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Good morning everyone,

The bitcoin halving happened last Saturday (at least in my cozy AEST time zone). For the next four years, bitcoin miners will be rewarded with 3.125 bitcoin per block. This means that only 450 bitcoin will be issued each day, compared to 900 in the last 4-year cycle.

I loved watching the folks in traditional finance point out that the halving has long been priced in and not much price action should be expected later this year.

I don't know if it was priced in or not.

But I do know that efficient markets only exist in textbooks and the remaining 28 halvings are most likely not priced in yet. 😆 

Today I'm sharing a cautionary tale from Australia. The specifics of the story are very Australian, but I'm sure this story plays out in a similar way in your country, no matter where you live.

Let's get into it.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Also, this newsletter contains affiliate links. This means that I may receive a commission from them. But for Crypto Down Under, I only choose products I use myself and can recommend wholeheartedly. Don’t forget to do your own research.

1. How cash is moved around in Australia

When you withdraw cash from a bank ATM or a supermarket checkout, have you ever wondered how that cash got there in the first place?

In Australia, most cash is moved around by a company called Armaguard. Here's an Armaguard ad from the good old '80s, when cash was king.

Armaguard was founded in the '30s and was acquired by the logistics company Linfox in 2003. Linfox is a privately owned company based in Melbourne that was founded in the '50s by Lindsay Fox.

Lindsay Fox is a former Australian rules football player who started Linfox with one truck and built it into an empire. In 2023, he ranked 23rd on the Australian Financial Review Rich List with a net worth of AUD 4.4 billion.

While researching Lindsay Fox, I found this hilarious quote from a 2004 interview in which he discusses his views on business and politics:

In 2022, Armaguard reached an agreement with Spanish logistics company Prosegur to merge their Australian operations.

The Australian Competition and Consumer Commission (ACCC) approved the merger, even though it created a monopoly. Today, Armaguard has a 90% market share.

2. Why cash usage is declining

When Linfox acquired Armaguard in 2003, cash accounted for three-quarters of all payments in the Australian economy. Moving cash around the country seemed like an excellent business idea.

But the use of cash is declining.

The popularity of card payments, accelerated by the ease of use of tap-and-go terminals, and, more recently, the advent of mobile phone wallets, combined with a Covid-induced aversion to banknotes and coins, have pushed cash usage ever lower.

Cash payments are expected to account for only 11% of all payments in the Australian economy this year and just 4% by the end of the decade.

As cash usage dwindles, companies like Armaguard are struggling to stay afloat. Armaguard is paid based on volume and has high fixed costs such as a fleet of trucks, armed guards, high-security processing centers, etc.

In fact, when Armaguard and Prosegur merged in 2022, both companies were struggling financially. The merger was only allowed to go through because it seemed to reduce the risk of a disruption to the cash market.

In a media release, the ACCC Commissioner stated:

But the ACCC turned out to be wrong.

Despite the merger, Armaguard said in February that it urgently needed a cash injection and that without it, it wouldn't be able to continue its cash distribution beyond mid-March.

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3. Why Australia was on the verge of a bank run over Easter

Armaguard's biggest customers are the Big Four (the four main Australian banks), the major supermarket chains, and Australia Post.

When the news broke that Armaguard was on the verge of insolvency, these customers began to panic.

One of the major supermarket chains, Coles, decided to lower cash withdrawal limits over Easter to protect the supermarket from the risk of Armaguard collapsing.

As always when the threat of a bank run looms, banks and other cash providers are walking a fine line: Their actions to restrict cash withdrawals may end up triggering the very bank run they are trying to prevent.

Fortunately, Australia got through Easter without a bank run.

But the risk is not gone.

Linfield poured more money into Armaguard to keep the lights on in the short term.

But in early April, negotiations between Armaguard, the major banks and retailers broke down. The banks and retailers offered an AUD26 million lifeline, but with strings attached. Armaguard wasn't happy with the terms and decided it wasn't going to let its pants down and show the banks and retailers what they wanted to see.

So the future of cash in Australia is up in the air.

While it's unlikely that the Australian government will sit back and watch Armaguard go under, it prefers that the private sector find a solution. As a last resort, the government may consider subsidies.

Banks, on the other hand, aren't particularly interested in keeping cash as a payment method because they profit from card transactions. Every time you use a debit or credit card, the merchant pays a fee to the bank that issued the card. In contrast, when you use cash, no one gets paid except the merchant.

But banks and retailers know that going cashless would cause a backlash, and they don't have the infrastructure to move cash around.

So some sort of compromise will probably be found. The question is: Who will pay for the provision of cash?

4. Why going cashless is dangerous

In Australia, as in most other countries, it is government policy to make cash available to those who wish to use it.

Cash tends to be popular with older people who may feel overwhelmed by the buttons and icons on their computers and phones.

But fundamentally, cash is important because it ensures our freedom and autonomy.

Don't get me wrong, I hardly use cash in my daily life. The only place I use it is at my Chinese dry cleaner, which won't accept anything but cash.

But the news about Armaguard got me thinking about how bad it is for a society to go cashless.

Compared to digital transactions, cash is a form of money that cannot be traced. Of course, that makes crime easier. But free and open societies should be concerned about the freedom of their citizens first, and law enforcement second.

Cash - along with gold and other rare commodities - is also a form of money that people can store without involving a third party. If your bank commits fraud, gets robbed, or gets hacked, you don't have to worry about it as long as you keep your money in, say, a safe at home. (Yes, there is a government guarantee for bank deposits in Australia. But it only protects balances up to AUD250,000 per account. And good luck trying to get your money back if there is a nationwide bank run.)

Of course, I'm not advocating that you hide your cash at home, because cash also loses its purchasing power very quickly, as you can read in my newsletter on inflation. "Cash is trash" is an adage in finance that says you shouldn't hold cash for long because it loses value quickly.

But if you take away cash and add central bank digital currencies, digital currencies issued by a country's central bank that may soon be introduced, the future of money looks very Orwellian.

By now you can probably see where I'm going with this.

5. Why bitcoin is like digital cash, only better

Bitcoin is the invention of digital cash.

It's pseudonymous rather than anonymous, which means that your bitcoin address (your pseudonym) is recorded, but your identity is not.

Bitcoin also comes with no third-party risk if you store your coins yourself.

And over the long run, it even protects your purchasing power.

We need cash, and we need bitcoin.

Have a great weekend, everyone.

Want to store your bitcoin yourself in a cold wallet? Use the link below to purchase a Ledger Nano S Plus wallet.

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