Smoke clears and bit­coin still stands

Af­ter its crazy ride, the cryp­tocur­rency ‘is here to stay’

Sunday Times - - Business Tech - By NTANDO THUKWANA thuk­[email protected]­day­

● For most of last year, bit­coin grabbed the at­ten­tion of fi­nan­cial mar­kets as a new global cur­rency and a threat to the hege­mony of cen­tral bankers and the world’s re­serve cur­rency, the US dol­lar.

To­day, ex­cite­ment over the dig­i­tal cur­rency has dis­si­pated in line with its 80% plunge from the high it reached last De­cem­ber.

But de­spite its tra­vails, the dig­i­tal cur­rency still has many sup­port­ers who laud it as the fu­ture of fi­nan­cial tech­nol­ogy.

“What we’ve seen in the past year is a cor­rec­tion of that in­cred­i­ble rise at the end of 2017 and the mar­ket is try­ing to find the ap­pro­pri­ate value of this new as­set class that has no com­par­i­son,” said Farzam Eh­sani, co­founder and CEO of dig­i­tal trading platform

“But I think we’re still not out of the volatil­ity. I think there will be a lot more volatil­ity,” he said.

The cur­rency, of which South Africans were huge adopters, has dropped from its $19,783.21 peak to $3,300.03 (just un­der R50,000), the low­est this week.

With in­creas­ing volatil­ity and uncer­tainty, bit­coin is be­ing un­der­val­ued so much that it started to flirt with its his­tor­i­cal low lev­els in Novem­ber, when it was sold off at a high rate.

The coin’s price at cur­rent lev­els is a cor­rec­tion from the price spike in De­cem­ber 2017, said Eh­sani, who used to be the lead of blockchain at RMB.

“There were a lot of spec­u­la­tors; there was a lot of silly money com­ing into the space be­cause of the fear of miss­ing out,” he said.

In­vestors in the cryp­tocur­rency have come and gone as they re­alise it’s no way to get rich quick and that it’s an in­vest­ment space with no guar­an­tees.

Mar­ius Reitz, coun­try man­ager at bit­coin exchange Luno, said the price is sit­ting in a rel­a­tively sta­ble price band given bit­coin’s trend in price cor­rec­tion.

“These cor­rec­tions hap­pen fre­quently … the cur­rent price is fairly nor­mal,” he said.

Ac­cord­ing to Reitz, macroe­co­nomic in­di­ca­tors point to a grow­ing in­dus­try in the cryp­tocur­rency mar­ket and the fast adop­tion of dig­i­tal money is an in­di­ca­tor that “it is here to stay”.

He said: “I think there’s a long-term fu­ture for cryp­tocur­rency.”

Reitz said the volatile na­ture of the cur­rency makes it dif­fi­cult to pre­dict its fu­ture be­hav­iour. “To com­ment on the bit­coin price is like tak­ing a shot in the dark, you just don’t re­ally know.”

Eh­sani added: “If some­one wants to come into the mar­ket they should put in enough to make them pay at­ten­tion but not so much that it would hurt them if they lost it.”

Barry Du­mas, a trader at Pur­ple Group, said us­ing bit­coin as an ac­cept­able form of pay­ment may be worth the con­sid­er­a­tion of reg­u­la­tors. “For me, blockchain tech­nol­ogy is where it’s at and it should have a wider adop­tion to evolve to stream­line pay­ments, trans­fers et cetera. But in say­ing this there might still be a need for reg­u­la­tion to the ex­tent that trans­ac­tion costs and trans­parency can be of concern mov­ing for­ward,” he said.

The South African Re­serve Bank, which has re­cently es­tab­lished a fi­nan­cial tech­nol­ogy unit, is in the process of draw­ing up a reg­u­la­tory frame­work to pro­vide pol­icy on how cryp­tocur­ren­cies should op­er­ate in the coun­try.

He’s SA’s sin­gle most in­flu­en­tial per­son in the world of cryp­tocur­rency, yet you’ve prob­a­bly never heard of him. Ric­cardo Spagni is lead de­vel­oper of a cryp­tocur­rency or “coin” called Monero, with a mar­ket cap­i­tal­i­sa­tion of more than $2bn (R28bn) in mid-2018.

Its value fell by half in a re­cent crypto crash that in­cluded mar­ket leader bit­coin, but it’s still worth more than six times what it was just two years ago.

Spagni, who lives in Plet­ten­berg Bay, is also co­founder of Tari, a pro­to­col for manag­ing dig­i­tal as­sets like loy­alty points and vir­tual to­kens, us­ing the de­cen­tralised ledger tech­nol­ogy called blockchain.

The tale of how he came to be the stew­ard of Monero is the stuff of cloak-anddag­ger drama. All cryp­tocur­ren­cies de­pend on their com­mu­ni­ties of users and de­vel­op­ers for their evo­lu­tion. When the orig­i­nal founder at­tempted to merge what in 2014 was called BitMonero with a coin re­garded as a scam, Spagni led a re­volt of de­vel­op­ers who “forked” it into a new ver­sion of the soft­ware.

The fork quickly took con­trol away from the anony­mous founder Spagni ha­bit­u­ally calls a “crazy whack­job”.

In his new Jo­han­nes­burg of­fices in a Wood­mead of­fice park, Spagni is clearly on a quest for re­spectabil­ity. Monero — “coin” in Esperanto — is famed for its high lev­els of pri­vacy, as buy­ers, sellers and trade amounts re­main com­pletely pri­vate and trans­ac­tions can’t be linked to spe­cific com­put­ers. This also, how­ever, has made it a favourite of crim­i­nals.

Un­like many of his peers, Spagni goes to great lengths to warn against spec­u­la­tion in cryp­tocur­rency — par­tic­u­larly in Africa,

‘Part of me doesn’t be­lieve Africa in gen­eral is ready for cryp­tocur­rency’

which other coin evan­ge­lists ar­gue can use the tech­nol­ogy for fi­nan­cial in­clu­sion.

“Part of me doesn’t be­lieve Africa in gen­eral is ready for cryp­tocur­rency. There’s a lack of tech­ni­cal ex­per­tise, a lack of in­fra­struc­ture and band­width, and a lot of the smart­phones are sig­nif­i­cantly older and might strug­gle to run the more mod­ern soft­ware we’re build­ing for this. We’re still a few years away from it be­ing in­clu­sion­ary.

“When it does get to that point and peo­ple have suf­fi­cient band­width and de­vices, then one of the big things it pro­vides, which is very use­ful in the African con­text where peo­ple pre­fer cash, is pri­vacy. But maybe in five years.”

He also warns that mas­sive reg­u­la­tory changes are needed across the world.

“Prac­ti­cally, we’re talk­ing about a decade be­fore it is a sig­nif­i­cant part of the global econ­omy.”

The cur­rent volatil­ity of cryp­tocur­rency is some­thing he has seen many times since he be­gan dab­bling in bit­coin in 2011. And he warns we will see it many times in the fu­ture. Crypto, he says, overturns the con­ven­tional wis­dom about when to get out of the stock mar­ket.

“The tra­di­tional way of think­ing is that in­sti­tu­tions are early adopters, ven­ture cap­i­tal­ists get into com­pa­nies early on, IPOs are ac­ces­si­ble to ev­ery­one, clever peo­ple buy stock early, and it then trick­les down. Even­tu­ally, when hair­dressers are buy­ing it’s time to get out. Now it’s the op­po­site: hair­dressers got in be­fore the smart money, and I’m won­der­ing if the time to get out is when in­sti­tu­tions come on board.”

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