When I read in the news the other day that the USA was getting its first index designed to track the value of Bitcoin, I knew Australia wouldn't be able to dodge the crypto-currency mania forever.
Australia's first ICO
Fairfax media reported recently that Australia was set to get its first ICO – Initial Coin Offering – from a Perth company called PowerLedger. PowerLedger is looking to raise between $5 million and $20 million and bidders will receive POWRS tokens in return. To quote Fairfax:
"POWRs will be tradable on the Ethereum public blockchain platform and also convertible into SPARKZ – tokens that can be used to trade units of electricity on PowerLedger's private blockchain platform, Ecochain."
I have two primary concerns about the desire of retail investors to invest in crypto currencies:
- It appears that crypto currencies are not 'securities' under Australian law.
They are not governed by securities laws or the ancillary laws that govern the sale of financial products and so on. If that doesn't worry you then it should, because you have no safeguards.
- Because coins/tokens are not securities, the companies raising capital for them must report the capital as income
This means that ~30% (depending on the individual company's tax rate) of your investment potentially goes up in smoke straight away because the company pays tax on it.
There are also the more basic concerns about the lack of tangible value to any of the tokens or bitcoins that people might purchase. All the Bitcoin in the world would be more than enough to buy the entirety of Suncorp Group Ltd (ASX: SUN) and Wesfarmers Ltd (ASX: WES) at today's prices. Yet funnily enough I think it'll be the investors in Wesfarmers and Suncorp that win out over the long term.
