VIRTUAL coins or cryptocurrencies (crypto) is an asset class that seems to be drawing a lot of debate after it experienced wild price swings in recent weeks.
Billions of dollars have been wiped off crypto’s market value but the cheerleaders of asset remain positive that the days of huge gains will return.
However, increasing scrutiny from authorities globally remains an imminent risk for the crypto said industry.
“High volatility and unrealised losses are some of the things crypto investors have to be able to stomach. Investors are recommended to invest only the amount of money they can afford, ’’ said Tokenize Malaysia chief executive officer Hong Qi Yu.
Brenda (not her real name) did not want to be left out of the crypto trading. Last October, she invested RM500 and when she saw the gains, she upped her investment to RM10,000.
By January, the gains grew by RM3,000. Her portfolio consisted of a number of different coins including bitcoin, the world’s most popular cryptocurrency.
At its height, her gains reached RM21,000 but she was hoping for more.
The recent bout of volatility saw her gains evaporating. She said she won’t cry yet, as she has not lost her original RM10,000 investment.
But the selloff tells a lot about the volatility that surrounds cryptocurrencies, though a report said “different assets react in different ways to the sell off.”
“I am taking a long-term view. In crypto trading you need patience and holding power, ’’ she said.
She shuffles the coins around with bitcoin making up less than 5% of her portfolio.
There are many like her as to them, crypto is an asset class that they believe could potentially be accepted globally just like fiat money. But for now, that is not the view shared by most global regulators.
A report describes cryptocurrency as a decentralised digital money designed to be used over the Internet.
You can transfer the value online instantly to buy some goods and services without using a middleman like banks, for a lower fee. Or just keep it as an investment and trade in the currency via digital asset exchanges (DAX).
The report said crypto is not issued or controlled by governments or central authority like fiat money. It said crypto is secure because all transactions are vetted by a technology called blockchain, essentially like a bank’s balance sheet or ledger.
Tesla founder, Elon Musk (pic above) is a crypto advocate. He is someone the crypto community watches for what he says often moves markets, just like Warren Buffett is to stocks.
On May 7, Musk tweeted that “Cryptocurrency is promising, but please invest with caution.’’
Indeed, caution is the word when investing in digital coins.
“For traders new to the digital asset investment scene, there is a learning curve. However, we are all operating in a tech era and also the digital asset scene in Malaysia is regulated. It is fairly accessible, safe, and secure to invest in, ’’ claims Hong.
At the end of March this year, it was reported that there are 4,000 different coins in existence globally. Some are immensely popular, but there is virtually no trading for some others.
Globally, there are 504 exchanges to trade in the coins and 52 million active crypto traders.Apart from bitcoin, there are many others including ethereum, XRP, litecoin, tether, binance coin, dogecoin, cardano, EOS, polkadot, USD coin, uniswap, stellar, IOTA, NEO and solana
It is also often said that investing in crypto is complicated for retail investors.
“If retail investors only risk 5% to 10% of their investment cash flow or portfolio for digital asset investment, I see it as a manageable risk and it will act as a catalyst for their investment gain, ’’ added Hong. It really boils to your risk appetite.
Gunaseelan Kannan, a licensed financial planner with Blueprint Planning Sdn Bhd said “if you are a high-risk taker, you may invest 20% of your total asset allocation. But in general, I would suggest nothing more than 10%.’’
He said historically, crypto has high volatility and you receive no income from this asset when compared with stocks (dividends) or property (rental).“Cryptocurrencies provide only capital appreciation, which depends on supply and demand and we don’t have much control over it, ’’ he said.
Where can you buy digital currencies?
Malaysia has three DAXs – Luno, Tokenize, and Sinegy.
To dabble in crypto, you need to register with a DAX, open a wallet and link your bank account to it before trading. There is a transaction fee when trading in digital currencies.A report cautions that some DAXs are prone to hacks, criminal activity, security breaches and even digital currencies being stolen, thereby leading to losses for investors.
Fraud and scams are also rampant in the crypto industry, it said. To curb potential scams and investment issues, the regulators have been warning the public not to trade on unauthorised platforms.
If you do not want direct exposure to coins, you may invest in shares of companies that are into crypto technology or have crypto, such as Microstrategy, Square and Coinbase, suggests Hong.
Hong believes the market remains bullish despite some major correction last week as for him the fundamentals and macro outlook still remain and continue to be bullish with more financial institutions onboard.
Whatever it may be, when you invest, the money is yours as investing in crypto comes with huge gains and losses too. It is how you manage that and it is often said, with crypto, it is a steep learning curve. Master it.