As a cryptocurrency novice, I sought out the experts at Aus Merchant for advice. And they can help you, too.

 

 

Most people aren’t very savvy when it comes to financing, markets and investment. The very concept of cryptocurrency is baffling to me, so becoming an investor was going to be an uphill struggle. I asked a series of beginner’s questions to Technical Lead Mitchell Travers and CEO/co-founder Sean Tolkin of digital currency provider Aus Merchant, starting me on the path to crypto.

Mitchell took me through the basics: what it is and how it works. 

“The technology that cryptocurrency leverages is called Blockchain, the combination of two fundamental technologies: encryption, and distributed ledgers. By combining these together, you create a game theory-backed incentive currency system,” he said.

Blockchain is an ‘immutable ledger’, distributed and shared by hundreds of thousands of computers around the globe that secure and support the network.

That, he says, gives it the ability to be a source of trust and a source of scarcity for the internet. 

“The best analogy to provide is: what the internet did for communications, Blockchain is going to do for value transfers.”

The first blockchain ever created was Bitcoin, with Ethereum the second. Bitcoin represents more of a ‘store of value’, synonymous with gold on the internet, Ethereum being an international, decentralised network that supports the financial system. Anyone with a ‘wallet’ can partake in a transaction without an intermediary (like a bank) facilitating the relationship.

 

“Bitcoin is sound money, Ethereum is more like something that has the capacity to enhance and provide financial products using cryptocurrency.”

 

Bitcoin’s status as being like gold hits a mental roadblock with me. You can, after all, head out into the wilderness, start digging and get yourself a physical handful of it. Bitcoin, despite its name, isn’t even a physical coin.

“The analogy of gold is the sound money principle, and the scarcity principle,” Mitchell tells me. “There’s only a certain amount of gold in the world, which gives it properties of money for the history of civilization. The scarce amount of gold is used as a store of value and has been for centuries, until about 60 years ago, when the US dollar was no longer backed by gold, instead of being backed by the government’s trust. 

“Bitcoin has the same properties because of its scarcity: there’s only 21 million of them. It’s also fungible money, so it can be broken down into 18 different parts; like gold in that respect.

“Finally, it’s secured by encryption. It’s better than gold in a way, in that gold is secured by vaults and trusted third parties, whereas Bitcoin is secured by code and software.”

I recently saw a finance report where Bitcoin’s volatile nature was noted, saying that it fell by 14% overnight, and nobody knows why. A great thing for speculators, but for everyone else? Not so much. Mitchell assured me that the currency’s volatility comes from its scarcity.

“Over time, as adoption increases, the volatility will reduce. But the reason that the asset is still volatile is that it’s a global settlement layer of money and it’s only worth a total market cap of a trillion dollars. Gold is a $6-8 trillion market cap, and global derivatives are around a $50 trillion market cap. “

Cryptocurrency has a solution for the volatility, ‘stable coins’, most of which are built on Ethereum, the blockchain which enables financial products. A lot of the stable coins are backed by $US, making them one-to-one. 

During volatile periods, people exit their deflationary currencies (Bitcoin and Ethereum) and they enter the stable currencies (USDT and USDC) pegged to the $US, reducing their risk in the market, maintaining their value. 

“That’s something we recommend to merchants as well. We give them the option to hold the stable coins in their vault.”

On the surface, it seems a solid investment, given how much its value has soared in the past decade (each Bitcoin was $1 back in the early part of the 2010s; it’s now selling for $60,926.90 per coin). Knowing that, where does Aus Merchant fit into the bigger picture?

 

I had a fundamental question for Sean and Mitchell: Is cryptocurrency a good investment? Their answer was a resounding yes. 

 

Mitchell thinks the biggest challenges lie in easing the suspicions and hesitancy among prospective investors and clients. 

“The key lies in being able to explain it simply, and being able to explain the advantages and benefits. It’s similar to the early days of the internet, everyone had to know what IPR addresses were, DNSs, domains. Now, everyone needs to know what a private and a public key is, everyone needs to understand what a blockchain transaction hash is, and it’s part of our responsibility to simplify and make it very user-friendly. 

“You can buy a car without understanding how an internal combustion engine works. Blockchain is the internal combustion engine; the car is going to be these user-friendly service providers. 

“It’s an opportunity for Australia to really benefit. We have this amazing service-based economy with our ‘Big Four’ firms and ‘Big Four’ banks for financial services, so if we can leverage that and get a lot of crypto education in, we could become a global leader in this space.

I had a fundamental question for Sean and Mitchell: Is cryptocurrency a good investment? Their answer was a resounding yes. 

“If you make an investment and you want to unlock the liquidity of it in six months, it would be far riskier to put it in crypto if you want to, say, pay off your mortgage in six months. If your time horizon is anything over two years, then it’s going to be one of the best investments you’ll make. If you didn’t need that money for 2-5 years, you’re going to pay half the mortgage by the time you’re going to want to access that liquidity.”

AusMerchant isn’t like the typical exchanges which sell all types of crypto; they focus on Bitcoin, Ethereum and stable coins; they’re providing B2B play as a ‘custodial vault’, helping businesses store Bitcoin and Ethereum, and then convert to AUD. 

“One of the strategies we recommend to new players is to dollar-cross average into Bitcoin over a period of time. Don’t put your whole $1,000 in straight away;  a way for you to feel comfortable and happy over the investment journey is to split that into 10 $100 purchases and do that every month over ten months, and you’re averaging your price into Bitcoin and you’re never affected by the short term market volatility: you’re either happy that the price is down because your next purchase is coming up, or you’re happy that the price is up because you’ve incrementally bought in over several months.”

Aus Merchant is providing a way for high-end goods to be purchased with the currency. Bitcoin and cryptocurrency generally are more for the investment class right now. We can’t go to a 7-11 and make a crypto ‘can of Coke’ or coffee payment because it costs money to do a transaction on a blockchain. 

“Spending $3 on a can of Coke, it doesn’t make sense to pay an additional $20 to process the transaction so you can do it with Bitcoin,” Mitchell said. There are, however, innovations in the cryptocurrency ecosystem which reduce the costs of those transaction fees to practically zero. 

“In the future, we’d look to integrate these solutions. It’s making micropayments a reality.”  

Bitcoin’s price in January 2020 was ranging between $12,000 and $20,000 until September of last year, at which point it soared, peaking at $80,000 per coin. 

I wanted to know how my investment would be looking, had I put a modest weekly sum of $60 into Bitcoin over an extended period. 

“If you invested $60 a week over the last year, the total investment is $3180, with the current value being $5,682 – a 78% increase. If you did it for the last six months, it’s only a 6% increase.”

One specific example of the Aus Merchant Group’s success is the regulated managed investment scheme for wholesale investors that was recently launched by Aus Merchant Investments. 

Since its August 2021 launch, the actively managed scheme has experienced an increase in the value of funds under management of 43.39%, outperforming Bitcoin by 26.27% over the same period. 

This initial success is something that Sean Tolkin and Darren Abrams (who, as founders of Aus Merchant Investments, recognise does not guarantee the ongoing performance of the scheme, nor does it ensure that new schemes currently being developed by Aus Merchant Investments will achieve the same high levels of annualised return), hope that investors – experienced in financial markets, but would never think to manage their own crypto investments – may see Aus Merchant Group’s managed investment schemes as a viable investment opportunity. 

It certainly looks that way – even for tech and financial novices. 

 

 

 

 

 

 

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