Fred Pye, President and CEO of Canada’s first – and largest – digital asset investment fund, visited Auckland late last month to introduce Kiwis to two new crypto funds that were on about to be listed on Cboe, Australia’s alternative investment exchange. .
Monday, June 13, 2022, 11:28 p.m.
by Jenni McManus
His company, 3iQ, also hopes to list the funds in New Zealand.
Pye brought with him a nifty roadshow that spans the history of bitcoin, how crypto works, and why the technology behind blockchain – the platform bitcoin “runs” on – has the potential to change the way the world lives and does business.
In 2020, 3iQ launched in 2020 the first exchange-traded cryptocurrency fund in North America. “We believe everyone should have a bitcoin in their wallet,” says Pye.
The problem is, he says, investing in crypto can be tedious and daunting and the market is riddled with jargon and complexity, not to mention volatility and risk. From its peak of US$69,000 in November last year, bitcoin is now trading at around US$28,000.
None of this seems to bother Pye. Bitcoin started life at US$196 in 2013 and was trading around US$400 in 2016 when 3iQ was created. And although the crypto market has plunged 50% in the past six months (his “Lehman moment,” as Pye puts it, he says bitcoin is still worth a look. Investors who invested 3 % of their portfolio in bitcoin five years ago would have doubled their rate of return and it’s still the best performing asset class on the planet.
Australians seem eager to invest in cryptocurrencies. A survey by consumer advocacy group Choice shows one in nine Australians have purchased crypto in the past year and Pye says 3iQ’s two ETFs (exchange-traded funds) offer retail investors easy access and inexpensive bitcoin and ether (another cryptocurrency).
Nevertheless, the documentation for both Australian listings comes with a warning: “There are risks associated with investing in cryptocurrency-based products. These products are considered very high risk and investors should carefully assess their risk profile and seek their own financial advice before investing.
The warning comes from Pye himself. Volatility can be extreme, he says, and EFTs tend to follow the underlying crypto price.
On June 7, the 3iQ CoinShares Bitcoin feeder ETF and 3iQ CoinShares Ether feeder ETF listed on the Cboe exchange. As feeder funds, they give investors access to the underlying 3iQ bitcoin and ether ETFs in Canada that are listed on the Toronto Stock Exchange.
3iQ is only the second crypto firm to list an ETF in Australia, following a partnership between Swiss firm 21 Shares and London-based ETF Securities, which in May became the first to launch Bitcoin and Ether ETFs.
In Pye’s view, the technology behind the Bitcoin blockchain – the platform on which bitcoin is traded – could prove more disruptive than the global web in the late 1980s/early 1990s.
Indeed, blockchain can offer the secure transfer of property, value, title and money, and do it instantly. “The Secure Value Transfer Protocol is arguably more powerful than any other protocol ever created,” says Pye.
Called “smart contracts,” blockchain applications create few barriers to entry, Pye says. “Your 20-year-old could code one in a weekend.” But unlike the Internet, the platform is not free. To put this contract (or program) on the blockchain, you must pay the blockchain in its native currency – for example, bitcoin.
Blockchain uses a ledger to track how much bitcoin everyone has. Transactions recorded on the ledger can never be changed and are visible to everyone on the platform, removing the need for trust and third-party monitoring. The Bitcoin blockchain is powered by a network of millions of computers that consumes 4% of the world’s energy, says Pye.
As many countries, including New Zealand, consider replacing cash with digital currency, the technology has the potential to disrupt financial services, among other sectors.
“Twenty years from now, companies won’t be using 60-year-old technology to bring their products to market,” Pye says. “They’ll be using something that’s being invented right now called the metaverse.”
The metaverse (virtual reality) will replace the global web, he predicts. Unlike the blockchain, which is secure, the internet facilitates the insecure movement of information, benefiting companies like Google, Uber and Amazon who can park their software on a free platform and become very wealthy.
Pye now runs a business with C$1.5 billion in assets under management. But getting there took a long time.
After beginning his career as a precious metals forex trader, Pye had his first run-in with regulators in the mid-1980s when he wanted to publicly list gold, silver and platinum certificates. He succeeded in 1986, the certificates being listed on the Montreal Stock Exchange. He created 3iQ in 2012, around the time bitcoin started trading.
This led to another skirmish with regulators, this time with the Ontario Securities Commission, in 2016 when he sought to list his crypto fund on a major Canadian exchange. A three-year battle ensued, culminating in a court hearing in 2019 and a ruling in favor of Pye. Its Bitcoin and Ether ERTFs were listed the following year.
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