Everything you need to know to invest in an ICO

Everything you need to know to invest in an ICO

BITCOIN is rapidly closing in on yet another record.

The value of the cryptocurrency continues to rise exponentially, adding another 15 per cent over the weekend to top $US9000 ($12,500) for the first time after breaking $US8000 only a week earlier, marking its fastest 1000-point rise ever.

By Tuesday morning bitcoin was trading at $US9650, and it “does feel like it’s just a matter of time” before the digital currency hits the $US10,000 ($13,150) milestone, according to IG Markets chief strategist Chris Weston.

“One hundred per cent, I think it’s a mania,” Mr Weston said. “That’s a good way of putting it. We’re hearing huge numbers — somebody said half a million new users a day are coming through to bitcoin across the world.

“People are actively opening accounts left, right and centre, that new money coming into it is pushing it ever higher.

“With all due respect, the press have got a lot to do with this as well — people on the retail level, when they see something that’s front page news and getting a lot of airtime, it’s a highly emotive trade. They see it keeps going up and up and up and they want a piece. There is a huge fear of missing out.”

He noted that Coinbase, the largest bitcoin exchange in the US, added about 100,000 accounts between Wednesday and Friday last week, bringing its total to about 13.1 million.

The Wall Street Journal pointed out that by comparison, broker Charles Schwab — which invests in traditional markets like stocks and bonds — had about 10.6 million active accounts, albeit with total assets of $US3.3 trillion, many times higher than the value of Coinbase accounts.

Mr Weston said IG Markets’ bitcoin CFD [contract for difference] product — which allows investors to get in on the action without actually having to own bitcoins — had been going “absolutely bananas”.

The price of bitcoin has risen by 900 per cent since the start of the year to reach a market capitalisation — the price multiplied by the number of bitcoins in circulation — of more than $US162 billion, according to Coinmarketcap. The total market capitalisation of all cryptocurrencies is now more than $US304 billion.

“Bitcoin started the year at about $US960, it’s closing the year testing $US10,000,” Mr Weston said. “If you’d told me that at the beginning of the year I would have laughed at you. In terms of the history of markets, it’s very rare that you’ve seen anything like this, let alone will we see it again. Where does it keep going?”

Mr Weston said people had been quick to label it a “bubble”, partly due to the unprecedented rise in value but largely because there was no way to accurately value bitcoin. “It doesn’t have cashflow or earnings,” he said.

“We just don’t know what it’s theoretically worth. We have a fair value in the equity market, universally agreed fair value in the bond market, no value in the forex market but central banks will create fair value and markets respect that.

“It makes people theoretically trained in finance struggle.”

Shane Chanel, equities and derivatives adviser at ASR Wealth, said $US10,000 was “just another milestone” and there was still the possibility of it going much higher, particularly if a planned bitcoin futures exchange by Chicago-based CME Group, which would allow investors to bet on the rise or fall of the digital currency, gets the go-ahead.

“That will really centralise it [and] be able to provide a platform where people can trade great volumes, and probably take a lot of volatility out,” he said.

“With the largest futures exchanges taking it up, other exchanges will be scared of missing out. That’s also what we’re seeing with a lot of investors and traders, FOMO is coming through.

“As long as CME does get approval, that will be a big catalyst to smash it right above $US10,000 — $US14,000 to $US15,000 seems possible by the end of next year.”

Leigh Travers, chief executive of Perth-based digital currency and blockchain advisory group DigitalX, is far more optimistic. He puts the long-term value of bitcoin on par with gold — or over $US400,000.

“Gold markets are valued at $US8 trillion,” he said. “Bitcoin is the digital gold, and it’s got a number of characteristics that make it better than gold, so there is over 50-times upside [still to go].”

Mr Travers said $US10,000 was one of the big targets initial investors had for the digital currency. “That’s where you really start to see the institutional money start coming in,” he said.

“It’s one of the rare asset classes where you see retail money hit the market first. Other times institutional investors start off, retail comes too late.”

But bitcoin is “not something you put all your money into”, he added. “Max one per cent of your portfolio,” Mr Travers said. “One thing I see all the major commentators say is: ‘If you don’t understand it, don’t invest in it.’ But that doesn’t mean don’t do anything about it. It means — go out and do some reading and decide if you think it’s for you.”

Mr Chanel said while there would always be pull back when there was negative news, that could present a buying opportunity. “Like Warren Buffet’s quote: ‘Be greedy when others are fearful, be fearful when others are greedy’,” he said.

“There’s nothing really on the horizon that looks like it will pull the price of bitcoin down. Unless central banks try to come out and ban it, but it will be very difficult because there are so many people who are involved already.”

Mr Weston agreed that despite the “hysteria”, it didn’t feel like anything was going to happen any time soon to crash the price — but ultimately he believed something more sophisticated would come along.

“I stand by the view that bitcoin is to blockchain what Betamax is to Netflix, or Altavista is to Google,” he said. “Everyone’s a massive fan of the blockchain, but one suspects in five to 10 years time [bitcoin] will be superseded by something far superior.

“I’m agnostic on bitcoin, happy to trade it in either direction. But it does feel like cryptos are here to stay and we need to get used to them.”

On Monday, a Cairns man put his massive 32 hectare property on the market for 100 bitcoin — nearly $1.3 million — joining the likes of Dutch father-of-three Didi Taihuttu and British tech entrepreneur Chris Mair.

AMP Capital chief economist Dr Shane Oliver last week warned that “every generation gets sucked in” to an investing craze like bitcoin, which Japan Post Bank chief investment officer Katsunori Sago has described as “worse than the IT bubble” of the late ‘90s.

Mr Sago based that assessment on the fact that he “hardly [knows] anyone in person who is trading cryptocurrencies” and he hasn’t “seen anyone using them in real life”.

According to Brisbane-based start-up Living Room of Satoshi, however, Australians are already using bitcoin to pay $1 million worth of bills every week.

frank.chung@news.com.au