Smoke clears and bitcoin still stands
After its crazy ride, the cryptocurrency ‘is here to stay’
● 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 VALR.com.
“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.”