Atul Chatur, co-founder of Antilles Cryptocurrency Exchange (ACE-X) spoke to Financial Express Online about cryptocurrency investments in a Facebook Live session, answering questions from readers.
Many people want to invest in cryptocurrencies after looking at the popularity of Bitcoin and the significant returns it has given investors in a short period of time. It’s not just Bitcoin, but other cryptocurrencies are also following suit. However, not many people know how to navigate the world of crypto, as it’s called, and hence we have to bring in the experts. Financial Express Online spoke with Atul Chatur, co-founder of Antilles Cryptocurrency Ecosystem (ACE-X), who is an investor and expert in cryptocurrencies. Atul is an alumnus of the Insead school as well.
The journey of cryptocurrencies is quite interesting. A decade ago, there was the famous story of Laszlo Hanyecz, an early adopter of cryptocurrency who paid 10,000 Bitcoin for two pizzas! Today, those two pizzas would be valued at $580 million, at the current value of Bitcoin. The way the value of Bitcoin has shot up is attracting a lot of interest. Yet, there’s a PwC report that says that only about 6% of investors understand what cryptocurrency really is. We ask Atul Chatur to weigh in.
FE: Why do you think there is so much interest in cryptocurrency now?
The inventor of Bitcoin was really Satoshi Nakamoto. In 2009, he came out with a white paper on Bitcoin, which is seminal. According to me, it is the most significant FinTech innovation that I have ever come across in the last at least 12 years or so. A lot of the FinTech that you see currently is not really innovative, if you ask me, as it is based on the existing payment ecosystem, if you may. But Bitcoin was truly seminal in the white paper that Satoshi came out with. Even before 2009, there were various efforts for 15 to 20 years to create what is called electronic cash. I would define Bitcoin, in very simple terms, as the first peer-to-peer (P2P) electronic cash, transacted without an intermediary and nearly in a trustless manner. That’s really the way to look at Bitcoin. In a layman sort of definition, if you may, it is electronic peer-to-peer cash done without the internet.
FE: Bitcoin is the bellwether cryptocurrency out there, but there are so many others that are following suit now. Bitcoin now has probably gone out of the reach of many people who want to get into it, because it has suddenly become so expensive. Now you’ve got Ethereum and XRP, and others, which are within reach, and all of these are rising. So, what is the base for these cryptocurrencies, when compared to fiat currency which is valued against assets or bullion? What is a cryptocurrency based against?
Atul Chatur: First, let me be very clear that fiat currency is based on nothing. It’s based on paper money. A lot of us actually end up feeling that fiat currency is based on something, but it actually is based on nothing. It’s actually just a promissory note by the government. If you look at a Rs 100 note or Rs 500 note it is all just printed on paper and really backed by nothing. If you look at that current monetary system, about 50 years back, was the first time the entire world moved to paper money. If you look at even historical movies, all these movies always had gold, diamonds, or copper coins, or metal coins, right? I mean, do you ever remember a movie where they pulled out a piece of paper and you saw Cleopatra saying or Shivaji Maharaj saying, you know, here’s a Rs 100 rupee note or whatever, right? It never used to happen because you always had money backed by precious metals. This is the first time in history where it’s actually an aberration that we live in a period where fiat money is actually backed by nothing.
Now, cryptocurrencies are actually based on a combination of mathematics, computer science, economics, game theory, and incentive mechanisms. That is also the most important reason that a lot of people are not really able to get their heads around it. In a world where we are totally connected, just consider this Zoom call or a WhatsApp chat – whatever I see is what you hear, and not for a moment, is anyone watching questioning the fact that I mean, are you hearing what I’m saying? Right? So that’s really the transfer of information over the internet.
What Satoshi really saw was the transfer of value over the internet. That is incredibly valuable the moment you have something moving in seconds or minutes at best. That’s basically the internet. And without really asking anyone. I do understand certain countries have capital constraints, and you can’t move capital across borders so freely. But to the developed world, this is an incredibly powerful feature. You are able to send money instantaneously, in minutes or seconds. I mean, this is not like a bank settling a transaction two days down the line.
FE: How stable is the crypto growth with respect to other investments like stocks, mutual funds, etc?
Atul Chatur: There are a couple of ways to look at it. So if you look at the historical track record, look at it from two sorts of perspectives, let’s call them time periods. One is since 2009, Bitcoin, specifically, it being the oldest cryptocurrency has given a compounded annual growth rate (CAGR) of about 200%. So it’s basically grown from zero to about $60,000 in 12 years. If you look at the CAGR of your mutual funds’ portfolio, you look at your equity portfolio over years, you always look at this metric called CAGR. I’m taking a longer time period, just so that people get a better perspective.
Then, of course, there is a shorter time period where Bitcoin is volatile, as are the other cryptocurrencies as well. But you have to understand this is the first time ever, that the world has seen a global asset class trading 24 x 7 x 365 across a majority of the countries in the world. So which is why you see a lot of volatility in the prices from a short-term perspective. If I look at it long-term, the returns are fantastic. So Etherium, for example, has given even better returns in assets. It’s gone from zero to about $2,000. Now, $3,500, as we speak. Those are the two ways I would really look at it.
If you’re comparing it to, let’s say, equity, then I would just say, think of it in two ways. So one is the gold rush that happened. This is like the modern digital Gold Rush. The second is, I would probably look at the 2000 era when you had the dot-com companies coming around. If you had invested in Google, Facebook, Yahoo! – a lot of those businesses were just doing crazy sort of numbers in terms of growth every single day. So Yahoo! was growing for a year at 5% every day and it hit the circuit limit every single day for years. So if you did absolutely nothing, and you put Rs 100 in, by the end of the year, you had about Rs 1,000 in return. I would say any new emerging technology tends to have both volatility and high growth features. I would say in the short term, it’s volatile. In the long term, I have told you the track record of Bitcoin which has a 200% CAGR consistently in 12 years.
FE: What is the volatility factor behind cryptos? Other than just demand and supply – Bitcoin supply is finite, there’s only supposed to be 21 million Bitcoin, right? So what is bringing in the volatility factor?
Atul Chatur: Let me put it this way. If you actually look at equity investments in India, there’s hardly about, I think, 2%-3% of the population that invests in equity. The big bull, Mr. Rakesh Jhunjhunwala, keeps on saying equities in India will keep on growing. However, remember, there is still 98% of the population that thinks that even the equity market itself is a gambling market. Obviously, anyone who invests in equities follows it very closely to see what’s really happening in that space, right? What’s happening with the company, the cash flows, the revenues, any other developments, etc. Bitcoin is very similar. Just to give you an example, apart from the demand and supply angle, recently Bitcoin was applying an upgrade to its network called a taproot upgrade, which is one of the most significant in the last four years. Now, anyone who’s followed Bitcoin closely would know that it is a very significant upgrade, which adds a lot of features to the underlying Bitcoin network or the codebase.
So apart from the demand and supply, there are a lot of fundamental developments happening, which you need to track. For that, you do need an understanding of technology and software as well. But for sure, there are various events happening which result in Bitcoin being volatile as well. Because these developments are tracked mostly in the tech world, there is a lot more apart from just supply and demand.
FE: Readers are asking about the Indian government’s plan to ban Bitcoin. I think this is a very real fear that investors have in India. What’s your take on that?
Atul Chatur: Let me be very clear. I’m saying this categorically that the Indian government will not ban crypto. Now, let me get into why it won’t ban crypto. First, crypto is really about foundational technology. We just look at one use case of crypto and we end up thinking cross-border stuff – investors are running away with crores and converting that money into Bitcoin and taking it across borders. That is just one use case. Cryptocurrencies blockchain is basically foundational technology. It’s also what is called Web 3.0. Anyone with only an internet connection and a smartphone can buy and sell crypto. It doesn’t matter who bans it or not. Even if the government does end up banning – and I said it categorically I don’t think they will ban it – but even if it does, if you have a smartphone, if you have an internet connection, you can still transact.
Second, as I said, it is also foundational technology. India is a technology hub. I used to work for Infosys for eight years. I used to report to Nandan Nilekani for about three of those eight years. I have worked with the founders of Wipro also quite closely. I’ve had these chats with the tech industry. There is just no way that the government could or would ban it and it is very clear now. If you look at 2017 when India first banned crypto – that ban was just the RBI saying that the banks cannot deal in crypto.