FYI | Apr 09 2021
This story features DIGITALX LIMITED. For more info SHARE ANALYSIS: DCC
Is it a revolution or simply another crazy asset-bubble? Bitcoin and peer cryptocurrencies are vying for mainstream acceptance.
-May 22 is 'Bitcoin Pizza Today'
-While investors are increasingly paying attention, advocates of cryptocurrency contend the best is yet to come
-Big international companies are increasingly legitimising Bitcoin as a payment mechanism by accepting it as a payment method
-Still, the jury remains out on the future of Bitcoin and other cryptos, and many investors and experts remain sceptics
By Ed Kennedy
It is held that the first real-world Bitcoin trade occurred in 2010 when a computer programmer by the name of Laszlo Hanyecz completed a transaction with fellow Bitcoin enthusiast Jeremy Sturdivant. The transaction of BTC10,000 for 2 pizzas from a pizza joint local to Hanyecz is today famous in the crypto world and celebrated every May 22nd as ‘Bitcoin Pizza Today’. The holiday is typical of the fascinating aura that surrounds the rise of crypto. Quirky language and humour is a constant of the crypto scene.
But what’s certainly no laughing matter? Today Bitcoin is challenging gold as a store of value in the minds of many investors, and that the BTC10,000 traded for 2 humble pizzas 10 years ago is worth AU$758,607,497.00 at time of writing. Not only have Bitcoins and other cryptos seen an astounding rise in value over the past decade, but advocates of cryptocurrency contend the best is yet to come.
Leigh Travers on Bitcoin
Leigh Travers has been deeply involved within the Blockchain and digital asset markets over the last seven years while an Executive at DigitalX Ltd ((DCC)). He served on the Board of Australia's Blockchain industry body for last years, including as Treasurer and Chair of the governance and finance committee. Prior to his involvement in the digital asset market, Leigh spent seven years at a publicly listed wealth management firm.
1. Thanks for your time, Leigh. Bitcoin and a number of other cryptos have been on a big run in 2021. Recalling the last Bitcoin boom and bust of 2017, some may say 2021 is just ‘more of the same’. Do you agree or do you feel it’s different this time?
I think there’s very big differences between the 2017 bull run and 2021. Yes, there are similarities – a peak in interest, whether that’s in price or mainstream news – and also another halving, following what we saw in the last bull run with the halving of Bitcoin supply.
Every four years there is a supply shock to the Bitcoin market. 2017’s run followed the 2016 halving, and 2021 follows the halving in mid 2020. Those periods also coincided with a pretty drastic increase in demand. But this time who is behind the demand is completely different.
In 2017 you had many investment banks saying Bitcoin was a fraud and be avoided – this time they have released price targets for Bitcoin. This time public companies have gone through extensive due diligence processes including public filings and board-level approvals. We didn't see that last time – there wasn’t that institutional or corporate level belief and interest in Bitcoin.
Finally, in 2017 major news coverage was often all about Bitcoin’s connections to crime and the dark web as a misused payment protocol. Recently, the big story has been PayPal legitimising Bitcoin as a payment mechanism by accepting it as a payment method. Visa and Mastercard are also following suit.
This institutional and corporate adoption of Bitcoin as an investment, and as a payment protocol in 2021, is substantially different to 2017. The decisions being made by investors coming to the table are not knee-jerk speculation but well-thought-out investment decisions.
2. It’s no secret crypto investment presently has a generational divide. Someone under 30 is far more likely to hold crypto than someone over 60. Do you feel this divide will narrow soon, or will the gulf remain throughout the 2020s and beyond?
You are right that millennials have led the adoption of Bitcoin, while more traditional investors have been left behind. This is actually one of the major reasons we set up our funds management business. We hadn’t seen older, or should I say more traditional investors invest yet because they’ve preferred typical investments like stocks, bonds, and real estate.
Cryptos haven’t been available via asset management funds, particularly to Australian investors. But what we’re seeing now is traditional funds like we’ve built making it easy for investors across all generations to buy. If you build it securely and improve that accessibility, they will come. You can also expect with public companies acquiring positions that this exposure -e.g. proxy exposure to Bitcoin for Tesla stock buyers- will drive new direct interest in cryptos.
3. What do you feel is the biggest misunderstanding surrounding crypto that currently exists among investors today?
I’ve touched on a couple but I think two key ones specifically remain the stigma Bitcoin is shaking off surrounding illicit payment products and crime, and in turn the misunderstanding surrounding government ‘bans’ of it. Right now it’s understood only 1% of Bitcoin today goes to illicit use. That’s about the same as cash. In years prior that percentage was higher, but even then it was comparatively low.
Second, the misunderstanding by anyone who thinks if regulators can ban Bitcoin, it will simply go away. Any country banning Bitcoin isn’t banning it – they’re just banning their citizens from officially using it. But invariably people will still find ways to acquire and trade it, and meantime countries that do ban it risk a huge ‘own goal’. The genie is out of the bottle, Bitcoin isn’t going to stop. Countries that are slow on the trot in embracing tech innovation like this could come to rue it. Certainly in a decade’s time – and even much sooner.
4. Looking locally, what’s your read on Australia’s positioning in the crypto sector right now – are we primed to be a real leader in this space?
I think there’s been a relatively rapid rate of development in a short period of time that's been impressive. I think for a time in years prior we were significantly behind – we once had the world's most expensive Bitcoins because of our taxation system – but in recent years we’ve done better.
We’ve also had a number of industry-leading initiatives come out of Australia, or at least led by Australians living and working abroad. The only challenge – and it’s a pleasant challenge to have, but still one the same – is that because we’ve got a well-functioning ASX share market and an impressive digital payments system, that’s perhaps diminished the urgency of innovation somewhat compared to other nations who don’t possess those assets.
At the same time though, that also sees us on the cusp of this new era with very strong foundations. Via the use of digital assets and the blockchain there’s the potential to implement precise but substantial reforms that enhance our processes, and grow new industries. An example of this is how we can highlight digital ownership via the blockchain that’s irrevocable and irreversible.
Adopting processes like this could one day replace physical auction houses that for many years have been taking a 20% margin on sales. As an example companies like Disney that have been managing their digital IP portfolio via complex legal structures and expensive costs could eventually move to a blockchain-based system for greater efficiency.
5. There’s an elephant in the room to all this: the covid-19 factor. What’s your take on how it’s impacted the long term performance of crypto?
The pandemic has had a major impact on the markets, and it will continue to have for some time yet. But ultimately, it’s proven a positive so far for cryptos. Many people now see it as a stable reserve, or digital gold. There’s a lot more upside to Bitcoin in the minds of many than there is downside. People aren’t abandoning Bitcoin during this uncertainty – for many the pandemic’s outbreak was a catalyst for them to delve deeper into this market.
6. What do crypto professionals need to do a better job of to build public confidence in cryptos?
Two things. First, we need to work hard at getting rid of the jargon. It’s fine for people who understand it, but horrible for those who are newcomers. We’ve got to explain why crypto matters in simple terms. We’re getting there, but not yet fast enough.
We’ve also got to see more user-friendly applications. A lot of apps out there can be quite intimidating to a newcomer. Heck, even to an experienced crypto trader they can be a real headache to navigate. The industry has to make it easier for people to get access and trade cryptos.
7. Finally, for a total newcomer to crypto, what key takeaways do you want them to understand about the state of crypto looking forward?
The significance of growth in demand that we’re seeing for some of these products in 2021. Today in 2021 there are digital assets in the world that are backed by money in the bank. These assets are seeing tens of billions of turnover per day in digital currency. It’s a massive market you need to pay attention to – and do so right now. For an investor it’s about seizing upon the opportunities that exist today.
From a growth perspective, the second largest digital asset, Ethereum, will have had more transaction revenue in the first two months of the year than all of last year. And that again is more than 2016-2019 combined! Bitcoin is also growing exponentially, still more than ten years later. Few assets in the world have ever done that.
Given the progress of digital assets, it makes sense to set aside some time to do a little research. As a long term investor you’re always looking for growth assets, and there’s no faster growing market than Bitcoin and digital assets.
A Critique of Crypto
In complement to the belief in cryptos espoused by Leigh and like-minded colleagues, there’s many other indicators that make the case for Bitcoin and its fellow cryptos having real staying power. Yet necessarily, the skeptic’s side must be given a fair hearing.
To those dim on the long-term prospects of crypto, the rise of Bitcoin and its associates is akin to the Tulip Boom of the 17th century. A speculative frenzy that saw a single flower able to be traded for a wide array of valuable goods – even a whole house! In more modern times, Warren Buffet’s description of Bitcoin as “probably rat poison squared" in 2018 typified the wariness among investors who struggle to reconcile the legitimacy of an asset growing in value whilst untethered from the traditional means of doing so via the production of a product or service.
A purely speculative asset seeing a stratospheric rise in value looks like a bubble to many – and given cryptos overwhelmingly find their greatest support in the younger generations – especially Aussie investors who’ve graced the earth long enough to see a (number) of boom and busts before the economic meltdown of the covid-19 era.
But as distinct from other bubbles – such as the Japanese asset price bubble of the late 1980s and early 1990s – that saw an overheating in markets trading traditional assets, crypto enthusiasts contend the meteoric rise of Bitcoin and Co is on a different playing field.
Its demand is reflective of a recognition among investors this is not a traditional asset, but instead an emerging one, primed to be an agent of immense reform and innovation in a world that’s increasingly digitising and globalising. Thus the rapid rise in value that has been seen in Bitcoin and other cryptos in 2021 is not a bubble waiting to burst, but the building of an entirely new foundation – one that investors want to get in on the ground floor of.
An Idea with Currency
Every investor must make their own call on Bitcoin and other cryptos. Just as they must do with every type of investment. To some, cryptocurrency is set to usher in a revolution. To others, the case is not yet sufficiently convincing to trade it for cold hard fiat currency.
It’s unclear if or when the cautious class will change their mind on cryptos – but it is clear cryptos aren’t going anywhere, anytime soon. If the first quarter of 2021 is anything to go by, cryptos are now seeking to make a decisive shift into mainstream acceptance.
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