Domenic Carosa is bullish on Bitcoin, which is unsurprising for a digital entrepreneur. Interest in his new $30 million Future Capital Bitcoin Fund “has been extraordinary”, says the one-time BRW Young Rich lister. “Investors may not know exactly where this is going, but they know that change is happening.”
Mr Carosa, however, is not investing directly in the crypto-currency. Instead, his fund is targeting companies that facilitate, exchange and trade bitcoins – an approach not unlike that of Sam Brannan, who became California’s first gold rush millionaire by selling picks and pans to prospectors in the 19th century.
It’s an understandable strategy given bitcoin’s infamously volatile price. The crypto-currency spiked from $US100 in late 2013 to $US1100 in December, before fading to its current range of $US400 ($427) to $US500.
Other investors are quite happy with bitcoin’s volatility. “It’s all relative,” says fellow venture capitalist Niki Scevak from Blackbird Ventures. Swings may spook those used to Australian or American dollars, but not “someone dealing in Zimbabwean dollars”. That may not assure many investors but Mr Scevak shrugs: “That’s what venture capitalists do.”
He cheerfully acknowledges that bitcoin has only a “low chance” of reaching the mainstream. “At the start of last year I would have said 1:1000. It’s maybe 1:20 now,” Scevak says.
Coinarch’s Luke Jones offers a derivative trading platform for particularly bold bitcoin betters, starting with contracts for difference (CFDs). Combining the unpredictable crypto-currency with heavily leveraged CFDs may have Australian Securities and Investment Commission regulators choking on their cornflakes, and Mr Jones agrees regulatory issues are a major challenge for the bitcoin community.
‘Something Mum can use’
Australia’s oldest bitcoin exchange, CoinJar, has a more mainstream customer in mind, such as merchants and international students seeking lower international transaction costs. The company’s Samuel Tate says CoinJar, an investment of Scevak’s Blackbird, is “building something our mums can use”.
Deloitte Australia’s Ivan Zasarsky, who heads the accountancy firm’s financial crime division, is less convinced of bitcoin’s mainstream appeal after the Internal Revenue Service in the US recently classified it as a property rather than a currency, exposing investors to capital gains tax. “Now it’s not as attractive in terms of changing the way business transacts,” Mr Zasarsky says, also noting regulation may increase Bitcoin’s appealingly low transaction costs. “It has been relegated to the space of commodities.”
Bulls such as Carosa, Jones and Tate, however, are hopeful that the IRS will change its view, noting Britain scrapped its decision to charge value added tax (VAT) on bitcoin trades.
Yet Mr Zasarsky makes another unflattering comparison: Holland’s infamous 17th-century tulip bubble. “The first pyramid scheme,” Mr Zasarsky notes, while insishting he is no “belt and suspenders person” and acknowledging one day his firm may even audit the Bitcoin protocol.
Such differences between entrepreneurial hope and experienced scepticism inevitably make for clashes. Mr Jones says the tensest moments at the recent Inside Bitcoins conference in the US (the next is in Melbourne in July) were not only between Wall Street interlopers and Bitcoins’ original tech geeks, but when Deloitte took the stage. “When was the last time you bought something with Bitcoin?” snapped one of the Bitcoin true believers during a relentless Q&A session. As long as plenty of others are buying, however, there’s still plenty of real money to be made.