What you should know about cryptocurrencies (part 2)


by Jessica Amir

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Soho Capital CEO, cryptocurrency and blockchain expert, Justin Dombrowski demystifies cryptocurrencies and reveals the tips and traps of this global phenomenon. 

Jessica Amir: Hi I’m Jessica Amir for the Finance News Network. Today we’re talking everything you need to know about cryptocurrencies, 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.

Jessica Amir: What do you make of people saying that Bitcoin’s not as liquid and usable as other currencies, and if so, does this spell Bitcoin’s doom?

Justin Dombrowski: It’s certainly true that it’s not nearly as liquid as other currencies out there. But that’s not to say that it’s not liquid. There are plenty of ways that one can go about getting into Bitcoin, or getting out of Bitcoin with dozens of different cryptocurrency exchanges.

But it is certainly true that if you’re thinking about it from the point of view of an investment manager, it’s harder to take the kind of position that one may want. There are not many places where one can go buy $100 million tranches, or $10 million tranches in Bitcoin or any other cryptocurrency for that matter.

But that’s not to say it’s not valuable right. Because if you think about it, just like you would any other commodity, you might buy it and hold independent of its actual utility.

Gold is a great counterpart to this, people often talk about Bitcoin being a digital gold. In some ways that analogy makes some sense and in a lot of ways it doesn’t. But one area where it does is the fact that it kind of recognises, that nobody’s running around looking for opportunities to buy and sell gold out on the street, or use it to pay for their coffee or anything else like that.

What you do is you buy and hold it as a store value, and you sell it when you think its peaked and you buy something else instead. That’s the way a lot of people handle Bitcoin right now. They buy it as a speculative asset.

Alternatively, there’s one thing that you can do with things like Bitcoin, that you can’t do with things like gold. And that is right now, again you can get into things like these token sales, these ICOs (initial coin offerings) that are a way of investing in early stage companies that are trying to raise some capital. Often some of them are highly speculative, some of them are incredibly interesting though.

There is a natural alternative market there that one can get into. So it’s an incredibly interesting space, it’s evolving, lots happening right now. Look at it for what it really is. It’s a very young virgin area right now and if you want to get in, that’s the mindset you have to have.

Jessica Amir: There’re hundreds of crypto currencies on the market. But why is Bitcoin so unique?

Justin Dombrowski: In a real simple way I think, one of the things that make Bitcoin unique is just the fact that it got there first. Bitcoin is the very first cryptocurrency that was available, it’s the cryptocurrency by which every other one is measured. And as you mentioned, there are lots of other ones out there. Somebody once asked me, basically because of a range of Bitcoin’s flaws – is it likely that we’d become a Bitcoin 2.0? And the answer is truly yes and no. On the one hand, people aren’t likely to give up their holdings in Bitcoin any time soon, because there’s so much invested in it.

But on the other hand, there’ve been lots of other cryptocurrencies that have popped up that try to correct some of Bitcoin’s perceived flaws. And some of them are actually growing quite rapidly.

Does this mean that Bitcoin will retain its crown forever? I doubt it over time, but who knows. I think the important thing to recognise is that there are actually other ones that have other value propositions that they offer. And it’s because they’re recognised as such, things like Ether for example, Dash, Zcash and Monero, to name a few. They all have value propositions that make them special and all have value propositions that make people want to invest in them. So I guess, what’d I say is it’s unique, but its uniqueness isn’t something that necessarily will overshadow the rest of the market forever.

Jessica Amir: How much upside do you think there is, some analysts are saying that Bitcoin could go to $50,000 by 2018. But what’s your view?

Justin Dombrowski: I don’t have a particularly strong view about where I think the price will be, but I do think it’s going to go up. I mentioned Michael Novogratz before, he said that he thinks within the next few months, you could see the price as high as US$40,000. There’s a Forbes article that came out recently that thinks maybe $100,000 by 2020. And I’ve read studies that have been done and people comparing the Bitcoin world to the Internet bubble, and saying there could be as much as four to six ex growth room left for it to go, before the bubble pops, before there’s a peak really.

I guess my own view is that I think the things to pay attention to is the fact that it’s very difficult to make the argument that fact that institutions are getting more interested in it, albeit gradually, more and more individuals are getting into Bitcoin, albeit gradually, is priced into the current price of Bitcoin. Which is to say that there’s probably an awful lot more room to grow. So if you wanted to get invested in it now, you might not make the kinds of returns that you would have if you’d invested a few years ago, but you’d still get something.

And among the things that I’d also probably mention is that Bitcoin isn’t the only game in town. You should be looking at Ether, looking at Litecoin, looking at some of the other ones I’ve mentioned and taking account of the fact, that there are other ones that could also grow too.

Jessica Amir: What do you make of some fund managers like BlackRock saying it’s going to be a bubble?

Justin Dombrowski: I think it’s entirely possible that this could be a bubble. But I think one of the tricks is it’s difficult to assess whether we’re at the very beginning of the bubble, or we’re edging toward the peak. My own opinion is probably it’s on the earlier side by a guess, but I could totally be wrong.

But another question you have to ask is what would a pop actually look like, if it is in fact a bubble. If Bitcoin continues to get market traction and greater utility and being used for other things, it’s entirely possible that the pop might be more of a slight deflation, than it might actually be a proper pop. And I just think it’s very difficult to know and it really will depend on what you think, these kinds of cryptocurrencies or Bitcoin in particular, might end up doing over the next several years. And I think that’s a tough question to answer.

Jessica Amir: What’s your advice to people who are thinking about getting into Bitcoin or cryptocurrencies?

Justin Dombrowski: I think now is still a decent time to try to get invested in this space. But I would encourage people not to spend too much money on it. It is speculative as Yellen and the RBA and everybody else I think recognises, that doesn’t make it bad. I think if you buy, you should buy for the long term and hold, rather than just get out. And you should be paying attention to what actually happens to the market, what the chatter is and what people do.

But there are very easy ways for anybody in Australia, or even globally to get invested in this space. You download something like the CoinJar app, or you can get into Binance, or into Coinbase or something like that. You link a bank account or a credit card account and you can buy straight from there very easily. It’s a very simple thing to do.

From there you deposit and withdraw whenever you feel like it. It's the kind of investment where you don’t want to necessarily bet the farm out right now. What you might want to do is get accustomed to it, buy a little bit and then hang onto it. But then read up, pay attention to the news, its moving, developing at a rapid pace.

Jessica Amir: Justin Dombrowski, thank you so much for the insights.

Justin Dombrowski: Thanks for having me.


Click here to watch 'what you should know about cryptocurrencies' (part 1)