In 1676, the price of tulips rose precipitously, peaking a year later where single tulip bulbs sold for more than 10 times the annual income of a skilled worker. This was the first known asset bubble in history. Just as quick as it rose, the bubble burst, never to rise again.
Fast forward 300+ years to today, are we seeing the same in crypto-currencies?
Five years ago to this day, I stood on the main stage of the famous Fillmore Miami Beach Jackie Gleason Theatre espousing the benefits digital currency at a North American digital currency conference in front of thousands of attendees.
It was a dual presentation from myself, representing the recently formed Australian Digital Commerce Australia (now Blockchain Australia) and the Australian Federal Government on the benefits of industry and government working together for the benefit of consumer and industry by reducing cost around cross-currency transactions, using cryptography to secure data ledgers, transparency of any number of transactions and improving trust in data.
From a digital currency perspective of which is one benefit of the blockchain, the bitcoin price was about $250USD. During my research of blockchain and digital currency, I bought 4.5 bitcoin and later some Ethereum. In that year, CoinBase, a virtual wallet marketplace for cryptocurrencies, had just raised $75M from very well-heeled investors, such as Andreessen Horowitz, former Citibank CEO Vikram Pandit, former Thomson Reuters CEO Tom Glocer and Virgin entrepreneur, Richard Branson.
Is Bitcoin and Crypto just another Tulip Bulb?
As you can probably glean from my aforementioned remarks, I am very much in the ‘No’ camp in answer to this question.
If you are not au fait with this new asset class and the mechanics of bitcoin, crypto and blockchain, I suggest reading our previous articles by internet pioneer and our good friend, Mark Pesce -
- Bitcoin and the basics of blockchain
- Bitcoin and the basics of cryptocurrencies
- Initial coin offerings
- Real world examples of blockchain technology
It has now been 11 years since the Bitcoin protocol was established in which 21 million bitcoins are to be mined, creating a scarcity of an asset class not too dissimilar to gold. In the five years, since I purchased those bitcoin, the price has risen 12,000% to $30,000USD (despite the price decrease in the last few days).
In that time, digital currencies have gone mainstream, with the likes of Elon Musk, Mark Zuckerberg, Bill Gates, Goldman Sachs, PayPal, JP Morgan either investing in crypto-currency directly, trading platforms or looking to create digital assets/currencies themselves.
So what, my licensee and own knowledge of the sector limits my ability to provide advice on this asset class?
There is no doubt this new asset class has created somewhat of a cowboy environment, as is the case with many new, unregulated fields of finance. However, both ASIC, the ATO and the Federal Government have acknowledged the need to create oversight of a burgeoning industry.
However, now that cryptocurrency is mainstream, with 80% of Australians knowing about cryptocurrency and 17% owning the asset (particularly millennials), it is no longer an option for advisers to be naïve about the asset class. At the moment, with some currencies providing scarcity (like Bitcoin, which has limited supply) and being used as a store of value, as opposed to a traditional currency to buy and sell goods, many clients if they haven’t already will be walking through the door potentially asking you which crypto they should buy.
So whilst it may take a while for an adviser to recommend adding cryptos in the alternative asset class of clients’ portfolios, clients will soon be demanding to at least know why as they brush up on their knowledge every day…..and the millennials are constantly researching, whilst trading Tesla shares and cryptos in their Robinhood and Finder accounts!
My own $200k windfall
This brings me back to my own 4.5 bitcoins. Given bitcoin is very much like cash and sits digitally in a hard wallet (if you haven’t entrusted it with one of the many exchanges), it’s important for all your family members to be aware of this. Note, at the time, many exchanges had lax security or nefarious owners where bitcoins were stolen at will, hence keeping it stored on my computer.
So, I would recommend, when doing a spring clean-out of your computers and digital devices to remember where your bitcoin is. My 4.5 bitcoin is now sitting on an e-waste dump in Sydney….along with 23% of the world’s bitcoin supply! My own tale of woe in a nascent yet burgeoning form of digital commerce.