Road to Success

Mr Ellis said there was no evidence the much-hyped distributed ledger or blockchain technology underpinning cryptocurrencies had real benefits to society or the economy. “I have yet to see a practical implementation of blockchain as a real technology, where it has made a difference to the operations of things,” he said. “I will believe there might be some value to the technology when I see proof.”

The comments are at odds with the fashionable convention among business executives to extol the virtues of the blockchain, while condemning the speculative nature of spot markets for crypto tokens.

In a submission to Treasury dated June and released last month, the Commonwealth Bank argued there is “great potential flowing from crypto assets and distributed ledger technology”. CBA, alongside ANZ and Westpac, is an investor in the Lygon project, which moves paper-based bank guarantees to the blockchain.

Blockchain technology, which records transactions in an immutable and verifiable manner, has been variously credited with being able to assist in tackling corruption, climate change and even cancer.

Commenting on the collapse of FTX – in which an estimated one million people, including 30,000 Australians, lost money – Mr Ellis said the incident highlighted widespread misunderstanding about the nature of trading crypto assets via digital exchanges, also known as “hot wallets”.

“If you trade cryptocurrencies in a ‘hot wallet’, you are not trading cryptocurrencies, you’re not trading on the blockchain – what you’re trading is a delta one derivative with a counter-party,” he said. (A delta one derivative moves in line with the underlying physical asset).

“Now, that’s OK. I like derivatives – I built my career on them – but you have to understand the counter-party risk.”

Simply storing crypto assets offline in a so-called “cold wallet”, as anecdotal evidence suggests a growing number of crypto investors are choosing to do, does not present a solution, but just introduces different counter-party risks to which investors must be attuned, he said.

More broadly, Mr Ellis said the incredible rise of crypto assets – bitcoin’s value has surged by more than 5000 per cent since 2015 notwithstanding a 60 per cent slump in the 12 months to December – was a function of the era of cheap money propped up by monetary policy.

He said an environment in which “kids in their bedroom” can outperform professional investors had not been the norm throughout historic markets, which Man Group’s data analysts are tasked with assessing.

“The last 12 years since the financial crisis has been the easiest time to be an investor I think the world has ever known,” he said.

“The truth is: you just had to buy something, it didn’t matter what you bought. The more of it you bought, the better you did. The more leverage you put on it, or it had embedded in it, the more speculative it was, the better.

“I imagine the next five years will look very different.”