If you’re still watching the crypto markets, then this will come as old news: Bitcoin has been on a tear. The world’s largest crypto has recently doubled in value to top out above the $US8,000 mark.
And it’s separated itself from the pack a bit, compared to the 2017 craze when Bitcoin and other major alt-coins surge to all-time highs. Adrian Przelozny, CEO of local crypto exchange Independent Reserve, has had a front row seat for the recent market activity following an extended period of lower volatility. While markets were quieter, the company stayed busy working with regulators and building out custody solutions. It now lists 13 currencies on the platform, up from only five last year. Stockhead spoke to Przelozny to get an update on his views around the market, and the near-term outlook for his company.
For starters, the latest rally gives rise to an obvious question for many traders and market observers; what’s causing it?
In crypto, a still generally-accepted view is that no one knows for sure what causes these moves. But Przelozny attributed part of it to the prospect of further scarcity, with Bitcoin scheduled to undergo a “halving” event next year.
New Bitcoins are mined every 10 minutes up to a total of 21 million and when the currency was first created in 2009, the block reward for mining new coins was 50 BTC. Since then, the reward has been halved twice – 12.5 – and as of May 2020 it will halve again. Przelozny says investors have taken notice.
“Everyone kind of knew that before the halving the price would start running up, but no one knew exactly when it would happen.”
“Traders were anticipating the big spike, and now it’s happened there’s probably a fear of being left behind.”
For context, Przelozny said Litecoin – the world’s fifth largest crypto – has a halving event in August and the price has tripled from earlier this year.
“We’re 12 months from a Bitcoin halving but the number of people trading it is higher, so you could expect the effect will be higher as well,” he said.
Since the 2017 crypto craze, the pending involvement of institutional investors in crypto has been seen as a bellwether for the relative maturity of the asset class. That’s because before it can occur, it will require continued improvements in safe custody solutions and regulatory certainty.
For its part, Independent Reserve can claim a recent win on the custody front, having become the first Australian crypto exchange to obtain insurance for the crypto assets that it holds in cold storage. IR also has an agreement with accounting firm KPMG, which allows users to calculate their trading gains or losses for tax purposes to avoid falling foul of the ATO.
“The ATO has made it clear now that it’s interested in exchanges and people shouldn’t treat this as a way to dodge tax – it’s becoming very much a legitimate investment.”
Przelozny said the company has a standard operating procedure for how it chooses to list new tokens, but it’s still a fair way from listing the full list of random alt-coins – a la Binance – although conversations with ASIC “are progressing”.
“I think we’ll see more instos experiment as the infrastructure improves and the clarity around regulation improves, because it makes crypto an asset class producing huge returns that’s increasingly becoming less risky.”
In the meantime, there’s still evidence of some serious activity among sophisticated crypto investors – it’s just a lot of it isn’t made public. IR’s over-the-counter (OTC) desk, launched about 18 months ago, has processed some pretty serious crypto trades.
“The largest deal we processed in the last month was a $20 million deal with Bitcoin,” Przelozny said.
When it comes to tapping private markets for additional capital to scale up, IR is unlikely to be active in the space anytime soon. In March last year, financier Mike Tilley co-invested with VC fund KTM ventures to purchase a 25 per cent stake in the company. It was IR’s first capital injection since the company launched in 2013, raising around $500,000 from a network largely comprised of friends and family.
“That KTM deal gave a lot of those guys an opportunity to exit 18 months ago, and they got a pretty good return on their initial investment,” Przelozny said. “We haven’t had the need to raise capital for a while.”
For now, the exchange will be able to drive growth organically by reinvesting profits, rather than turning to outside investors.
“Eventually we’ll be looking to expand to other jurisdictions – we’re currently assessing opportunities in Europe and Asia – but we’re not looking at raising any money at this point.”