Bitcoin expected to perform well
• Cryptocurrency is easy to invest in and transactions are on the rise
Bitcoin pundits say 2017 will be another strong year for the cryptocurrency, which posted dollar returns of 129% in 2016, as the hunt for alternative asset classes and institutional money boost its value.
Bitcoin pundits say 2017 will be another strong year for the cryptocurrency, which posted dollar returns of 129% in 2016, as the hunt for alternative asset classes and institutional money boosts its value.
In rand terms, the price of one bitcoin nearly doubled, from R7,307 on January 1 2016 to R14,443 on January 1 2017. An investment in the JSE’s top 40 would have yielded a negative return, while the S&P 500 returned 9.5%.
A $1,000 investment into bitcoin at the start of 2011 would today be worth more than $1m, according to a research paper by Coinbase and ARK Invest, which in 2015 became the first public fund manager to offer exchange-traded funds with bitcoin exposure.
“Bitcoin is just too big and too important to ignore. At the very least, it should be a small percentage of everyone’s portfolio,” said Werner van Rooyen, head of marketing at Luno (formerly BitX), Africa’s first and largest bitcoin marketplace.
Bitcoin’s stellar performance in recent years, which was uncorrelated to other asset classes, had piqued the interest of asset managers and institutional investors, Van Rooyen said. “We’ve had a massive uptick in inquiries from hedge funds, private wealth managers and financial institutions. The real money hasn’t even begun to start playing in this space.”
Would-be investors do not have to buy a whole bitcoin. Luno allows investments of as little as R5 worth of bitcoin.
“Bitcoin exhibits characteristics of a unique asset class — meeting the bar of investability and differing substantially from other assets in terms of its politico-economic profile, price independence and risk-reward characteristics,” write the authors of the Coinbase/ARK Invest research.
Bitcoin exchange trading volumes reached about $1bn per day in the first quarter of 2016. Estimating that bitcoin is held by just 1% of the world’s equity investors, even a modest uptake would improve liquidity materially, ARK and Coinbase say.
Transacting with bitcoins also appears to be on the rise, with thousands of local merchants accepting it as legal tender. These include Takealot.com, bidorbuy and online payment processor PayFast’s 30,000odd merchants.
Centbee, a new bitcoin wallet, will provide merchants with a QR code that bitcoin holders can scan using their smartphone (similar to SnapScan and Zapper) to make payments.
Centbee users store value in bitcoin but transact in local currency, said Lorien Gamaroff, one of Centbee’s co-creators and founder of Bankymoon, which is working with companies and regulators to understand blockchain technology. “We convert those bitcoins from the wallet into rands and we pay the retailer, sending them a payment notification,” he said.
Centbee would soon be piloted at a “big name” coffee shop, he said.
While cryptocurrencies are not yet regulated in SA, which means there is little to no investor protection, the Reserve Bank confirmed that it was “updating its position on virtual currencies and the impact of fintech generally, including the use of blockchain”.