Low impact from crypto meltdown


— AFP

PETALING JAYA: The global cryptocurrency market is in a colossal meltdown.

In less than 12 months, over US$2 trillion (RM9.08 trillion) in market value has been wiped out and more recently, the world’s third-largest crypto exchange, FTX, collapsed.

The ugly downfall of FTX triggered a domino effect on other crypto exchanges, with a number of them in Hong Kong, Singapore and the United States facing withdrawal issues.

However, amid the turmoil that has raised doubts about the future of cryptocurrencies, Malaysian investors seem to be largely sheltered from the worst of the global crypto meltdown – thanks to local regulations.

Luno Malaysia country manager Aaron Tang said digital asset exchanges (DAXs) in Malaysia such as Luno are regulated and overseen by the Securities Commission (SC).

“Despite market downturns, investors who use regulated DAXs can be rest assured that their funds are kept safe,” he said.

Luno is the first crypto exchange to obtain full approval from the SC.

Tang explained that Luno releases a proof-of-reserves report every quarter, in order to show customers that their cryptocurrency is safely stored in their name on a 1:1 basis and is available to them as and when they choose.

The audit is carried out by Mazars, an independent international audit, tax and advisory firm.

Meanwhile, all ringgit-denominated assets are administered by an independent registered trustee, and stored safely in Malaysian bank accounts.

“Overall, crypto markets have been under pressure for a while now given the global macroeconomic environment, as well as due to specific events within the crypto industry itself.

“This impacts all markets equally. But over the years, Luno has built a safe and regulated platform for crypto investors and traders, emphasising a responsible approach to crypto,” Tang told StarBiz.

After hitting their peak in November 2021, many popular cryptocurrencies have started to crash, as high inflation and tighter monetary policy affected investors.

Since January this year, bitcoin and ethereum prices in ringgit have been down by over 60%.

Meanwhile, the price of binance coin and dogecoin was down by over 43% and 45%, respectively.

Despite the market meltdown, Tang continues to believe in the future potential of crypto.

However, he said that Luno remained clear-sighted and sensible about the investment risks.

“This is why it is important for investors to learn about cryptocurrencies and instead consider investing in crypto for the long term.

“Regardless of investor sentiment or market conditions, our focus remains the same –to get people started on their crypto investment journey, support them through education and awareness, as well as take a transparent and long-term approach in serving our customers,” he said.

Amid the brewing challenges, Tang pointed out that Luno has seen an increase in customers sending their digital assets to the exchange over the past week.

Some of these customers are using Luno to sell cryptos and convert them into the ringgit.

Meanwhile, others are using Luno as a place to store their digital assets.

“Given the events of the past week, we firmly believe that regulated crypto exchanges like Luno Malaysia will grow as the preferred way for investors to buy, sell, store and learn about digital assets.

“More broadly, investors on the Luno platform benefit from our careful approach to compliance and regulation, and we have always taken pride in our approach towards safeguarding and protecting investors’ interests,” according to Tang.

A crypto investor told StarBiz that the ongoing market turmoil may not necessarily mean the end of cryptocurrencies, adding that it might be a blessing in disguise.

“I believe it will help spur a much-needed consolidation of the market and its players,” he said.

Asked whether time is right for bottom-fishing, the investor pointed out that Bitcoin prices are 75% down from its high a year earlier.

“It may be a bargain but it may not have bottomed yet.

“Mining cost will provide the floor.

“Meanwhile, spot trading volumes are still maintaining levels, the aggregated open interest of futures and options have not really abated, and new users have continued to increase,” he added.

Looking ahead, blockchain consultancy company Celebrus Advisory managing partner Edmund Yong believes that the crypto market sentiment will be held hostage by regulatory developments at least for the next few months.

The European Union will vote on its landmark legislation, Markets in Crypto Assets, next February, and the United States’ Congress will reconvene and decide on the crypto bills.

Meanwhile, the markets will continue to over-react every time regulators bring charges on market offenders, according to Yong.

“Until then, investors can only hope and pray that there are no more skeletons in the closet because the markets are too weak to take further shocks.

“The so-called ‘blue chip’ crypto trading companies have been dropping one after another in the past year.

“In a way, it feels that the industry has scored its own goal.

“FTX is a poster boy of the industry who publicly touted regulations but then flouted these regulations in private, allegedly – despite being audited and licenced in multiple jurisdictions!” he said.

Commenting on the FTX debacle, Yong noted that there seem to be no Malaysian shareholders in the exchange, based on the cap table of FTX.

“Nonetheless, some Malaysians may have accessed alternative investment channels and invested in FTX’s native token FTT which has fallen over 97% from its all-time-high.

“There is the broader contagion effect on Bitcoin and Ether prices which affect Malaysian investors at large (who unfortunately do not have the benefit of hedging instruments on registered digital asset exchanges in Malaysia),” he said.

Yong also warned that Binance, which is the world’s largest exchange by daily trading volume, could be the next “bogeyman” for regulators.

“The industry grew too big too fast.

“There is definitely a glut of exchanges globally, and we should probably see some consolidation in the near or medium term.

“Many of them are already non-performing or unprofitable, so a shakedown is healthy,” he said.

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