- Cryptocurrency and underlying Blockchain Tech are already changing the face of investment.
- Australian investors must, therefore, keep a close watch on the benefits associated with cryptocurrency and Blockchain.
Australia: Presently, there is an increasingly common interest in cryptocurrencies from investors all over the world. This is probably due to the unprecedented returns associated with the asset class. The cryptocurrency industry has brought several profit opportunities that were not previously available via other traditional investment classes. For instance, certain crypto assets generated profits as much as 36,000 percent for early investors in 2017 compared to the 7 percent profits generated by ASX during the same period. These outstanding performances seem to have allured Australian investors to pay attention to the emerging crypto industry.
Aside from its market movements, digital currencies also stand to cause the birth of a new investment landscape. The cryptocurrency underlying technology – Blockchain – is set to launch the most significant change, which will have second-order effects for which Australian investors should be prepared for.
Here are three examples of such change possible as a result of development in the crypto industry, possible reason why Australian investors need to keep an eye on cryptocurrency:
Cryptocurrency is developing into an independent asset class and a diversification investment.
When compared with other investment classes such as bonds, equities, and property, etc. cryptocurrency does not appear to be correlated to their market movements. Crypto basically rely on the development of Blockchain and individual tokens and are directly unconnected with other Australian industries such as agriculture, property, or resources. Hence, investing in cryptocurrency enables an investor to diversify portfolios and make potentially larger returns.
The Chief Investment Officer of BlockTower, Ari Paul, confirmed this point during an interview where he describes cryptocurrencies as having the characteristics of being accelerative and independent from other asset classes.
“You have an asset that has been the highest returning asset class over the last eight years and it’s uncorrelated to everything else.”
In addition to this, since the new regulation legitimizing crypto trading has been implemented in Australia, 4 of the largest exchanges in the country have become compliant with the AUSTRAC’s new governing standards. This rapid response by the exchange signals a confidence that cryptos will continue to increase in popularity and ultimately consolidate into an asset class of its own.
ICOs are democratizing investment into early-stage companies and innovative projects
Before now, troubled firms have relied on venture capital firms and angel investing to support their innovation roadmaps. However, ICOs, the process whereby cryptocurrencies enable investors to contribute funds to a new project, has changed this. ICOs have democratic properties because presently there are no barriers to participating in them – once an investor holds cryptocurrencies (Bitcoin, Ethereum etc.) and evaluates the project as profitable, they can invest in ICOs.
Kain Warrick, CEO of Havven cryptocurrency, detailed:
“ICO’s will transform capital raising for many reasons, but the most important is that they will enable projects to be funded that would have never have been funded by VC’s.”
The Managing Director of Holochain, Matthew Schutte, noted the risk of participating in illegitimate projects given the lack of guidance and protection as well as the limited regulation associated with ICOs:
“ICOs are democratizing finance, but the “wild west” atmosphere surrounding them creates special challenges. This includes many companies trying to get rich quick based on the experience of Bitcoin.”
Blockchain technology Offers investors exposure to real-world assets that were previously illiquid
Blockchain technology presents investors with unique exposure to real-world assets via the process of tokenization – which refers to dividing tangible assets such as art, commodities, property, etc. into tradable tokens. Each of these tokens denotes ownership of the asset, which when coupled with peer-to-peer exchanges, generates a liquid market for previously illiquid assets. Any cryptocurrency that enables such tokenization is referred to as a security token. By facilitating such liquidity, investors are offered the opportunity of investing in assets that may have been previously inaccessible or preclusive. Through the introduction of security tokens backed by real-estate in Australia, investors would be offered the ability to invest in the real-estate property without the need of purchasing the entire asset.