Bit­coin ex­pected to per­form well

• Cryp­tocur­rency is easy to in­vest in and trans­ac­tions are on the rise

Business Day - - FRONT PAGE - Hanna Zi­ady In­vest­ment Writer zi­adyh@bdlive.co.za

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”.

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