FinTech, Investments

Cryptocurrency, Bitcoin and ICO: the digital age currency or another digital bubble in the making?

August 17, 2017

Cryptocurrency and Bitcoin

Just not too long ago, roughly about a month, my partner was asking me for my opinion about cryptocurrency and bitcoin investment. Bitcoin was trading around $1,800 in Mid July after having scaling the highs of $3,000 earlier in mid June 2017. Of course being the old school style, recalling lesson 101 (aka Warren Buffett’s golden rules of investment) – “invest in what you know, nothing more” , I replied him with confidence that Bitcoin had been pushed sky high by speculators, and this correction is the classic example of a boom and bust.

Irrational exuberance, just wild animal spirits. It will crash back to sub 1000 levels soon.” That was my 2 cents worth albeit feeling slightly Greenspan-ish. How on earth could a digital currency, not backed by any assets nor controlled by any sovereign powers be legal tender, let alone be of investment grade?

What is Cryptocurrency, Bitcoin and ICO (Initial Coin Offering)?

In my earlier post in Feb 2017, I wrote a little on Blockchain, Distributed Ledger Technology and Finance, Cryptocurrency has its roots in Blockchain, or some might say it to be the other way around. The widespread story is that a guy named Satoshi Nakamoto was the founder of Bitcoin. He created it in 2008, and at that point in time, it was pretty worthless! Somebody used 10,000 BTC (Bitcoin) to pay for 2 pizzas. Today, if that pizzeria owner had not traded the BTC for a pack of beer, he will be a multi millionaire!

Cryptocurrency uses Blockchain Technology, it is basically a currency that is mined by somebody using his/her computer solving encrypted equations. After solving the equations, the miners are awarded a form of digital payment, and that ownership of the currency is acknowledged, validated and stored by a network of computers. This ownership is recorded in a ledger that cannot be reversed because of the encryption and multi-ledgers that the transaction has been recorded onto in the vast digital network. For those who are keen to know more and requires an in depth explanation, you can find it here.

Investopedia defines cryptocurrency as a digital or virtual currency that uses cryptography for security and that it is valued for its neutrality – hence absence of government controls or manipulation. From the price action, perhaps there is some truth in its value, and maybe that’s the main reason why real money are moving into the digital currency! It is not traceable, not controlled and it is the true essence of being a free currency. Maybe perfect for criminals, and those who hate the limelight, probably not so good for compliance officers.

Naturally, with such attention and demand, creative folks cranked up their juices and recently, millions have been raised via Initial Coin Offerings (ICO). It works on the similar principles of an Initial Public Offering (IPO) of Stocks and Equities. Much have been said and discussed about the ICOs and how it is grossly undervalued in comparison to the current stock markets valuations.

What to expect of cryptocurrencies and bitcoin

If such trends were to continue without major disruptions, sooner or later, the CFOs will have to think about hedging in Bitcoins and portfolio managers will start listing exchange traded funds or portfolios with Bitcoins or Ethereum as a component. Maybe, major stock indices will have their very own digital currency indices!

Maybe we should have invested in Bitcoin, it is now trading above $4,000.” My partner lamented as he thought about the wasted opportunities. 

bitcoin cryptocurrency reuters chart

If we had invested in mid July, and squared off now, we would had doubled our money. Maybe, getting rich and becoming millionaires ain’t that difficult afterall.

However, I still do not quite understand the whole thing about Bitcoin and Cryptocurrencies. It will correct and maybe even crash, but till the day comes, i stand weeping about my loss opportunity. You know, “the market will remain irrational than you can remain solvent”, perhaps I should take comfort by the fact that I did not try to outsmart the market by shorting the Bitcoin. It would have been more than laughing at my “stupidity”.

What about you? Were you smart enough to reap from this boom in Bitcoin? Or if you are a Bitcoin expert, do write to us and educate this old school gentleman about the beauty of Cryptocurrency!




about author

Seng Ti is currently heading a Treasury & Finance team in a MNC and is active in the Corporate Treasury scene. He enjoys reading and discussing about current affairs, politics, life, wine and lives a normal life with his wife and 2 young kids.