DigitalX (ASX:DCC) Presentation, FNN Online Investor Event, July 2020

Company Presentations

DigitalX Limited (ASX:DCC) Executive Director Leigh Travers talks about the company's blockchain consulting and product development arm, its current innovation cycle and why Bitcoin has been the best-performing asset class of the last decade.

Thanks Clive and thanks for those insights Martin. Loose fiscal and monetary policy, it's one of the biggest engines for our blockchain and digital asset sector. So that introduction is pleasing from my perspective and obviously it's been a good couple of weeks for our market and our stock too. So DigitalX has been listed since 2014 and is a leading blockchain, Bitcoin, and digital asset company on the ASX.

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Skip through the two disclaimers, please. Thank you. And here's our corporate snapshot. The price recently has started to track changes in the Bitcoin price due to our large Bitcoin holdings. Our cash, digital asset, and Bitcoin position shown there is at 30 June and pleasingly that's ticked up quite nicely from those levels and the price off of that volume has picked up quite strongly too.

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Thank you. A little introduction about myself. So I've been with DigitalX since 2014. My background is in the wealth advisory space. I'm also Vice Chairman and Treasurer of Australia's blockchain industry body, where I've been for the better part of the last five years, which has been really interesting for myself, the company, and the development of the industry within Australia.
Our Chairman, Toby Hicks, he's a partner at Steinepreis Paganin. That company lists the most number of ASX companies, so that helps build our relationship with the ASX as the only listed digital asset company. Peter Rubinstein, who's background is with commercialising technology previously at Monash University, our very experienced company secretary.

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And show a little bit about our team. We can see some deep industry expertise. For example, our CTO is behind the world's first Bitcoin meter and has been in the space since 2010, so around a decade now in this market, which is quite extraordinary to have him as part of our team. We've recently brought on board some other experts as well in terms of commercializing both blockchain applications, as well as Fintech ones.

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In terms of our business lines, we run a blockchain consulting and product development arm. We do incubation and then we also have our funds management. In terms of the business benefits of blockchain and first we need to consider what is blockchain, currently we've got complex operations in terms of businesses managing their own technology. Typically, that is a situation where you're having data that is duplicated that is sitting in solid operations and you have the opportunity there for manual errors, as well as costs around reconciliation.

You move to more of a future state, you start to see operations. Potentially you can look at something for example like Microsoft Excel. You have one owner of that particular product. The next state is having Google Sheets where everyone has access to that Excel document at the same time. Once it's edited or changed, everyone can see that. However, that is stored on the cloud and hosted by Google, so Google has all your information.

Moving to a blockchain state, you have the same sort of issue where you have everyone having complete visibility over what that state is of that ledger or of that Excel document, except it is hosted on nodes and servers all over the world. So if you wanted to change that or hack that, you need to simultaneously hack thousands of computers around the world, which just doesn't happen and that's what makes blockchain and in particular Bitcoin blockchain the most secure computing network in the world.

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Our capabilities, we're booked across a number of different areas within blockchain. Previously, a lot of demand for our services from start-ups but now we're actually seeing enterprise and larger companies come into this space and want to explore how blockchain can benefit their business. It's currently a state where we're seeing major interest coming in how blockchain can improve efficiencies. So that is reducing costs and reducing the risk of error around their business operations or anywhere you can reduce the amount of human and physical interaction. For example, on site auditing, having a ledger where you know that it hasn't been tampered with or it's been through a process around data governance is an example where blockchain can help solve those costs you have around audit as well as the time periods and human interaction.

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So we have worked for other companies and we have worked with companies in bringing blockchain through. So an example of that is xbullion where we are currently around a 15% shareholder in the business as well as providing technical and consulting services. I love showcasing xbullion because it's a pure example of where blockchain's being used to bring about a highly inefficient, multi intermediary, high cost operation in terms of physical gold bullion and acquiring that, moving that digital, and reducing all those intermediaries, reducing cost, and improving the use case for consumers.
You can buy now gold when xbullion launches at a few basis points of cost, have that vaulted, insured, and audited relative to the current state of buying physical gold bullion. If you do have high costs, it's a time delay and there's always risks around storage. So it bridges both the liquid markets, so in terms of ATF, with the physical gold marketplace as well. So that's something we're excited to bring to the market very shortly.

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DigitalX is currently going through another innovation cycle. This is where we review the operations within our current team and look to bring to market new blockchain products, which we have brought numerous products to market before. This process started in March. We brought together some industry experts as well as some strategic consultants to help us to find what the best product is to bring to market and we're pretty excited about how that's shaping up and we look forward to bringing some news to our shareholders shortly on that front.

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This will take us to our DigitalX asset management or funds management arm where we've built a digital asset and Bitcoin funds. So two separate funds to allow qualified investors to acquire Bitcoin and digital assets seamlessly and it's about improving the access, security, and trust of this emerging asset class.

On the next slide is Bitcoin as an investment.

We consider Bitcoin to be a storeroom value. So similar to how gold performs, except that it's more divisible, more transferable, and ultimately made for the digital era. And on the scales of store value when you compare the assets globally, it really is still a minnow.

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We do know that Bitcoin was the best performing asset class of the last decade. And since 2017, both the price and volume have grown steadily and strongly and with current day's price, we're sitting at around AUD$15,600. And in US dollar terms, that's over USD$11,000 as well. So it's certainly having a renewed interest on the back of this fiscal and monetary stimulus that we're seeing.

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On our fund snapshot and performance. You can see the two fee structures designed for the two funds, designed to offer low cost entry for investors to receive title audited and insured by an issue of digital assets. The performance has been going strong. Both funds have out performed All Ordinaries and gold over the last six months and that doesn't take into account July's performance which has been quite exceptional.

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So operationally, progress has been quite good. We've actually secured first platform listing from Netwealth, which is Australia's number one rated wealth management platform. And we also started working with Delphi Digital, which is a New York based independent research house. So to bring to our marketplace both education and research around this emerging asset class.

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This is how we see the major demand drivers for digital assets. But first we see demographics, so the age of investors that are buying it and what's happening to their wealth and investment considerations. Second one is institutions. We do know that the market has been led by retail previously, but institutions are certainly growing in terms of their acceptance and interest in this asset class. And then thirdly is QE and financial instability.

Bitcoin shares the same demand drivers as gold and it's also a stored valuable value and capable of being held outside the current financial ecosystem. It's really a hedge against excessive and loose monetary policy, which does erode the savings values of those that are currently holding assets in cash.

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This is the demographics. As I mentioned, millennials are the biggest buyer of Bitcoin. You can see that if you look at the right-hand slide from Charles Schwab research. So baby boomers, they're ultimately buying quite a diversified portfolio led by market cap. Gen X, the generation younger has the same sort of diversification. It also has a stronger flavour towards technology stocks like Tesla and Netflix relative to their market cap. And then millennials, their fourth largest holding's actually a $4 billion OTC fund, which is a Bitcoin fund called the Grayscale Bitcoin Trust and that's quite extraordinary considering the market cap relative to some of the other names there.

So we know that millennials like this asset class. We know now that they are the largest income earning generation, so that tipped over in 2020. They have now more income to invest. And then thirdly is obviously there will be a trickle down effect from older generations as wealth is passed down and that's looking at like $68 trillion to be passed down from older generations over the next 20 years or so.

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We can see on the CME, which is a regulated futures exchange, that has constructed a Bitcoin futures marketplace where institution investors can come in and acquire Bitcoin. That has seen growing use. So every month we're seeing more and more institutions starting to enter that market and more recently, we had Renaissance Technologies LLC enter. That's the best performing hedge fund globally since 1980 and have their tacit endorsement of the product shows that Bitcoin and digital assets are growing as an acceptable investment class.

Paul Tudor Jones is one of the more famed and popular economic investors. He recently advocated for a one to two per cent portfolio waiting towards Bitcoin. He came out, he was over Bloomberg. He was over CNN and was the first major individual that is a multi billionaire, has been in that macro economic investment space to really advocate for the asset. So I think we tie it towards retail moving from in store is starting to come. Further demand drivers would obviously be any of the 30 ETFs that are currently proposed being opened. And that's really a SCC approval process that they're going through, so it's a matter of when, not if, in my opinion. And then looking towards other demand drivers being more the conservative investors into pension funds advocating and allocating towards gold as part of their treasury. Bitcoin, I should say.

And then finally, central banks. There's over 100 currencies in central banks world wide. Don't expect the Fed or the RBA to advocate or allocate towards Bitcoin in the short term, but certainly some of the other central banks may consider it and that would be a major demand driver.

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And as I mentioned, Bitcoin shares, a lot of the demand drivers is gold when we've got excessive monetary policy like we're seeing right now. The Fed's balance sheet looking like it's on the way to $10 trillion in size, Bitcoin becomes far more interested as a store value because it is capped in terms of supply at 21 million. We're seeing the US money supply increase by 50% this year, so that's a really interesting dynamic between fixed supply and increasing supply.

On the financial uncertainty, we're seeing time and time again when a country's going through a geopolitical or financial crisis, Bitcoin increases in its interest. We saw it with Greece when they basically quarantined 10% all deposits held at bank. We've seen it in the UK when they went through Brexit. We saw it in Argentina when they had that massive inflation to their currency. And in Hong Kong recently where we've had the China and Hong Kong issues. We saw a massive increase in on the ground demand for Bitcoin. So I think that's been pointing more and more towards that being a major demand driver in the future. We do continue to see more of this.

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On the supply side, which I did mention, there'll only be 21 million. However, when Bitcoin was first introduced, there was zero supply. Now, that supply is not distributed nearly in the market. There's actually a supply shot that occurs every four years. We had one in 2012. We had one in 2016 when the daily supply of Bitcoin is cut in half. And more recently in May, we had another halving of supply to around about $9 million per day from $20 million. That supply we've seen happen twice, the halving. And the year post the previous halvings were the two best years in terms of price performance for Bitcoin. So that 2020 halving we just saw, there's a lot of interested investors wondering if we will see history repeat from that perspective. So I think the outlook for DigitalX in terms of Bitcoin, blockchain, digital assets is looking quite strong at the moment. And thanks for joining everybody. Cheers.


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