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“Reasons to be optimistic” amid crypto crunch
The most recent innovation was the launch of the crypto ETF last month. With an estimated 300 million users worldwide, Bitcoin has a $500bn market cap and has been the fastest-growing asset in recorded history. May 22 is known as ‘Pizza Day,’ it was the first real-world transaction using Bitcoin, where a developer bought two pizzas in exchange for 10,000 Bitcoins. In today’s dollars, the amount spent today would be worth A$430m.
Speaking at the Financial Standard’s forum on the growth of Exchange Traded Products was a panel of three experts, Ganesh Balendran from ETF Securities, Dan Annan CEO of Cosmos Asset Management and William Spraggett distribution partner at 3iQ Digital Asset Management. The three discussed the rapid growth of cryptocurrency in Australia and the trends going forward.
“Bitcoin was the first currency that came through, launched in 2009 by Satoshi Nakamoto, designed as a store of value. Similar to digital gold on the blockchain. The second iteration that came through was Ethereum, which had the ability to transact with smart contracts,” says Ganesh.
When asked about the feedback received from advisers, Ganesh says, “The challenge we have is that not every adviser can access it at the moment, challenges with APLs and compliance, exchanges and preferred platforms. We are slowly solving these problems. The other challenge is volatility, which is extreme. Is this actually something I can put in my client’s portfolio? Where is this tech going in the next 5 years? Over the next 5 years, crypto is an asset class is here to stay, and should in advisers’ portfolios.”
To that, Annan replied, “I look at it in 3 buckets. A small group that has questions about the asset class, how do we advise our clients on the product? Some of the concerns advisers have is personal insurance and what are they covered when dealing in crypto directly? Through an ETF however, these concerns disappear because the ETF is a financial product. The second bucket – is the investment case. How do I position this exposure to clients and assess risk? A 2-3 percent holding in a 60/40 portfolio, will have a meaningful outcome. And the 3rd bucket – I don’t understand. Many advisers simply can’t put their clients in this because they cant value it?”
The cryptocurrency space recently went mainstream, with ETF Securities and 21Shares launching Australia’s first Bitcoin and Ethereum ETFs allowing local investors to invest in both cryptocurrencies. What’s driving investment in this space? Ganesh says, “Speculation was rife in crypto but institutional adoption was rising with CBA and Visa entering the space recently. That means regulation has started to come in. Congress is trying to identify whether it is a financial asset or commodity – it will fall under an asset class and its rules with SEC. More and more adoption and regulation can only grow the network.”
Annan comments, “As more people understand blockchain, we will see a full 360. JP Morgan once said Bitcoin was a fraud and Ponzi scheme. Fast forward to today, JP Morgan is using Bitcoin in their alternative schemes. Why? Because they’ve spent time researching and understanding cryptocurrency. BlackRock 8-9 years ago said they would never launch a crypto product, but fast forward to today, and it’s a different story. We can bucket human society into 3 groups – 1 fast movers, 2 the tip toers and 3 the naysayers who are the majority. But as time goes on, these buckets change and the naysayers follow the herd.”
When asked about criminal activity, there is a notion that drug dealers use crypto to conceal their criminal activity. To this, Spraggett says, “This is basically a non-issue at the moment, all transactions are recorded on the blockchain and traceable. With fiat money, it’s impossible to track where cash is used and how its used.”
Bitcoin is growing at the same rate as gold, mining versus the real mining of real gold. Every 4 years, the Bitcoin issuance halves. By 2030, there won’t be any more Bitcoin issued. A finite currency, which is the same as gold. That’s the reason, investors use Bitcoin as a hedge against inflation. Ganesh says, “A big positive is that the ETF structure takes the responsibility of securing the crypto so it isn’t lost. It gives a customer confidence that the storage of their crypto is safe.”
The three experts agree that the crypto world is currently in a correction phase, but there are good reasons to be optimistic about Bitcoin, as it becomes more regulated, its volatility will ease and adoption rates will start to go up again. As Ganesh says, “Launching a Bitcoin and Ethereum ETF during a market downturn is akin to building houses during a hurricane season.” But there is more to it than what we’ve seen, in years to come – Ether and its smart contracts will start to play a pivotal role. With the current correction, now is a great time for crypto to find its true value. Stability has come through in the Bitcoin price and that’s a good sign of things to come.
