Why AMP bought crypto (with Shane Oliver)

week's show on Crypto with Jackie Clark. Now, what we did in that show was basically a skeptics corner, okay, So we put up somebody from institutional Australia, from the conventional world of Australian investing, an ASX board director, a family office member, accountant to give a view on crypto.

And obviously it was a very skeptical view. And it's interesting because nearly I think the tempo of the Money Pazza's audience has changed, become much more receptive I think, and enthusiastic in many ways about crypto, though Maney remains skeptical, including Jackie, and she had some very strong points. Now, what I want to do today is put the other point of view, okay, and again it's institutional Australia. I could easily get someone from crypto to talk about crypto.

Why would I do that? If I ask someone in real estate to talk about whether it's a good time to buy property, what would they say? If I ask a gold miner, is it a good time to buy gold? What will they say? This is not the nature of the exercise to get people from the crypto world to talk about it. It's to get people who are conventional investors with a lot of respect from our audience and

from me, to take a view on crypto. Jackie's view was very skeptical, as she also in some ways did not go into great detail on it, and I understand why because that is a typical response. I don't go if I don't believe in gold mining, I don't go so deep best to understand all the aspects of gold mining. And it's the same with crypto. So who could we get to talk about it? And also, very usefully, because it's the last show of the year, we're going to also have a quick wrap on how the year has gone.

But first, the most interesting organization I think institution in Australia in relation to crypto is not a major crypto player or a major crypto exchange, believe it or not, it's AMP, and AMP plays that role for the simple reason they were the first, are the first major financial institution as super fun if you don't mind to invest

in crypto. They invested twenty seven million dollars a few months ago in crypto, substantial investment in many people's eyes, you can say, is a percentage of AMP is tiny. It's twenty seven million. It's twenty seven million, and they put it into crypto, and I want to know why they are enthusiastic about it. The ideal person, absolutely ideal person to talk for AMP is an old friend of the show, an old friend of mine, Shane Oliver, the

chief economist. I know him for a long time. He's been on the show before.

first and foremost. Can you explain to our listeners, some of who are crypto fans, some who remains skeptical, why AMP put twenty seven million dollars into bitcoin.

to two things. The use of the blockchain that underpins crypto for smart contracts and various uses, and that is already evident, and that, particularly in the case of some cryptos like Ethereum and Solana and so on, potential uses an alternative currency, central bank, digital currencies and so on. And also with a bitcoin increasing use as a store of value alternative to gold. So I know all the

reasons for skepticism about bitcoin. In fact, I've got a list in front of me from the last Oliver's Insights I wrote on it, which was earlier last year. It's coin itself. Yeah, it's unlikely it become useful for everyday transactions. You can't buy a cup of coffee, whether or if you do, you'll pay, it'll take you a lot of time,

it'll be slow and all that sort of stuff. It's volatile, it's hard to value because it doesn't generate rents and dibdends like other assets, and of course it's been associated with nefarious activities. Are often thought that way. But even though I'm skeptical, I think we as an organization AMP has responsibility to its members, fiduciary responsibility to look at all options, and it could be an emerging asset class.

It has been around now since what two thousand and nine, and so it seems like it's becoming part of the furniture in terms of the investing worlds. It's increasingly getting acceptance from regulators. They're taking it seriously and regulatory framework is being put around it. So it's moving from the wild West, if you like, to some degree into the mainstream. There's a whole generation out there of digital savvy young people investors who are becoming investors, and they're more familiar

with this. They're probably thinking. In old days they might have thought, well, i'm skeptical about the government, I'm skeptical about inflation. I want something which is a bit of a hedge against that on a long term basis. Previous

generation might have gone gold is for me. Now some of those people are saying maybe bitcoins for me, and Bitcoin by free nature has resisted the temptation to weaken some of the protocols around it, you know, in terms of the about proof of work and proof of stake and all that sort of stuff that other cryptocurrencies have gone down that path. Bitcoin todd with it to some degree.

But I think Bitcoin probably has held back a little bit because of this view that it wants to be seen as something that's difficult to get hold of and that preserves its value to some degree. We all know that there's something there's a limit on the amount of bitcoin that it can ever be mine to twenty one million bitcoins, and we're well through that, and so that's going to limited supply. But because of all those things,

you got this. I can understand the skepticism argument. Yes, you've got to be cautious, but I can also understand that it's becoming part of the investment universe, and therefore we thought we had to consider it. We had a lengthy debate. I put up all the skeptical arguments is to expect that I might in the end even I decided we should have a look into this, and we did in May last year. As you say, we invested twenty seven million dollars in bitcoin when it was then

priced at sixty two thousand. It was less. It was about point zero five percent of our super funds, so less than point one percent. Probably close too point one percent now because it's gone up in value.

does offer some diversification. It's not perfectly correlated with shares, and there is some tendency for it as a growth asset to go down when shares run to trouble and it goes up by more than shares when shares do well, but it has an imperfect correlation with shares.

reserve with crypto, then it is core mainstream. But I want to ask you, as an acid class, do you see it or do you know yet whether it's correlated or non correlated? In other words, is it a gold, a digital gold that we can depend on when things go wrong, or is it simply correlated where it just flies up when the market's hot and flies down when the market's cold.

degree as well. You think about the initial phases of the GFC, gold went down, and it's partly because you can see a little bit on the In the last weekend, US starts dropping bombs on Iran, investors are a little bit nervous they can't sell shares because the share market's closed. There was some downwards pressure on bitcoin at that point in time, and I think the correlation when I last looked at it was something like zero point four percent

against the share market. It's not one percent, so it's not correlating one for one, but there is some correlation there with the share market. And that's partly because as it becomes more institutional, then investors see it in that particular bucket as a growth asset and when they want to sell shares, so crypto might get a bit of the selling pressure. But in a broader sense, there is another way of looking at it, and that is because

it has the limited supply. I suspect that over time it probably offers more of an inflation hedge than shares to because of that limited supply, you could always say we should also be skeptical of gold. It's only got value because we believe it has.

goes through a cycle. Each trough to trough in that cycle has seen a slowing in the rate of increase in the value of bitcoin, or each peak to peak is sen a slowing in the rate of increase, and I think that's normal. It's just like a startup company. Initially you can make huge gains a lot of risk

around that, but it will slow down over time. But I think ultimately it settles down to providing probably somewhat steadier gains, although I yeah, we get to see the downcycle which will come of course in bitcoin, but it's part and parcel of that new asset class.

there's a billion dollars in SMSF funds in crypto. So in that respect it should be no surprise that a

major fund would sooner or later go into crypto. Now, I just want to bring in now some of the issues that came up in the first show, and I'm going to just read the question which is from Scott, but it also reflects observations by Vince and Henry and Dean and Stephen and many others who came in and Basically, they wanted to take what Jackie Clark said, some of her skepticism, if you like, about crypto, and they tackled it and said that she was the wrong person to

talk about crypto. That I totally disagree with that she is the right person. She is a classic example of someone who is skeptical and doesn't want the organizations or the institution she represents to go in there. That's why I have Shane on today. His organization has gone in there. So there was a couple of observations there that some of them are on technicus as I say, which I don't think we need even go into, because there is still an element I think Shane of belief that if

you don't believe it, you don't need to know that. Honestly, you don't need to know the technicals. But why should you go deep into understanding its complexities if you don't believe it in the first place.

by AMP. The fact that I haven't bought it individually, but because I haven't bought other things individually either. But I think, just on that SEMSF observation, we had members over the last few years have been asking should you buy, and Crypto always get a little bit worried because by the time they ask, it's usually when crypto has gone up in value double to or forty percent. No one of course was asking when it collapsed eighty percent through

one of those downturns. But so it doesn't surprise me that SMSF investors are already in there because we had members who are interested, and that indicated to us that we should be looking at it, which we did. But I've lost track of your original question here because you've raised a few points there, But hopefully that's covered it.

There are some companies in there which I won't understand their model and what they're doing and why, but I don't need to. And that's the key here. If you've got all your money invested in bitcoin, then I think you should understand it. But if you've got a well diversified portfolio, you just see it part of the investment universe. You just got some exposure in there, just like you've got some exposure of other things, then you probably don't

need to have the same degree of understanding. And it is a little bit technical when you get into it. I've in the interests of finding out what it was several years ago. I've read a lot about bitcoin, but I don't consider myself an expert. And if you put me up head to head with some of the people who might be listening to this, who spend a lot of time, then they would run rings around me, And that's fair enough. I don't disagree with that.

We bought futures.

It will be better understood when its price goes up at the same time as intrinsically valued investments go down. This is a core sticking point with many expert investors, this lack of intrinsic value. You got over that, how did you get over that at a MP.

investments out there that don't have paid dividends. You can say, well, don't have intrinsic value, so how can you possibly value them? So there are ways around it. Yes, it is a sticking point, and I can understand why people have expressed that concern, and I've written it down as a reason for skepticism in my own notes on this. But I think there are rays around it, and you just need to accept that there are other investments in your portfolio where they're not paying dividends.

there fell thirty percent I think thirty five percent. Global Australian shares were down by and yet we had okay. It turned out okay in the end, once investors look through it. And I think the same thing's happening this time around. Put Trump aside, he's a lot of the source of uncertain whether you like him or not, is irrelevance. So I might say he's tariffs. Ultimately he might be good for the US. I might say what he's done in the Middle East might be good for the global

economy in the worlds. But the dust still has to settle on that. But by the same token, in a big picture sense, we've come into an environment where inflation was a problem. In twenty twenty two, we had inflation in Australia over eight percent, in the US a nine ten in Europe. We've got it down so eventually all those countries have inflation somewhere around two to three percent, including in Australia, and so we've gone from a world of high inflation fears of that interest rates would even

have to go higher. Now we've gone to a world with lower inflation. And we've done that at environment where we've managed to avoid a technical recession, if you like. We've come close, and there's risk there. But even if you look at Australia unemployment what four one four point two percent still very low. Similar story in the US, so that's why the share markets are celebrating. The environment

hasn't been so bad. And then, of course you overlay Trump on that he caused constant nation with his tariffs in April, but then he's backed off a little bit. Some people say Taco Trump always chickens out. Maybe not. I think that issue will come up again.

lower end of comparable countries. Remember all that nonsense last year people were building out we've got an inflation problem relative to everybody else. We haven't. When you look at it on a graph, it's about the same, or we're at the low end which is good. So I think share markets are seeing that. And when the share market thinks of lower interest rates, it thinks that's more people putting their money in shares because they're getting less on

bank deposits. The valuations on shares start to improve, and so I can sort of understand why markets have gone up, even though it's surprised. The strength of it has surprised me. And I wouldn't have thought we would be doing this well on Liberation Day, if that's what you want to call it, Donald Trump's Liberation Dates.

to date eight point five percent up to May. It looks like Journe's turned out to be a reasonable month. Touch Wood we still got a few days ago, but I reckon returns will slow down to around six seven percent. The valuations are a little bit of a concern. The p's in the US where we around about twenty five times for IT earnings. In and Australia we were about nineteen or twenty times for earnings. That's above longer term averages.

Bond yields are still relatively high, so there's not a great equity risk premium in there if you compare the earnings yield implied by those pes to the bond yields. But by the same token, I think if we avoid a recession, and I probably I think we probably will, then it turns out okay. So I think somewhere along the way we'll get another bet of worries about tariffs.

Historically in the last twenty years, July is a good month for shares, but we know that August and September are often a bit rough seasonally, and I suspect that that could be tariffs. The tariffs come back into the headlines, you could get more vulnerability or more volatility coming out of the Middle East, but you've got to be careful

about that one. The lesson from the events of the last few days that unless there's a disruption to oil supplies, then eventually markets will just move on to something else. And that's what's happened here. Even though I think the risks were very high, but it all depended on what Iran does. Run back down, but they probably concluded let's live divide another day.

rates probably continue to come down. We're going to see I think four cuts in Australia, the next one in July and then another three after that August, November, and February. That will help our market put money in the hands of people with a mortgage and those money will go and spend that. And I know a lot of people hear that and say, well, I'm a self fund of retire read relying on money from bank interest. But the amount of money in household dead is double, roughly double the

value of people with bank deposits. The value of money in bank deposits, so aims to those with the mortgage is actually swamps by two to one the losses.

That's going to constrain things a little bit. That's why I say six seven percent return from super funds, not another year of nine or ten or something.

go wrong. But as we saw in the Middle East, that turned out not to be the event, and it remains to be seen what happens with tariffs. But I reckon this is the big one with Trump. If you think about the next financially, it takes us up to June next year. He's going to want to get his party doing well in the midterms. He doesn't want to see a massive defeat for the Republicans because it will

look bad on him. So he's probably going to as time goes by through the next financial year, which takes him in the run up to the November midterms in the US, he's probably going to want to do things a more market friendly. And that's why I think he's loaded his tariffs up front and sort of get some of the bad news out of the way early, and then if he gets more friendly as we come up to the midterms.

wanted to just read for you. It's from Pete and he says, I have my money puzzle bingo card in front of me and it has only three things. Number One, taxing upon realized gains and super funds is staft. Number Two, all the brokers say the Commonwealth Bank is overpriceding yet it hasn't fallen. Number Three the three million super tax and super is not indexed.