Virtual money shifting global trading trends

Cryptocurrencies are the most undervalued asset class in the world, says Farzam Ehsani, leader of Rand Merchant Bank’s blockchain initiative.

The combined market capitalisation of all cryptocurrencies was only about $120bn, Ehsani said on Thursday at the Business Day/Financial Mail Investment Summit, held in partnership with Old Mutual Wealth.

By comparison, the market capitalisation of all stock markets is about $68.5-trillion, according to figures from the World Federation of Exchanges.

Bitcoin, the most popular of the more than 800 cryptocurrencies in circulation, has garnered considerable media attention in 2017, not least because of its colossal increase in value. The price of a single bitcoin has surged from $605 to $3,487 over the past year, leading sceptics to label it a “bubble”.

This week, The Guardian newspaper reported JP Morgan CEO Jamie Dimon as saying that bitcoin was “a fraud that will ultimately blow up”.

Bitcoin enables users to bypass banks and pay for goods and services over the internet on a peer-to-peer basis. Although not recognised by financial regulators, they are taking it seriously, with the South African Reserve Bank recently establishing a fintech programme to explore the implications of virtual currencies and other financial technologies for financial regulation and activities such as lending and investing.

“Most people investing in cryptocurrencies aren’t necessarily long crypto, they are short fiat [currencies].” Fiat currencies include the rand and dollar.

Technology such as blockchain, off which bitcoin operates, would promote greater transparency in and access to financial markets, as well as bring down costs, Ehsani said in a panel discussion.

Computers and algorithms already executed more than 50% of the JSE’s trades and this would increase to 100% in time, said Shaun Nicholson, head of South African financial markets at IRESS.

Dealing rooms were increasingly recruiting technology specialists and computer programmers rather than traditional stockbrokers, he said.

Automated online financial advice was gaining traction, with financial advisers using the technology to better service their clients.