With more than 100 million cryptocurrency investors already dabbling in a US$3 trillion global market, New Zealand digi-natives are increasingly joining the DeFi club. In this two-part series, Jane Phare delves into digital currency and NFTs to find out why Kiwi Millennials and Gen Z are embracing the blockchain.
Everyone loves a get-rich-quick story, or even a get-rich-slowly one. Oil, gold, diamonds, tulips, property, shares, Lotto, or simply the formula of fried chicken covered in 11 secret herbs and spices. What's your dream?
The "digital space" is no different. It's full of virtual hype – stories of Bitcoin billionaires and crypto millionaires, and this year NFTs - non-fungible tokens - are taking over the blockchain at a feverish pace.
Crypto investor Sohrab "Maple" Rez used to earn his living as a professional poker player in Melbourne before returning to New Zealand late last year. Now he's a full-time investor in crypto and NFTs.
Rez, 29, says he has less than $1000 in cash to his name but "multiple seven figures" in Bitcoin, Ethereum and NFTs. He'll cash in just enough to cover his living expenses, using a cryptocurrency exchange like LocalBitcoins.com.
"I see Bitcoin and Ethereum as being the future of our economy. I don't really see future generations transacting in fiat currency because it's devaluing every year."
Blockchain? Ethereum? NFTs? There's a whole new language out there in the online world, and there's a digi-dictionary at the end of this article to help out. Talk to crypto crusaders – and the Herald talked to many for this series – and they'll chew your ear with born-again zealousness.
And it's not because they want to sell some of their Bitcoin - "Why would I sell it?" - but because they desperately want newbies to understand the mathematical brilliance of it all, why it's part of a new decentralised future, why it's not a Ponzi scheme and why it's not going to implode, leaving millions of crypto victims weeping into their digital wallets.
Rez, like other devotees of the blockchain, says the subject is extremely complex which is part of the attraction. As part of his NFT portfolio he owns "Queen," an ape avatar from the Degenerate Ape Academy on the Solana blockchain, which he uses as his online profile.
"A lot of people who think they understand [cryptocurrency], don't. Each day I learn so much and I realise that [before] I just really didn't know what I was talking about."
He's not at all worried about having all his digi-coinage in one basket. Nor does he think the market will implode. Look at American investor Cathie Wood, he says.
"She's been absolutely killing it with stocks. She's a mega, mega crypto bull." And US hedge fund investors Paul Tudor Jones and Stanley Druckenmiller.
"Big Wall St names, the most respected people in finance at the moment. There's not one person who comes to mind who is not into crypto."
Australasian exchange Swyftx, which launched in New Zealand four months ago, has seen 250 per cent month-on-month growth since then and has already clocked up more than $90 million in trade from investors based mainly in larger cities - Auckland, Christchurch, Wellington, Hamilton and Tauranga respectively.
And many of these Kiwi cryptos are not dabbling in small amounts. Swyftx's head of strategic partnerships Tommy Honan says Kiwis "love their crypto" with clients investing anywhere between $250,000-$800,000 on the platform each month.
"We have seen dozens of single trades of over $250,000 in recent months. Most stick with the larger-cap coins which are seen as a safer longer-term store of value."
The company has identified 800,000 New Zealand crypto participants based on blockchain data and is after their business. Brisbane-based Honan says he can set his watch by the New Zealand market which comes alive between 8pm and 10pm, and again between 5am and 8am, coinciding with the US market.
Covid-19 and lockdowns have "absolutely" caused an upsurge in interest with Kiwis spending more time online at home learning about crypto.
A year ago Swyftx, which launched in 2018, had 40,000 customers. Now it has more than 500,000 in New Zealand and Australia, with Aussies clocking individual trades of up to A$5 million.
Time to take notice of cryptocurrency
Auckland tech entrepreneur and founder of venture capital firm Fantail Ventures Jonty Kelt says he doesn't usually engage with the media but he's intensely interested in learning about crypto and the blockchain, and wants others to understand too.
Kelt's been involved with technology for 23 years, including co-founding tech companies and holding executive roles at Google, Palantir and Double Click. He says cryptocurrency and the "digital asset ecosystem" is something people need to pay attention to.
Why should they take notice?
Well think back to the 1990s and the mysteries of the internet, Kelt says. It was clunky and hard to understand; opening an email account was like speaking a foreign language.
It was an era of doomsday warnings like the "Amazon Dot Bomb" cover-story of 1999.
Amazon founder and billionaire Jeff Bezos must have laughed all the way to the bank after that one. And who could forget the Dotcom boom and bust of the late 90s and early 2000s.
So for tech enthusiasts like Kelt, cryptocurrency is simply a natural progression, an addition to the internet technology stack. Here is a way to move value "natively" on the internet at a very fast pace and low cost, and ascribe value to a digital form (such as NFTs), he says.
"What we have now is a tonne of innovation and experimentation, and actual adoption and usage [of cryptocurrency]."
Kelt is coy about just how successful he's been with crypto but says he's "done well" out of it. Better than if he'd invested in quality property in Auckland or Queenstown?
"Yes is the answer. Bitcoin has outperformed everything from a standing start in 2009, despite the massive draw-downs every few years. And those dips will continue."
Digital natives are convinced that crypto will eventually disrupt central banks and mainstream financial markets. Pick your analogy, they say, pointing to the likes of Expedia (the travel industry), Airbnb (hotels and motels) and Uber (Taxis).
But the jury's still out on the future of online currency. Ever since Bitcoin and other cryptocurrencies surfaced more than a decade ago, they've been viewed with both scepticism and optimism depending on which side of the investment fence you sit.
In the space of a decade, thousands of different cryptocurrencies have been developed by and for digital natives. Database company Statista estimates there are now more than 90 million crypto wallet holders worldwide - a figure that is doubling annually - with five million added every month.
Sceptics and financial advisers regularly issue doomsday warnings that crypto is a smoke-and-mirrors fallacy and that all those digi-wallet passwords, or private keys, won't be worth the USBs they are hidden on in years to come.
Billionaire investor Warren Buffett called Bitcoin "rat poison," warning that it would not end well. Jamie Dimon, CEO of America's largest bank JPMorgan Chase, once told digital currency investors, "If you're stupid enough to buy it, you'll pay the price for it one day."
And crypto has indeed crashed, several times. It nose-dived badly when Covid-19 hit and dived again last month in the face of rumours about impending tighter regulations, causing a mass global sell-off that wiped out billions of dollars in digital currency.
There's no doubt the market is volatile. Just a single tweet from billionaire and Tesla CEO and SpaceX founder Elon Musk to his 65 million followers can cause it to sink or soar.
And investors like Musk can be just as unpredictable as the market itself. One minute Tesla is buying US$1.5 billion in Bitcoin shares and accepting Bitcoin as payment, the next minute Musk is tweeting that Tesla has suspended vehicle purchases using Bitcoin because of concern at the amount of fossil fuels used for Bitcoin mining. That tweet caused crypto to sink by nearly 10 per cent.
China banned cryptocurrency in 2019 and last year cracked down again, warning that crypto offenders would be "investigated for criminal liability". But millions of crypto-crusaders just shrug off the draw-downs and doomsday warnings, saying that suspicion is driven by ignorance.
Honan says last month's "dip" hasn't deterred New Zealand and Australian high net-worth investors who have been buying "aggressively", and that analysts are still expecting significant growth this year.
Digi-natives say comments made by an out-of-touch critic like Buffett will not age well.
Just look at crypto's history, investors say. When Bitcoin was first introduced in 2009 by its so-called founder Satoshi Nakamoto, it was worth nothing. Two years later it was still just US$1. In November last year Bitcoin hit an all-time high of US$68,000 although the latest crash saw it drop by 16 per cent.
And compare activity in the meteoric crypto market with that of gold, they'll say. Gold transacts about US$50 trillion annually; in 2019 crypto sat at US$4t and in 2021 it hit US$60t.
Some of those spoken to by the Herald have their entire life's savings in their digital wallets, plus those of their little sisters and have even persuaded their nanas to invest.
They have no plans to buy a house, choosing to rent instead and use a minimum amount of cash for day-to-day living. And they don't seem too worried that they can't actually spend cryptocurrency on much in New Zealand.
Although digi-currencies like Bitcoin are increasingly accepted as payment in the US and Europe, they are harder to spend in New Zealand.
Retail NZ's chief executive Greg Harford says he's not aware of any retailers accepting digital currency. And Trade Me doesn't allow trading of Bitcoin, nor is there an option on the site to pay for anything with cryptocurrency and it doesn't allow the sale of NFTs.
Although the Commonwealth Bank of Australia now allows its 6.5 million app users to use Bitcoin, its subsidiary ASB does not. The bank says it is "monitoring" market developments and will continue to review its position. The bank regularly surveys its customers on a number of issues including investments such as cryptocurrency.
Back in 2014 Kiwi broadband provider Slingshot began accepting Bitcoin, but no longer does. Richlister and Callplus/Slingshot co-founder Malcolm Dick was an early adopter of the currency but only because he was intrigued by the concept.
He first dabbled in Bitcoin when it cost US$100 and, during a trip to the US almost a decade ago, bought a Bitcoin vending machine. He asked his sister Jacqui Spence, who owns the chain of Mr Barber shops in Auckland, if he could put it in one of her shops.
Dick loaded the machine with three Bitcoin and says he never had to pay for any again. The machine was self-funding, and then some. Back then, just feeding in $20 notes was enough to buy Bitcoin (now worth US$50,000).
"People kept putting cash in and the Bitcoin was going up so it never actually ran out of Bitcoin."
At one point Spence was trading haircuts for Bitcoin. But then word about the crypto vending machine in the Queen St barber shop got around and suddenly dodgy-looking characters started coming in, and they weren't after a haircut.
"People were coming in and saying 'hey I want to put $200,000 into Bitcoin,'" Dick says. "And we were like 'Nooo, that's not what it's for. It's like a hobby thing for people with a lazy $20, not for God-knows-what, drug dealers or whatever to convert money'."
Spence: "I had a guy who said he wanted to bring in five to 10 grand a day and stick it in the Bitcoin machine."
Yeah, nah, thought Spence. "We didn't want to get caught up in other people's scams."
Dick agreed. They pulled the machine out and it's sat gathering dust in Spence's garage ever since. Now, with the Covid-19 lockdowns having cost Spence's business around $10,000 a month, she thinks wistfully back to that machine and what the Bitcoin enterprise might now be worth if it hadn't been for the dodgy characters.
The best way to cash in cryptocurrency is through one of the many agencies springing up. They'll exchange digi-currency for cash, for a fee.
But talk to investors like Kelt and their advice is: "Don't spend it." Kelt sees digi-currency is a way of keeping wealth safe and as an antidote to what he calls "a slow stealth tax".
Dollar values are a "diluting concept" because of money printing and inflation, he says. "The bigger question is how do we preserve value in our wealth because in the fiat system it is evaporating."
The devaluing of money in the Western world causes income bifurcation, he says. Inflation particularly impacts people who don't have assets and are earning an hourly rate.
"The rich get richer, the middle class become poor and the poor become poorer. There are various reasons for it but one of them is that fiat currency is broken."
Kelt goes as far as describing cryptocurrency as "a force for good", and one of the most powerful things he's seen in his career. He points to countries like El Salvador which now accepts Bitcoin as official legal tender.
In countries with broken financial and political systems, corruption, crime and high inflation, digital currency becomes a necessity, not a luxury.
"They've literally watched their wealth evaporate in the last years. Crypto provides a safety net for the value of their money. And that's an incredibly positive and powerful thing. It represents hope for those people."
Dean, a North Shore businessman who does not want his full name used, agrees digital currency is the future. Back in 2019 when he and his wife put their home on the market they said they were willing to accept half or full payment in Bitcoin. In the end they sold for "normal cash" but Dean told the Herald this month he wished someone had taken the Bitcoin bait.
"That would have been the ultimate. You've got major hedge funds and venture capitalists around the world sinking hundreds of millions of dollars into this. Follow the money and you'll see what everyone's buying."
He views standard currency as "a bit of a Ponzi scheme", paper money backed by confidence only. He'll back Bitcoin any day and shrugs off the dips as all part of the ride upwards.
"There's no reason why it couldn't get up to hundreds of thousands of dollars if not a million dollars."
Kelt, too, doesn't worry too much about price fluctuations, saying that's the nature of any early-stage innovation. He thinks potential investors should instead focus on the level of adoption.
"And that is where truth lies with anything in life. If you focus on the adoption of it, very quickly the price gets pushed to one side and you realise this really is making an impact."
But is it safe?
It's the advanced cryptographic coding involving thousands of computers that helps to make digital currency secure. But it's that very complexity that can trip up investors if they forget or lose their passcodes, or private keys. There's no reset option for a digital wallet.
Investors are advised to keep their private keys offline - known as "cold storage" - so they can't be hacked by digi-thieves. That means keeping the code on a USB stick or written down. If that gets misplaced or stolen, it's game over.
Those in the industry estimate as much as 10 per cent of Bitcoin is locked away forever because investors can no longer access it.
Auckland businessman Mark Geor and his wife Clare lost $4m worth of cryptocurrency when thieves broke into their home and stole a safe containing the all-important USB stick last year.
And Auckland man Adrian Clarke has tens of thousands of dollars worth of Bitcoin sitting on a USB stick that he can't access because he can't remember the access code. Clarke was also among Kiwis who lost Bitcoin investments when the Tokyo-based My Gox exchange was hacked by online thieves in 2014, stealing 850,000 Bitcoins, then worth US$450m.
However, there is a glimmer of hope for the luckless crypto investors. The defunct company's trustees have indicated creditors could receive a payout of around one third of their original investment, now collectively worth billions of dollars seven years later.
One Auckland entrepreneur who does not want to be named had written off ever seeing his 180 Bitcoin again, bought back in the days when the currency was around US$200. Now, even at a one third payout, his 60 Bitcoin payout will be worth around US$2.8m at today's rates.
"Because they were taken off me and frozen they're now worth millions."
Blockchain: A database in the form of a series of digital ledgers containing records of transactions that are distributed across a network of computer systems.
Crypto staking: Involves locking up a portion of your cryptocurrency for a period of time to earn "rewards," or a return on investment.
DeFi: Decentralised finance
Cold storage or a cold wallet: Keeping your crypto passcode, or private key, in a safe place offline.
Fiat currency: Money (such as NZ currency) that is backed by the public's faith in the government or central bank rather than by a commodity such as gold or silver.
• Part two: NFTs, why Kiwis are joining the latest crypto craze, buying avatar apes and artwork they can't hang on the wall.