DIVIDED OVER DIGITAL CURRENCIES
FSMOne research manager likens investing in crypto to ‘Greater Fool Theory’
INDUSTRY experts are divided over Communications and Multimedia Ministry’s proposal for cryptocurrencies to be made legal tender so as to increase the youth’s involvement in digital investments, especially non-fungible tokens (NFTs).
“NFTs are an ideal vehicle to digitally represent physical assets such as real estate and art work,” said Juwai IQI chief economist Shan Saeed. “NFTs can remove intermediaries, simplify transactions and create new markets.”
Luno Malaysia country manager Aaron Tang said there was a common misconception that cryptocurrencies, such as Bitcoin,
were being used by criminals, adding that nothing could be further from the truth.
He said all cryptocurrency transactions were logged on a public ledger called the blockchain and were fully traceable and transparent.
“People may not be able to identify the owners right away and that is why it is sometimes called pseudo anonymous. Nevertheless, everything you’ve ever done on the network can be tracked eventually, making it a particularly bad tool for illicit use.”
However, FSMOne research manager Jason Wong Jia Jun said the ministry’s proposal was not a good idea as cryptocurrencies were susceptible to wild swings.
He said a major shortcoming for cryptocurrencies was the absence of fundamentals and intrinsic value.
“One of the biggest drawbacks would be their inability to generate any form of cash flow, which makes it impossible to derive an intrinsic value.
“As an asset class, crypto’s lack of an intrinsic value gives rise to negative implications, such as being vulnerable to bubbles, lacking reliable ways to gauge downside risks and having incompatibilities in a long-term investment portfolio.” he said.
Wong said although the recent crash of Luna sounded a cautionary bell on cryptocurrencies, greed would eventually rekindle investors’ interest in them.
This would be similar to how get-rich-quick Ponzi schemes still existed despite the multiple fraud cases, he added.
“I liken investing in crypto to the Greater Fool Theory; any investor
(or gambler) who subscribes to this theory disregards fundamentals and knowingly buys into overvalued assets because everyone assumes that there will be other greater fools out there who will take the ‘hot potato’ off their hands — netting these investors an ‘easy’ profit, or so they think.
“It’s all fun and games until you end up the final fool — far too much risk to undertake for too little rewards,” he said.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the ministry should be more careful as cryptocurrencies were a form of high-risk and extremely volatile investment.
He said there should be further discussions with the Securities Commission (SC) and Bank Negara Malaysia, among others, to get better insights into the risks.
“The degree or willingness to take risks should be within reasonable levels.
“No doubt crypto can be regarded as an asset class but it carries a high risk and typically, sophisticated investors such as hedge funds would be in a better position to take part in crypto investing,” he said.
To recap, Deputy Communications and Multimedia Minister Datuk Zahidi Zainul Abidin recently said the ministry would look into ways to increase the youth’s involvement in digital currencies as it was the future of finance.
“All of these are under the purview of Bank Negara and the SC. We hope that the government will allow and legalise this so that we can increase the youth’s uptake of cryptocurrencies,” he reportedly said.