Bazaars and by 1900 they had expanded to create 36 outlets. The determination of Marks to overcome the adversity of migrating to a new country and setting up a successful business, when the odds were against him, are reflected in Marks and Spencer’s recent revival. The values that Marks and Spencer embedded in the company 130 years ago have given the brand the strength to overcome the challenge of a dying high street.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Redmayne Bentley Market Update
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