If it works, Cosmos’ founder Manning, chairman Martin, and their investors – including former Challenger chairman Mike Tilley and KTM Investments’ Martin Rogers – could make a fortune. But plenty of people have lost big money on bitcoin in the past. In the 2017-2018 rally, bitcoin surged from $US1000 to more than $US19,000 only to topple by 80 per cent over the next year. So why should this time be any different?
People are starting to really understand bitcoin, its digital properties, and how valuable it will be in the Web 3.0 world.
— James Manning, Cosmos Capital
Manning is optimistic after a wave of buying support from the traditional financial establishment. He says bitcoin has similar investment properties to gold – scarcity, store of value, transactional.
“People are starting to really understand bitcoin, its digital properties, and how valuable it will be in the Web 3.0 world,” he says. “As Australians, we can be world leaders in digital mining, like we are world leaders in traditional mining. Our revenue just comes from bitcoin, rather than metals.”
Unlike US dollars, both gold and bitcoin can’t be created with abandon. The complexities of mining gold mean demand often outstrips supply, and a rigid set of software rules ensure there can only ever be 21 million bitcoin in circulation.
To validate and secure transactions on the network, “miners” run purpose-built computers. These machines compete to solve complex maths puzzles, and are rewarded with bitcoin at completion.
As it stands, around 18.6 million bitcoin have already been mined, and miners are rewarded with 6.2 bitcoin every time they complete an algorithmic puzzle.
Hedge funds like Ray Dalio’s Bridgewater Associates, institutional investors like JPMorgan, and insurance firms like MassMutual have all talked up bitcoin in recent months, pointing to its hedge against inflation, or even a bet on broader anarchy.
“I think that bitcoin (and some other digital currencies) have over the last 10 years established themselves as interesting gold-like asset alternatives, with similarities and differences to gold and other limited-supply, mobile (unlike real estate) storeholds of wealth,” wrote Dalio in a Reddit post in December.
However, for every new convert like Dalio, Musk and BlackRock’s Larry Fink, there is a high-profile sceptic questioning whether you can just create a currency that has real value. These doubts are not helped by the focus on cryptocurrencies that followed bitcoin such as dogecoin, which started as a joke and now has a market value of more than $US10 billion.
Economist and outspoken critic Nouriel Roubini claims, “The fundamental value of bitcoin is zero and would be negative if a proper carbon tax was applied to its massive polluting energy-hogging production.”
He says bitcoin is volatile, virtually nothing is priced in it and it is not a stable store of value.
A boon for other business
Supporters insist the tide is turning. US banks are receiving the green light to custody – or hold – crypto assets on behalf of customers. In September, the US Office of the Comptroller of the Currency (OCC) announced banks could officially provide services to stablecoin issuers, as well as custody crypto assets – leading BlackRock to say it may invest in bitcoin futures in some of its funds, and Mastercard to begin planning cryptocurrency support on its network.
Large crypto exchanges are now becoming more like banks. Kraken, founded in San Francisco, now has a banking licence in the US and feeds live prices into Bloomberg terminals, and Coinbase, another exchange and news services, has a $US22 billion valuation and is looking to IPO.
Closer to home, banks are lagging behind, though Westpac has no hesitation profiting off bitcoin’s growth. It stands to make $300 million from Coinbase’s IPO through its venture capital fund, Reinventure Group.
Meanwhile, large corporates, such as Tesla, PayPal and Square,…