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Saturday, 9 December 2017
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Bitcoin Opinion

Bitcoin hit a record high this week (8/12/2017) - but it lost 25% of its value in 10 hours on Friday having risen 40% in the preceding 48 hours. Many people remain unconvinced about Cryptocurrencies and the blockchain phenomenon, because they don't understand it. A few industry experts, world leaders and CEO’s have thrown their hats in the ring, and said aloud what they really think.

  • “Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than currency in that you don’t have to be physically in the same place and, of course, for large transactions, currency can get pretty inconvenient” – Bill Gates, Co-founder of Microsoft, investor and philanthropist
  • “When bitcoin currency is converted from currency into cash, that interface has to remain under some regulatory safeguards. I think the fact that within the bitcoin universe an algorithm replaces the function of the goverment …[that] is actually pretty cool.” – Al Gore, Former Vice President of the United States.
  • “I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed, is a reliable e-cash.” – Milton Friedman, Economist who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy.
  • “PayPal had these goals of creating a new currency. We failed at that, and we just created a new payment system. I think Bitcoin has succeeded on the level of a new currency, but the payment system is somewhat lacking. It’s very hard to use, and that’s the big challenge on the Bitcoin side.” – Peter Thiel, Co-Founder of PayPal.
  • “Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence.” – Nassim Taleb, Statistician, former trader and risk analyst.
  • “Well, I think it is working. There may be other currencies like it that may be even better. But in the meantime, there’s a big industry around Bitcoin. — People have made fortunes off Bitcoin, some have lost money. It is volatile, but people make money off volatility too.” – Richard Branson, Founder of Virgin Galactic, and 400+ businesses.
  • "We can't find any rational explanation why we would want to own it. It makes no sense. It is more of a tulip bubble than the tulip bubble, and at least they had something to look at." - Andrew Clifford, chief investment officer at Platinum Asset Management
  • "When we see stories of how much money people have made over a short period of time, we are generally sceptical. It appears to be an asset bubble". - Chris Stott, Wilson Asset Management.
  • “In the long term Bitcoin moves above $500,000 within three years. Bets? If it doesn’t I will eat my d*ck on national television. It is not a speculative investment even though it is being used as such by other people. As Bitcoin network grows the value of Bitcoin grows. As people move into Bitcoin for payments and receipts they stop using US Dollars, Euros and Chinese Yuan which in the long-term devalues these currencies." - John McAfee - Founder of the software and anti-virus company McAfee Associates.
  • "When I first heard about Bitcoin, I thought it was impossible. How can you have a purely digital currency? Can’t I just copy your hard drive and have your bitcoins? I didn’t understand how that could be done, and then I looked into it and it was brilliant." Jeff Garzik - Co-Founder of Bloq Inc, a contributor to Bitcoin Core, Bitcoin developer. "At its core, bitcoin is a smart currency, designed by very forward-thinking engineers. It eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transitions… all good things" - Peter Diamandis - Founder and chairman of the X Prize Foundation.
  • Quote from the Hackers Congress that took place in October 2017: "There is no call centre to call. You must accept your responsibility when using cryptocurrency. If you send cryptocurrency A to the address of cryptocurrency B, you probably lost your money. There is no-one who can help you. When you send Dollars to the wrong bank account, your bank might help you with that. But there is no central bank in decentralized financial world. You are your own bank."

Bitcoin and SMSF - a broker opinion

As has been highlighted frequently lately it appears more and more Australians are looking at Bitcoin as an alternative area to invest and interest has definitely spiked due to the surge in the price. Worringly, this heightened interest is also moving over into the SMSF space. Many SMSF Trustees are looking at cryptocurrency, and in particular, Bitcoin as a potential investment for their SMSF. However, before any of your clients jump on the bandwagon we would urge extreme caution as there are still too many uncertainties surrounding this type of investment within super. The mechanics behind Bitcoin are still somewhat flawed and therefore expose more questions than answers in terms of whether an investment in Bitcoin meets SIS law - in particular the Sole Purpose Test. Arguably, investing in Bitcoin is akin to speculating and speculating is generally prohibited in SMSFs as it goes against the Sole Purpose Test. Valuing the investment will also be a problem given the volatile nature of this market. 

Extract from RBA Governor Philip Lowe's actual speech to the 2017 Australian Payment Summit:


View the full speech here:

This is a picture of the largest Bitcoin Mine in North America:

This would be one of the smallest:

Article in The Australian:

One of the key concerns is the process of actually buying Bitcoin, which requires ownership to be in the investor's personal name whereas any SMSF asset must be in the name of the Trustees. Some bullion companies such as Ainslie Bullion are advocating a way for SMSFs to invest in cryptocurrency, however, whether this will be accepted by the ATO remains to be seen. The ATO themselves have stated that while it is not illegal for SMSFs to invest in Bitcoins they make the following warning "The nature of Bitcoin or other cryptocurrencies may mean that compliance with the regulatory rules and restrictions that apply to all self-managed super fund investments is more complex or difficult."

As with anything, your SMSF clients should always consider the Sole Purpose Test when considering any investment for the Fund. The SMSF's Trust Deed and Investment Strategy would also need to provide for this type of investment.

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