Thoughts on SA’s greylisting and Bitcoin projections

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SIMON BROWN: I’m chatting now with Sean Sanders from Revix. Sean, I appreciate the early morning. I want to talk about Cathie Wood and her $1.48 million Bitcoin target. Before we do, the [Financial Action Task Force] greylisting [SA] on Friday. You’re running essentially a financial services business. What is the direct impact as you wake up on Monday morning to your operations and your, I suppose, relationships with clients?

SEAN SANDERS: Morning, Simon. Thanks very much for having me on again. I’ll start with the greylisting side of things. Yes, that’s not good news for South Africa. I don’t think there’ll be any meaningful change over the short term. But when we start to expand more aggressively internationally – and we are busy looking at Kenya, Zambia, Nigeria – of course all the banks in those regions are going to be looking at us and saying, listen, South Africa’s now a greylisted country, let’s do a little bit more due diligence. [For] international customers of ours, we’re not just a South African operation, of course. Customers coming from Europe are going to look at us a little more sceptically. So I think overall it’s not a good move for the country. Of course that’s the obvious thing to say, and we need to work aggressively to remove ourselves from this list.

SIMON BROWN: For you it’s not that you can’t go to any of these markets, it’s just that there’s more paperwork, there’s more Fica, there’s more proving who you are and your bona fides.

SEAN SANDERS: Yes, exactly that. When you couple yourself with crypto financial services, gosh, you go to a bank and the bank’s going to say, ‘Really? You’re coming from a greylisted country.’ So you can have whatever regulatory backing you want but, when you’re greylisted, it just makes it a whole lot harder. I think that’s what a lot of South Africans are going to start to experience.

SIMON BROWN: Yes. It is going to be that, with the vastly increased paperwork and all those things.

But let’s touch on Cathie Wood, founder of ARK Investment Management. Her ARK Innovation ETF is perhaps the best known there. She’s also well known for putting out what are sometimes some crazy predictions. But all credit to her, she gets them right often. I remember one of her early Tesla predictions seemed crazy until the share price got there. She’s looking for $1.48 million per Bitcoin by 2030. I thought that story was all about halving, but she’s saying that’s maybe a part of it. This is as there’s a larger adoption of Bitcoin by people and institutions around the world.

SEAN SANDERS: Yes. So her $1.48 million prediction by 2030 – that’s the bullish case. The base case from ARC Invest is $258 000, far lower than the $1.48 million. And then the bear case is $682 000. But even the bear case is still a significant return. The bull case would return 4 200% from where we stand right now, where we are roughly around $22 000/23 000-odd a Bitcoin. So these are bold, bold predictions, but I’m a Bitcoin bull – not necessarily over the short term. Anyone can guess what’s going to happen over the short term, but over the long term you are seeing institutional adoption.

Just looking at the banking space – I don’t think everyone knows this – just three years ago you would be fired from Standard Bank, or you’d definitely get a stern talking to at the very least if you were talking about Bitcoin within the bank. If you had a look at sort of Investec, FNB, go through the list of the top banks in South Africa, Bitcoin was just a no-no. You just don’t talk about it.

Fast forward to today, not only do these banks have blockchain teams, but they’ve got cryptocurrency teams.

We are actively engaging with a lot of these banks, and they’re interested in this space.

So the sort of change in sentiment is starting to happen. And the same thing is happening in the institutional space.

Now, 2022 was probably the year that led to a lot of institutions taking a step back. You had the FTX debacle that occurred. The crypto brand really got knocked, and it’s going to take quite a few years to rebuild trust with the public. But gone are the days where you’ve got all the crypto companies saying, ‘Screw the banks. We are going to build this new financial future’. It really seems to be a lot more of a symbiotic relationship that’s emerging. So that really helps to drive the digital institutional adoption of this asset class, and that’s going to be one of the big drivers going forward.

The second thing is actually the technology utility behind blockchain and crypto. If you look at it, until now the utility in the space has really been speculation. It’s been treated like a big casino.

But all of a sudden you’re starting to see real-world assets put on blockchains, and that interacts with the world of crypto. That’s really interesting.

You see the fractionalisation of shares going onto blockchains, where you could buy a Tesla share or Nvidia share directly on a blockchain without the need of sort of any central intermediary. That’s really remarkable.

There’s a host of other services that are happening. That’s the technology utility side of things. And then of course, in order for these price targets to be met, you need the macroeconomy to actually start playing ball.

At some point, and probably within the next 12 months, you’re going to hit peak interest rates in the US and EU more broadly. When that interest-rate narrative changes, where we are actually saying, hey, this economy is slowing down, the labour market’s breaking a bit, all of a sudden interest rates start coming down and that’s really good for the crypto space.

And then you top that all off with the Bitcoin rally that has always preceded the halving events.

Of course the future can always be different, but there’s the Bitcoin halving that’s occurring in March next year. That is the biggest event that can happen in the sort of crypto/ Bitcoin space…

…because all of a sudden you’re seeing the reward for mining Bitcoin get halved, which means that the inflation rate for Bitcoin gets halved. So all else being equal, if demand equals supply – and obviously that’s how the price of crypto assets is determined – you’ve got a lot less supply in the market you know, all else equal the same amount of demand, which should drive Bitcoin a bit higher.

SIMON BROWN: I’m looking at the market cap – $450 billion, which is a big number. But compare that to a Microsoft, an Apple, a Tesla. In that sense Bitcoin is still very much in its infancy.

We’ll leave it there. Sean Sanders of Revix, I always appreciate the early morning insight.

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