WHAT THESE CRYPTOIDS HAVE TO SAY…
Three experts weigh in on what’s the deal with crypto and where we’re headed from here.
Did the pandemic accelerate the growth of the crypto market?
Joe Lee (JL): Yeah, I would say so. From my observations of how governments around the world handled the pandemic, there’s been an unprecedented amount of money printing. So from an economic perspective, everybody around the world was locked up in their homes, and if they had a stable job, they would have more money than they ever had before and more disposable income with nowhere to spend it. Naturally, that leads to people trying to find a place to put this money. For some, it’s investments in new technology, such as the latest computers, the new iphone models; for others, it’s expensive new watches. People are looking to buy new cars too, because they don’t want to share public transport anymore. And in the big boom of the cryptocurrency industry, people are looking for alternative investments.
So, for those who invested in technology stocks, the rest of the markets have been slow, if not dipping (in decline). And when people don’t want to invest in markets like that, they look for alternatives. The cryptocurrency industry has reached a tipping point where adoptions kind of got to a critical mass, and what we’ve seen over the pandemic was that critical tipping point. It tipped over to mainstream adoption. David Low (DL): Apart from this macroeconomics push, in April 2021, Coinbase listed their shares for the first time, and it propelled crypto into the mainstream media because this was one of the first few crypto companies that listed their shares publicly in New York. This event also legitimised cryptocurrency as a viable alternative investment. There was also a moment where there was a Bitcoin exchange traded fund (ETF). And last year, there was a proof of trading (for crypto) as well. These pivotal moments were what fuelled the conversations around putting money into cryptocurrencies and seeing them as alternate investments. Coupled with the fact that Bitcoin has continued expanding its use, which has encouraged a lot more major adoptions globally.
So why the interest in crypto’s decentralised quality?
JL: Right now, crypto is being treated as just a money transmission network, so for a layman who comes and then says there is nothing that Bitcoin backs, that’s just not true. However, there are a few businesses that may see crypto not have any utility, such as Visa, Mastercard and American Express. Ultimately however, the money transmission network is very important as it is tied to how the world of banking and how the world of finance works. The core of what banking does is essentially send value from one place to another, and never have we seen a protocol designed specifically for the transmission of money. We live in a world where we now can send very complex messages like video messages from one place to the opposite side of the Earth, and a little blue tick that takes about half a second [to appear] indicates its receipt. Meanwhile, money in a traditional sense (depending on the sum and where you’re transferring the money to) takes three to seven days to clear. If banks are going to clear through the cryptocurrency industry, it’s going to represent a whole new order of how these end clients use banks for transactions.
Now for regulators, they’re in this difficult position where they’re seen as the bad guy in most crypto circles. Conceding to them, I understand that their role is to keep everyday people safe from fraud, safe from hackers and safe from unnecessary financial risks. But their job is made more [difficult] as they’re the ones who have to keep an eye on every single bit of innovation. However, innovation does not come from regulators or a bank because they play by the rules and don’t want to rock the boat. Innovation in the form of Bitcoin came from a nascent group of computer scientists who are cryptographers, network engineers, and decentralised network specialists. And it’s very difficult for a regulatory body to hire computer scientists who understand the technology. To be able to move forward, or to create a regulation
to suit the technology that’s being adopted en-masse by those who are unencumbered by the existent rule set, you need to understand the technology. What I mean by that is that banks aren’t currently allowed to dabble in asset classes that they don’t recognise or that the regulator doesn’t recognise. As a result, there is a bit of a lag when it comes to the technology adoption level of a bank or regulated financial institution. Colbert Lau (CL): Think about the technology as this distributed database of debits and credits. It’s like an accountant’s ledger where you record the input and output of money, but you can access it anywhere with just your fingertips. The problem now for a lot of people is that they perceive one Bitcoin as being equivalent to that of one US dollar, which devalues over time depending on the worldwide market. And it’s important to remember that purchasing power goes down during bouts of high inflation, so it highlights the fact that cryptocurrency is dependent on supply and demand. But say after a century, our society uses Bitcoin for everything and we stop comparing it to fiat currency—then it wouldn’t be as volatile as it is today.
What about the volatility of crypto?
DL: We’ve faced this music many times in cryptocurrency. When crypto did a bull run in 2017, the following uproar in 2018 and 2019 over the bubble that burst was expected. But if we look at the data and Bitcoin’s price over the last decade, its momentum has always stayed consistent over a two-to-three-year cycle, which I think that speaks volumes for the use case of the technology.
Unfortunately, in a nascent space where a lot of investors are fuelled by the want to make money, sometimes that demand can outpace the actual adoption of cryptocurrency’s use case, and that creates a pretty volatile market. But whenever these demands saturate to a certain point, the market goes through a ‘correction’. It is always supported by a baseline of the actual demand, which is the use case of cryptocurrency. So, when it comes to the sudden decline in the market, it isn’t so much as a burst bubble but the correction of a nascent technology that’s here for the long run.
What about NFTS and their spike in popularity in 2021?
CL: So I’m part of a team called the NFT Agency whereby we represent artists by bringing their NFTS in the digital marketplace. And the one thing the artists like about the technology is the perpetual, automatic royalty management system where you don’t need a middleman that takes a big chunk of said royalties. And because everything is recorded in the blockchain, everything is transparent and will stay there for convenient reviewing.
JL: It decentralised the manner of which an artist can connect with their community. Before, an artist would have to go through an intermediary, be it a company like Spotify and Youtube, or agencies and art galleries. If they had involved a third party, then everyone in-between would take their cut from the artist’s due. Prior to even getting the intermediary, however, the artist would have to get the attention from these middlemen first to sign a legal contract, which dictates how the artist’s business should be run. NFTS are a way for artists to sell and talk directly to their fanbase.
What are the common misconceptions about the Bitcoin bandwagon?
DL: People think they need to buy crypto as a single unit. Even when the crypto market crashed, the value of Bitcoin is still higher than what people can realistically afford. And before, at its peak, you had to hold at least RM100,000 just to have one Bitcoin. But Bitcoin can be denominated, and you can actually buy crypto for a value as low as five ringgit.
The reason as to why Bitcoin is priced as whole unit is because that’s how global players track prices, which is based on what’s traded on the exchange. So if you don’t have a lot of capital and if you only have a couple of bucks to spend on a risky asset class that you don’t understand, it’s more than okay to start small.
CL: That you can instantly become a millionaire overnight just trading cryptocurrency. You see a lot of shills (scammers) on the internet; people talking about their investments or projects like they got X amount of money just from X amount of days. The problem with that is that these people don’t understand the technology and the actual value of those projects. You really need to do your own research, and look at the whole package itself. It could be business specific data, like the project’s origins, who they are, what they do and where they’re from. Sometimes, it comes down to due diligence. JL: The common reaction when I tell people that I’ve bought Bitcoin is that they look at me as if I’m a victim of an elaborate scam. Or worse, we get mistaken for being involved in some nefarious activity. But honestly it all boils down to actually reading up about it and understanding what it actually is. Then you can make your own informed decision and decide whether or not the risks are worth it, and if it’s really the investment for you at this moment in time.