“A lot of people say that you can now buy a Tesla for bitcoin and that’s what Elon Musk has allowed people to do. Those of us from the bitcoin community say no, no, no, Elon Musk is buying bitcoin with Teslas. So he’s actually buying bitcoin and is giving his cars away to collect bitcoin because he is hoarding his bitcoin, he’s saving it. The profit on his bitcoin in the first quarter of this year was greater than the profits that he made on Teslas.”
The anecdote is from Frederick Pye, chairman and CEO, 3iQ Corp, and comes at the end of our interview as he prepares to list The Bitcoin Fund on Nasdaq Dubai, making it the Middle East’s first listed digital asset-based fund.
Arabian Business joined a call with Pye and Zachary Cefaratti, CEO, Dalma Capital Management, a global alternative investment platform, based in the Dubai International Financial Centre (DIFC), which has been selected to be its syndicate manager for the regional expansion, to find out why they are listing in Dubai and what this means for the future of bitcoin.
You launched in Canada on the Toronto Stock Exchange in 2020, why have you chosen Dubai as your first international expansion?
Frederick Pye (FP): Canada and Dubai have had an amazing business working relationship for many years and I’ve been introduced to people in the DIFC a number of times through the alternative asset management group.
With 3iQ, our objective has always been to be able to trade our bitcoin fund around the world 24 hours-a-day. Dubai and the Nasdaq Dubai is a very friendly jurisdiction for Canadians and Canadian equity.
We’re basically co-lifting something we worked really hard on for five years in Canada to bring to the market and have worked through this over the past year to get this product launched.
Zachary Cefaratti (ZC): Bitcoin, the physical asset, trades 24 hours, seven-days-a-week. But if you want to buy bitcoin through a stock exchange, you have to follow the hours of those stock exchanges. Stock exchanges in the Middle East trade on different hours and different days, so this is something which is also very unique.
The main Bitcoin Fund listing currently in Toronto, trades on Toronto’s exchange and those are very inconvenient hours and days for everybody in this entire region, not just the Middle East, but the entire corridor of hours in Asia and the Middle East as well.
This gives people a channel to buy bitcoin through a regulated exchange during hours that are convenient to them, that’s convenient to their bankers, to their brokers.
What is a bitcoin fund?
FP: We call this a physical bitcoin fund which is interesting because it’s actually digital, not physical, but you can liken it to a commodity pool, like gold, that actually buys the gold, stores it in a very secure vault that nobody can access, and then lists that pool of gold on an exchange.
That’s exactly what we’re doing. We buy bitcoin physically on the market, we store it in a cold storage vault that’s not accessible to anybody and then we list the value of that on the exchange. So every dollar you invest is backed by actual bitcoin.
ZC: Everybody has read the headlines about Elon Musk and Tesla and other organisations putting billions of dollars into bitcoin. The number of banks that are now providing access products, who are trading bitcoin themselves, is increasing every day and every week and it’s largely thought that is what has led this recent surge in price.
The adoption by institutions in the Middle East is something which is happening and will be happening via this product. People will be able to buy bitcoin through their local, regulated, trusted channel, trusted exchanges, trusted investment banks that are based here in Dubai, that are regulated by the local authorities.
This is something that currently doesn’t exist. In order to invest in bitcoin now, you have to go either through unregulated or semi-regulated channels, you are not able to call up your bank and buy bitcoin.
We’re looking to change that with this product so a banker can help an investor make bitcoin part of their portfolio, whether that investor is an institution or a family office based in the region.
They can hold it through their trusted, regulated channels and it can be traded on their hours when they’re in the market and know that their assets are being safeguarded the same way their shares are safeguarded on the exchange, the same way bonds might be safeguarded through their custodians and those channels as well.
Frederick Pye, chairman and CEO, 3iQ Corp
What kind of protection and management does this fund offer that simply owning/trading bitcoin on an exchange wouldn’t?
FP: When you’re discussing about the fiduciary duty of investment advisors, pension fund managers, family office portfolio managers, they have a fiduciary duty to purchase the asset class in the most responsible way possible.
We took over five years and over $5.5 million to be able to work with the regulators to work out all the finite details, to make a fund that could provide that kind of fiduciary comfortability for investors.
Why did you feel this was the right moment to create the fund? Who is your target customer/investor?
FP: To be honest, when we started to create the fund it was March 2015 and bitcoin was about $250 a bitcoin, today it’s at $64,000. It’s funny because sometimes I wear a t-shirt that says ‘It’s not too late’. We may not be early any more, but it’s certainly not too late to invest in this space.
The reality is bitcoin is an asset that’s in the blockchain. It’s been an asset that’s only been around for ten years, so it’s not something that’s been around forever. It’s obviously been hailed as the best performing, fastest growing asset of all-time.
There’s nothing that’s reached a trillion dollars within ten years of its lifetime, not a stock, not any other kind of asset class.
That kind of ties in with Dubai. We knew that Dubai was making very strong efforts to be blockchain friendly, welcome blockchain development, attract blockchain development. That’s how we got introduced to Dalma.
We know that Canada is one of the first major jurisdictions to offer ETFs/funds in cryptocurrency, and that there are applications with the SEC in the US now. Is this the beginning of what will be another asset class to sit alongside stocks, commodities, securities, etc? Or is this more of a structured way to offer an ‘of the moment’ – and not necessarily long-term – asset to investors who are demanding it?
FP: It’s definitely the beginning of the birth of a new asset class and in the next 25 years blockchain is going to bring that to light, that digital assets are a commodity.
When we talk about the commodities of the past and the commodities of the future, commodities of the past are things like lumber and gold and copper and paper; commodities of the future are computing power, bandwidth, cloud storage. All of these things are digital and are easier to monetise and track on the blockchain.
You’re going to see a whole growth and expansion of digital commodities – that is the birth that we’re starting to recognise.
A lot of people came to me and said they’re not going to buy bitcoin until I can go to Starbucks and buy a coffee with bitcoin. It’s kind of like saying you’re going to go to Starbucks and buy a coffee with a bar of gold. You’re not going to do that.
You’re going to end up with digital Canadian dollars, digital US dollars, digital Euros. Every FIAR currency will be digitised but all of those will be tied into bitcoin will be the current digital currency standard.
It has an awful long way to go in terms of being a currency or providing a platform for the other digital currencies. This is really the first step with people looking at it as a storer of wealth.
The Bitcoin Fund prepares to list on Nasdaq Dubai, making it the Middle East’s first listed digital asset-based fund
Is there still a fear of a bubble being created and another crash?
FP: I’ve been in the market for a very long time and we’ve had three major corrections in bitcoin already, yet every time the supply of bitcoin gets reduced, bitcoin tends to go up 10x.
The beauty about it is the price of bitcoin has actually been tracked and the growth rate of usage of the cryptocurrency and the growth rate of blockchain usage. We like to say more graduates are going into blockchain than going into Wall Street now, which is what you’re seeing.
Money going digital is happening and it’s probably the single largest technological advancement in all of our lifetime, being able to move every commodity around the world digitally through currency is going to happen.
ZC: Because of the way bitcoin works, the way it’s mined, the amount of bitcoin supply coming to the market decreases every four years. It did so most recently in May (2020), just ahead of the bitcoin surge. At the same time, the increase in adoption, which is the main function of demand, has been accelerated, but remains very low.
Zachary Cefaratti, CEO, Dalma Capital Management
Adoption rates on bitcoin, the amount of people invested in bitcoin or using bitcoin, remain relatively low but are certainly accelerating, particularly now that bitcoin is becoming available as an investment through more and more channels.
Until very recently people couldn’t buy it through banks and exchanges or brokers that were regulated or through their financial advisor. That is becoming the case increasingly with products exactly like this one.
Basically we think like any market an increasing level of demand with a decreasing level of supply has been a major function of creating the surge in price and that case doesn’t seem to be changing any time soon.
In just over three years from now we’re going to have the supply cut in half again because of the block halving, where the amount of bitcoin gets cut in half again. At the same time we’re looking at only accelerating the adoption rate increase in the interim.
The value of every FIAT-based currency is going down. Some are going down faster than others, but that’s always been a long-term trend. I think another aspect is people are worrying about holding dollars and are looking for a place for those assets. Do you go into bonds? Bonds have no yield. Do you go into the stock market? Well the stock market is looking fairly frosty. Then you look at bitcoin.
These are the three main factors that are driving the price. It’s a decrease in the amount of supply of bitcoin; an increase in the amount of demand of bitcoin; and the fact that the alternatives of holding cash or holding bonds look terrible.
Those factors are supporting a strong level of institutional retail investor demand to increasingly adopt bitcoin and that trend looks set to continue.
3IQ’s objective has always been to be able to trade its bitcoin fund around the world 24 hours-a-day
What is your advice for investing in such a fund? Do the same investing rules apply? What do investors need to be mindful of in terms of short-term price volatility?
FP: Bitcoin offers portfolios diversification. Bitcoin doesn’t care about the New York Stock Exchange or the Japanese Nikkei or the Hong Kong stocks or Shanghai. It is both a risk on and a risk off asset. It’s a risk on asset when people are chasing technology, it’s a risk off asset when you’ve got rising inflation.
The institutional interest is massive. It’s listings like this listing in Dubai that is going to help bring bitcoin to the mainstream.
People are worried about what happens if it’s only trading in New York and something happens overnight that’s good or bad; the beauty about what we’re listing on Nasdaq Dubai is that there’s exactly the same security of what’s listed on Toronto.
That’s really quite unique to have that inter-listed operability and a lot of that is why it’s taken us a year with Dubai to get it to that stage.
Give me your price prediction for bitcoin by the end of 2021 and the end of 2025
FP: I’ve been in the investment industry for well over 40 years and I remember the early years, we would say, as long as there are more buyers than sellers, then the price is going up.
When you see the demand for bitcoin starting to turn down, then I think it would be time to re-evaluate where your asset allocation and the asset class is. But we haven’t even started as far as I’m concerned in terms of the development of the digital economy.
Follow us on
