Cryptocurrency is as cryptic as it sounds to the wide majority of today’s investors and on-lookers. But names like Bitcoin, Ethereum and Litecoin keep appearing in news headlines, so why aren’t more investors looking into this new application of technology?
When first founded in 2010, Bitcoin was worth around AUD$0.10 per bit. With a select few keeping their eye on this brand-new form of currency. Bitcoin is now, after some enormous inflation, worth an astonishing AUD$4,884 per bit. That’s an increased worth of 4,884,000 per cent and a current market cap of nearly over AUD$80bn. Plus, bitcoin isn’t the only cryptocurrency that has seen impressive growth.
Of course, this doesn’t mean that every single one of these new cryptocurrencies is going to increase in worth as exorbitantly as Bitcoin, in fact it could mean the entire opposite. Bitcoin, just like a lot of today’s currencies, is based wholly on social value. So as more and more cryptocurrencies are developed, there may be less consumers willing to buy into these new currencies (unless a currency comes with a technological advantage, many of which do) and therefore less potential value. Many compare Bitcoin and Ether to the likes of Linux, an open-source alternative to traditional operating systems that has never really achieved wide-spread success.
Due to the currency being entirely digital and separate from the traditional means of verification and legal bindings there is a lot of talk about usage in black-market and dark-web tradings. This, along with the currency directly competing and disrupting traditional currency, has led to some scepticism from investors and government officials. In fact, Chinese officials have made the decision to ban domestic bitcoin exchanges and initial coin offerings, being the first country to do so.
If one was to buy into the idea of cryptocurrency, what are the opportunities for investors who want to capitalise on this new trade?
There are a few different options. Backers can invest in various different organisations that are involved in the market, ranging from cryptocurrency trading platforms and cryptocurrency wallets to cryptocurrency miners and blockchain builders.
CoinJar, an Australian start-up is a successful cryptocurrency wallet that is well-known internationally. The financial wallet works much like a traditional banking application and offers the user the ability to store both traditional currency and cryptocurrency to trade on the Bitcoin market. The wallet also offers the option to store bits in a hedged account, housing the bit in the form of an alternative currency, as well as the option to purchase the first EFTPOS card in Australia linked to a Bitcoin account. CoinJar has grown to be a widely successful wallet thanks to ease-of-trade and offline security measures, with over 70,000 customers using the platform.
Investors also have the unique opportunity to invest in bitcoin miners, most notably Bitcoin Group Limited, a miner founded in Melbourne in 2014. Mining is a unique blockchain process where individuals or organisations use technology to verify cryptocurrency transactions and then, once the blockchain puzzle is solved, the miner pool gains 25 bits as reward. This process is what makes blockchain a world-leading digital security measure, with transactions being processed and verified across a network of thousands of miners.
An innovative method of cryptocurrency for investment is the use of company tokens in an initial coin offering. Initial coin offerings (ICOs) are currently a widely discussed topic, as more blockchain start-ups move away from traditional IPOs and instead opt for ICOs. An ICO is a method of which a start-up creates its own cryptocurrency using blockchain technology, and then offers that token to the market as a method to invest in the company. Essentially a mix of crowdfunding and cryptocurrency. This is done instead of an IPO or crowdfunding round, providing the customers of the organisation with their own ‘share’ of the company. It’s a far more fluid and rapid method of withdrawal and purchase, as investors can pull out and buy more of the tokens whenever they wish.
A recent ICO from TenX, a blockchain start-up based in Singapore, raised US$80m in less than seven minutes. Around 4000 individuals and groups participated in the ICO to purchase the PAY tokens. The PAY tokens will be tradeable on global cryptocurrency exchanges for the next month or so until the 40,000 unsuccessful participants looking to obtain tokens will get another chance to purchase.
Power Ledger, a Perth-based blockchain energy company was the first to introduce the new form of funding to Australia just this year. The disruptive energy trading company raised AUD$17 million in a pre-sale ICO over the course of just three days, creating Bitcoin-inspired POWR tokens that will be used on a renewable energy trading platform, tracking the movement of electricity from consumer to consumer.
What does this influx of ICOs mean to investors? A few say this activity is entirely illegal and will come back to hurt investors, others say it’s a grey area and legislation will soon be created to monitor these activities, and some say that this is the future of start-up funding. What is known is that this new form of funding offers anyone who’s interested a simple method of backing a start-up and takes a lot of the constraints away that allow only the wealthy to invest. It is important to note that no legal constraints means just that, no legal constraints, though ASIC has announced that guidelines for Australia will soon come into action. However, when looking at financial investment, the team behind the project is more saying than the project itself.
Ultimately, this new form of currency, security and trading has changed the way many businesses and investors go about their day-to-day. People are only just starting to scratch the surface of how new technology and cryptocurrency can provide businesses and users with commerce fluidity and enormous potential of financial gain. The market is now open to anyone with a smart phone and some free time.