Push factor: A bitcoin logo is seen in Istanbul, Turkiye. The sharp rise of the currency since last year has been helped by the news of launch of ETFs to invest in cryptocurrency. — Bloomberg
PETALING JAYA: Despite bitcoin hitting a recent record high of almost US$74,000 (RM348,066), an investment expert is warning investors to remain vigilant and not put all their eggs in one basket.
“Investors need to allocate their exposure in accordance to their overall wealth while apportioning their risk appropriately with their assets,” Gerald Ambrose, chief executive officer of abrdn Islamic Malaysia Sdn Bhd told StarBiz.
Ambrose said cryptocurrency like bitcoin is a highly volatile asset and carries a high risk.
“If you are a billionaire, you are able to invest more. The question to ask is, can you afford to lose all your money that is invested in bitcoin if it comes down to that?” he said.
He added that there might be a continuous growing confidence in the asset but it will not be in a straight line.
“Bitcoin has to be one of the most volatile assets around, so greed and fear influence its movements. But I think adoption can only rise – it’s relatively easy to buy and sell them online,” he said.
According to Ambrose, it is possible that bitcoin investing can be enticing to even more people these days, particularly the younger ones.
“The good thing about bitcoin is that you can buy or sell small quantities, the fees are minimal so there isn’t much ‘friction’ and it’s perceived as groovy while gold is for old fogeys in many people’s view,” he said.
However, Ambrose said the currency’s recent gains and increasing price could be a tell-tale sign that there were far larger issues to consider.
“I would call bitcoin the clearest smoke alarm for serious problems in the world of paper money.
“It is unusual for bitcoin and gold, where neither provide any income or yield, to perform well if one is getting real returns from bonds like US Treasury Securities or even the Malaysian Government Securities. But they are,” he noted.
This has led Ambrose to believe that investors are slowly losing faith in the so-called risk free US Treasury markets because the future supply is limitless while with bitcoin, one may be able to work out the supply.
It became clear towards the end of last week that experts were right in advising caution as bitcoin retreated from its high, dropping as much as 5.6% in Asian trading on Friday after having set a new all-time peak price of almost US$73,740 just the day earlier.
Trading 24 hours a day, seven days a week, bitcoin was last traded at US$65,621 at press time.
The sharp rise of the currency since last year has been helped by the news of launch of exchange-traded funds (ETFs) to invest in cryptocurrency.
GlobalData senior thematic intelligence analyst Nicklas Nilsson said the highly volatile and speculative nature of bitcoin and other cryptocurrencies demand caution.
“It is essential to remember that market dynamics can change rapidly and investing in bitcoin carries risks.
“Furthermore, it is important to note that bitcoin has previously experienced dramatic crashes including a 70% drop in value in 2022.
“Such volatility underscores the need for investors to be well informed and consider the potential for both significant gains and losses,” he told StarBiz.
Nilsson added that the macroeconomic climate is expected to improve further with interest rate cuts not being far away, which could give the stock and crypto markets an added boost.
“This situation is further amplified by the classic hype cycle, where rising prices fuel investor fear of missing out,” he said.
Nilsson added that investors should take note of recent events like the collapse of the stablecoin Terra Luna and the bankruptcy of major cryptocurrency exchange FTX, which serve as stark reminders of the potential risks.
“Unforeseen events, such as rapid increases in interest rates, can alter investment landscapes dramatically, affecting the liquidity and stability of digital assets,” he said.
Meanwhile, on the flip side, Luno country manager for Malaysia, Scarlett Chai, said with the bullish momentum of bitcoin lately, the digital asset exchange operator has seen more sign-ups and transactions on the platform as local investors look to take advantage of the anticipated bull run.
“The main driver behind the bullish momentum is widely attributed to the strong demand and confidence in bitcoin driven by the newly US Securities and Exchange Commission-approved spot bitcoin ETFs,” she told StarBiz.
Chai said the other reason for the surge included the upcoming bitcoin halving exercise, which is set to take place in the middle of next month.
“The four-year cyclic bitcoin halving event is believed to be a catalyst for the market’s growth, with each cycle leading bitcoin’s value higher than the one before to an all-time high of US$65,000 in 2021.
“Bitcoin and other cryptocurrencies are already being viewed as alternative forms of investment and are playing a role in diversifying one’s portfolio,” she said.
But she cautioned investors against the rise of crypto scams that may increase due to the surge of bitcoin in the market.
“With crypto’s momentum starting to make headlines again, I believe this will pique everyone’s interest as they find ways to join in the action.
“The boom in the crypto market will certainly attract bad actors who will snare unsuspecting Malaysians with little to no knowledge of crypto.
“Our recommendation is for investors to only invest and trade on regulated platforms that are registered with the Securities Commission,” she said.
