Soho Capital CEO, cryptocurrency and blockchain expert, Justin Dombrowski talks all you need to know about the crypto hype and what to watch.
Jessica Amir: Hi I’m Jessica Amir for the Finance News Network. Today we’re talking everything you need to know about cryptocurrency, Bitcoin’s massive rise. And despite The Fed, the RBA and ASIC’s warning against it, we’re talking what the future holds.
Today I’m joined by the CEO of Soho Capital, Justin Dombrowski. Hi Justin, and welcome.
Justin Dombrowski: Thank you.
Jessica Amir: So first up, can you tell us what’s your involvement in this massive space?
Justin Dombrowski: You may wonder how I even got here. The truth is I’ve been involved with the crypto space, Bitcoin, Ether, Distributed Ledger technology, all of that stuff since really early days. And it’s been a result of that involvement that I started by own consultancy a while ago, eventually joining PwC as their subject matter expert in this space, for the entire ASEAN's(Australian South East Asian Nations) region. And only recently did I leave PwC to actually start my own business, to focus squarely on this. Where we’re working with more established businesses that are interested in getting involved in this space, learning more and making big investments.
Jessica Amir: Tell us what Bitcoin actually is and what’s led to its huge rise of late?
Justin Dombrowski: Bitcoin, to make it really simple is a peer-to-peer payments mechanism. In other words what that means is you can send money using the intrinsic cryptocurrency of the network, Bitcoin, from one person to another completely peer-to-peer, without any financial intermediary in the middle. No bank, no payment processor, relatively fast usually in a span of about 10 minutes, in a private way. So you don’t actually have to disclose the counterparties, who you are or who your recipient is, even if you know who they are. And to do so in a relatively secure way, meaning that nobody can just up and steal your Bitcoin from you. As such got some really interesting innovations over existing payment technologies.
Now in terms of the rise, I think it’s probably a combination of factors. For one, you’ve seen a gradual ground swell of the price and then gradual adoption, over the course of the last number of years. But then a handful of things in particular have happened over the course of the last year, that has made it even more exciting.
For one, historically there’s very little that you can spend Bitcoin on. But now with the rise of the ICO market, there’s an opportunity to make concrete investments in early stage companies, which then as a result, increases in the demand for cryptocurrencies to make that investment. That also makes it possible for things like venture capital firms, high net worth individuals, investment firms in general, to decide they want to take greater stake in it and to see that oh yeah, maybe this is a legitimate thing.
Following on from that, you’re seeing increased demand from larger financial institutions that want to take a stake, in this cryptocurrency.
The biggest challenges that you find are usually not things like, oh we’re just scared of it. It’s things like, how can we do this in a legitimate compliant way, for one. And for two, how can I get access to the kind of liquidity that I want, not single digit millions, but sometimes tens of millions of dollars all at once. In order to meet that kind of demand, you have alsoreally interesting announcements like from the CME Group announcing their Futures Exchange, which again, all of these things together grant legitimacy to Bitcoin. Makes it possible for people to want it a little bit more and the price goes up.
Jessica Amir: You mentioned institutions. Maybe you can tell us what big names are getting behind it, or just unravel it a bit further?
Justin Dombrowski: People will have noted that individuals like Jamie Dimon for example, have come out and said that he is very much against the idea of Bitcoin. But even Jamie Dimon has softened his tone lately to say that he is not as opposed to it, as he used to be. Part of that is I think, because you have individuals like Michael Novogratz, very large hedge fund manager saying very publicly, that they think the Bitcoin space and the Ether space are interesting areas to get invested in, and have raised enormous funds to get behind.
What this has done, we have large institutional investors like him. You’ve got Tim Draper who’s been an ardent defender of this space, a heavy investor, Andreessen Horowitz and a lot of the other really prominent venture funds. What it’s done is made it possible to legitimise this space, in a way that it hasn’t been before.
Right now we’re seeing increasing even private investors getting more involved, feeling that it’s a safer place than it’s been. That’s not to say that it’s all hunky dory and there are no secrets in the back dark rooms. But it is to say that it’s got an air of legitimacy that it hasn’t had before. And people are starting to feel that and feeling much more comfortable, tossing their money into it.
Jessica Amir: What do you make of the RBA Governor saying Bitcoin is a speculative mania, and saying that it’s only really attractive to the black economy and the illegal market?
Justin Dombrowski: I would definitely agree that it is speculative right now, because look at it this way. What you’re seeing right now is the rise of the prices, and a lot of people, institutions and ordinary investors, realising that it does have potential long-term value. And as a result, the price reflects that, they’re trying to take that into account. Now to say that it is only attractive to dark markets and things like that, I think you’d have to look around pretty seriously, about the very public things that have taken place in this space.
Yeah sure there is utility for Bitcoin as there is for cash and anything else in the dark markets. But right now, the major activity that’s feeling the price of Bitcoin is just going on very publicly. And that’s the fact that institutions and high net worth individuals, and everyone else, is now thinking this is a legitimate place to play.
Jessica Amir: And what do you make of The Fed saying it’s not a stable source of value and it’s highly speculative?
Justin Dombrowski: I think it’s important to recognise that what Yellen is saying is different from what the RBA is saying, on some level right, it’s a bit more nuanced. What Yellen is pointing out and it’s true that Bitcoin is volatile, the price goes up and down quite rapidly, and therefore, it’s value is also really unstable.
But in a way I think that’s not necessarily a slight, because if you think about it, that’s also true of many other equities and commodities investments as well. I think the important thing to recognise there is that that’s probably the best way of thinking about how one should go about investing in something like Bitcoin, or Ether or whatever. It is an investment, but it is speculative and it’s going to experience volatility, but that’s okay there’s nothing new there.
Click here for part 2 of this interview.