05 Nov Should I Buy Bitcoin? Matthew Dibb from Astronaut Capital Tells Us About Risks
In this week’s episode of the Rentvesting Podcast, we’ve got Matthew Dibb founder of Astronaut Capital chatting to us about cryptocurrencies and investing in some of these landscapes.
In this episode:
- We’re looking into investing with Bitcoin
- What are some of the risks?
- An overview of the industry
So tell us about your background and how you got into Bitcoin and all that sort of trading?
I started from a finance background actually in Australia. Previously working for Macquarie Bank and then in a trading background for stockbroking.
Naturally, looking at the market this cryptocurrency market over the last few years, we’ve just seen this enormous growth out of it. Previously I had a lot of clients who were looking into getting exposure into it. You think about Bitcoin and you know it’s gone from in the early days in 2008 when it launched, after the GFC with prices from as low as a few dollars and now it’s trading at $7,000+ AUD. That’s all in the space of six or seven years. So I sort of fell into it as a natural progression from derivatives trading. Now, what Astronaut Capital is doing is basically managing funds on behalf of other retail investors and institutions and investing that into the currency market.
Take us back, even on a simple level I’m sure most people would have heard of Bitcoin and cryptocurrencies. But what is it at a high level? How does it work?
Probably the easiest way to explain it is, you’ve got what they call blockchain and I think everybody has heard that word before. Bitcoin is effectively built off this concept called blockchain and blockchain is effectively a trust list system.
It’s like a ledger in the cloud where every transaction or block they call that is processed in there is there and can be verified by anybody. So having this trustless this system is a huge thing and as I mentioned before in 2008 after the GFC people were thinking about a currency where we don’t need to have banks involved. It allows you send any nominal amount that you want straight to another person in real time. There is basically no transaction costs to it. Very small fees and it’s done peer to peer. There is no middleman. There is no centralised service or anything that is intercepting and charging you in between. That’s why we’ve seen the growth in this currency.
A lot of people have talked about how these currencies have made some people made really rich from it. I remember reading one where a guy had used a couple of coins early on to buy pizza from Papa Johns and now it’s about $10mil. What are you seeing with people trying to invest in it, what are the good things that can happen, what are the bad things, the downsides?
From when the guy was selling pizza and it was three dollars and now it’s over $7,000. First think about it just a year ago when it was trading at less than $3000, even before that people have made a lot of money off this. It is a currency that’s being used every day in the transaction volume, for example, it’s bigger than some of the largest listings in the New York Stock Exchange. So it is huge, it’s being used and it’s going to continue to be used. When we talk about investment for people and everyday people, I think having exposure to that market albeit, not huge exposure, but having some is a great way to diversify your portfolio particularly because it is liquid.
You don’t have that problem of trying to get out of it. Billions of dollars of it are processed a day. So within a second, you can get in and out and you know a liquidity part of your portfolio in Bitcoin in other cryptocurrencies I think is a great idea.
So it’s obviously highly volatile as well. A couple of weeks ago when China said they were going to ban Bitcoin, it dropped off like a flash drop.
What do you see the future of it? Is it going to continue to be volatile? Or is it like gold where it’s kind of consistent, but obviously it doesn’t make dividends?
That’s an interesting question because you just made reference to gold which is a good one because Bitcoin just one of hundreds of cryptocurrencies in the market. Bitcoin is the gold standard of cryptocurrency.
We see a lot of volatility, sure we see 30% swings inside of a week or a month, which is huge and that’s why you know taking too much exposure where you can’t sleep at night would be a big problem. Taking a nominal allocation in your portfolio is a good idea. But volatility will always be there. It always has. We look at the returns it’s volatility on the downside but also volatility on the upside that’s producing these huge 30-40% gains inside of months, so it all comes back to having that, unique but small exposure to your portfolio.
There are other cryptocurrencies too because I think this is where it gets hugely confusing because there’s Bitcoin which is kind of the original one. So how does that actually work? What does that look like?
Bitcoin is as we said a currency but a lot of these other types are tokens that are coming out, we call them tokens if they’re not a currency. They are blockchain. Blockchain can do legal contracts for land transferring a smart contract that no one can dispute that gets rid of the need for legal and conveyances. What companies do to build that intellectual property in that contract is they raise money via a token.
That’s the same thing effectively that like you mentioned Bitcoin and the hundreds of others have done. They come up with a concept that is blockchain backed that is going to improve the world or a particular process and they raise money on that very similar to an IPO. So we talk about an ICO which is initial offering for the tokens is extremely similar to an IPO in raising money.
With the ICO’s, is it like an IPO to get shares in the company or do you have ownership, do you get dividends, do you get profits from it, how does it work?
It really depends on how they’re structured. If we look at what we’re doing with Astronaut, a token that you buy off us which is called an Astro gives you exposure, basically ownership to a pool of other tokens in cryptocurrencies, but other ones are structured in a different way.
For us, with Astronaut we actually distribute dividends based on our tokens performance and remembering that a lot of these tokens are similar to Bitcoin, where the place prices fluctuate. These tokens actually list on exchanges as well. You may have ownership to a token that you get into it at a low price and you know within months of listing it can go up 10-20, even 30 times and we’ve seen that a lot this year.
With huge upside, there are huge risks. So this stuff is largely unregulated at the moment, along with what impact it can that have. What have you seen? I think you’ve mentioned before your time in America there’s still not really sure how to treat it.
So what are the risks around that and the legal landscape?
I think the regulation is going to continue to be talked about almost on a daily basis and in every country as well as in the last couple of months. You’ve seen China, you’ve seen Singapore, the US and Australia has just issued their point of view on the fact, the matter is none of them has been able to implement legislation because blockchain and Bitcoin etc. they are somewhat of a threat to the natural ecosystem of the government in the gold and the dollar standard.
The whole financial system, the banking system and you know the Reserve Bank of Australia would be would be scared about that. And we’re seeing the same in the US so regulation is going to continue to be talked about. But the question is can it actually be enforced? And no country has been able to do that because the whole point of Bitcoin and blockchain etc. is basically the freedom to be able to do what you want with it, without having to go through certain channels and middlemen. Governments and regulatory bodies are wanting to implement that and the market is simply saying no.
That’s interesting. I think it still largely seems to me we’re in the early days so it’s hard to say what the risks are exactly.
It really is and you know I think we’ve seen huge growth in everything. Even with some of the scare tactics that China came out with or the US, Bitcoin has gone up 20% since then. If anything it may actually be helping the cause of using Bitcoin. You know it was funny because I saw something the other day, a post on Twitter by Julian Assange WikiLeaks founder. I think it was 2010, when WikiLeaks was barred from using basically any financial institution to hold any money any currency paper, so they were forced they had no other alternative but to use Bitcoin. I guess they put all their money into Bitcoin and said Julian Assange put out a post the other day saying I’d like to thank the US government for basically making WikiLeaks millionaires of the past five years. I think it’s really interesting that ecosystem.
- Go look at Bitcoin yourself because it’s all fairly unregulated at the moment but it could be something to look out for so much.
- When it comes to cryptocurrency, whilst some people are getting rich quickly is still a largely new area that should be watched but should be approached with a lot of caution.
- It’s hard to say what’s going to happen next. The government, the regulation and even the volatility is there, but I think definitely something great to look out for.