Even the most bloodied victims of last year’s market rout are rediscovering their animal spirits. This week even saw venture capitalist extraordinaire Masayoshi Son, chief executive of Japan’s SoftBank, declare he has his mojo back.
Sure, cumulative unrealised losses at the company’s Vision VC funds hit $US6.7 billion ($9.9 billion) in the March quarter, and Son has been pilloried for bets on the likes of WeWork, but the promise of a new tech boom fueled by artificial intelligence has him buzzing again.
“We have done enough being on the defensive,” Son said this week. “I feel that the timing for us to go on the counteroffensive is soon.”
Son was also infamously an investor in FTX, the cryptocurrency exchange that spectacularly blew up last year. So perhaps he’s taking extra encouragement from the remarkable surge in bitcoin, which has risen 80 per cent this year and this week burst back through $US30,000 after jumping 13 per cent in five days.
That is, of course, light years from the $US69,000 that bitcoin peaked at in late 2021, and a long way from the $US48,000 that the cryptocurrency started 2022 at.
But for Dan Roberts, co-CEO of Australian-born, Nasdaq-listed bitcoin miner Iris Energy, this year’s rally is sweet relief.
Iris shares closed at $US4.57 on Thursday night and while they remain well down on the $US25 peak hit shortly after the company’s listing In November 2021, their 243 per cent gain this year is eye-catching.
Iris stock is up 37 per cent this week after it announced plans to boost its mining capacity by more than 60 per cent with the expansion of its data centre at Childress in Texas.
Surprisingly, Roberts says he’s more negative than positive on cryptocurrencies and the narratives that surround the sector; while the logic of decentralised currencies still appeals, Roberts is weary of the wild west nature of the industry.
“Honestly, the space needs regulation, there’s a lot of bad actors,” he tells Chanticleer.
But Roberts and the Iris executive team have always first and foremost been renewable energy infrastructure developers – as analyst Joseph Vafi of Canaccord Genuity said this week, Iris has long “viewed mining bitcoin as a way to resell green power at attractive margins”.
So the rally in the bitcoin price simply provides Roberts with more solid ground to announce the Childress expansion; he says Iris is profitable at a far lower bitcoin price, but with bounce back through $US30,000 means the company “can go a bit harder.”
Like Roberts, Chanticleer still struggles with the argument that bitcoin has a legitimate use case beyond speculation, particularly after the long and ugly crypto winter. But the currency’s rise this year is impressive given the hangover from the FTX collapse and the relentless campaign against the sector run by US Securities & Exchange Commission chairman Gary Gensler, including recent legal action against crypto exchanges Binance and Coinbase.
But the sector has been buoyed this week by news investment giant BlackRock had applied to the SEC to create an exchange traded fund (ETF) that would track the price of bitcoin. Remarkably, it was one of four such applications in the past week. Institutional giants Fidelity, Charles Schwab and Citadel Securities also backed a new crypto exchange this week, adding to the momentum in the sector.
“I think BlackRock’s record on ETFs is 475 approved and only ever one denied,” Roberts says. “So I’m pretty sure they are only submitting applications that they know will get through and I think that could usher in a really new era.”
Wall Street’s latest obsession with artificial intelligence appears to be giving Iris a kick along.
In addition to its expansion plans, the company has also dusted off plans to explore whether its data centres could be used for other sectors that need high-powered computing (HPC). And right now, generative AI, which requires huge amounts of HPC, is top of the list.
Iris signed a memorandum of understanding with Dell Technologies in March 2020 to test and develop HPC use cases and Roberts says its investigation of alternate HPC use cases will now re-accelerate amid the AI boom.
“The analogy I would use is we’re modern day farmers. So if you look at farming, it’s all about access to water and then turning that water into crops; farmers can pivot and plant the most profitable crops depending on the cycle and the market. For us, our water is this cheap, 100 per cent renewable energy that we’re securing. How we choose to convert that into computing power to service these exponential demands is flexible, and we can pivot.”
He says Iris’ model of bitcoin mining out of proper data centres rather than “shipping containers or old warehouses” like some rivals will give it a distinct advantage in discussions with AI-related customers in the coming months.
Roberts admits it’s been a tough year. When people suggested last year that bitcoin was a rollercoaster, he used to joke that at least roller coasters went up. Now he and his team have momentum again.
But whether bitcoin’s rise and the return of animal spirits can continue remains to be seen. While investors are prepared to fight the Fed and its central banking colleagues, effectively betting they will cut rates rapidly at the signs of economic distress, the RBA, the Bank of Canada, the Federal Reserve and now the Bank of England and Norges Bank (which also hiked rates by 0.5 per cent on Thursday night) are suggesting a very different central bank pivot is in play – towards higher rates.
Investors should recognise this. The Goldilocks scenario of falling inflation and no recession remains possible, but it’s not nearly as certain as the prices of risk assets would have you believe.
Jim Chalmers would also do well to recognise the direction global central banks are heading in. Ending Lowe’s time in charge may well be politically expedient, but the next governor is unlikely to move out of step with their colleagues around the world.
