The Big Read: Cryptocurrency crash offers industry the control of the reality it needs

SINGAPORE: Convinced supporter of the XRP, Ken Tan continued to pump money into the cryptocurrency during the course of this year, even after the cryptocurrency prices fell from the peak between last December and January of this period. year.

So far, the 36-year-old business man has paid about S $ 100,000 in cryptocurrencies, including the $ 15,000 he invested in November of last year when prices skyrocketed.

"When we saw it (prices) rose to the peak, (my wife and I) we were like FOMO-ing (fear of losing)," he said.

When he entered the market during the cryptocurrency bull run, his portfolio grew by S $ 100,000 in eight weeks.

But he decided not to cash because his intention was to invest in the long run.

With the value of XRP down 90% from its peak of 3.40 US dollars (S $ 4.67) in January, Tan's portfolio fell to over $ 30,000, with a loss of about $ 70,000.

"Of course I look back, I regret it, but there is no way for me to cancel it," he added.

Another investor, who only wanted to be known as Vanessa, did not earn his S $ 70,000 profit when Bitcoin prices increased, partly due to the withdrawal limits imposed by the cryptocurrency trade.

After intense research, the thirty-one-year-old banker traded his Bitcoins with another cryptocurrency, Ripple, and pumped extra money to buy more digital coins, bringing his total investments to $ 40,000.

Since then, its portfolio has declined in value and is now worth around $ 10,000.

Vanessa is "frustrated" that will make a loss if she transfers her money to other types of investments.

"Crypto is already so cheap, it makes no sense to sell something so cheap and buy something else," he said.

A very niche investment tool in the early years since Bitcoin was invented and released as open source software in 2009, cryptocurrencies – a form of virtual currency – have captured the attention of traditional investors at the end of the year. last year when their value has increased.

Bitcoin – the best known cryptocurrency – began its exponential rise in November last year, increasing by 200% in the next half months to reach its maximum value of nearly $ 20,000 per currency on Dec. 17, based on CoinMarketCap data, a website that keeps track of cryptocurrency prices.

But the dramatic rise was short-lived.

The spectacular rise of Bitcoin was followed by an equally spectacular fall, with its drastic drop in the price in 2018. Starting from Friday (December 7th), a Bitcoin has a value of US $ 3,428 – a decline of 80%. % from its peak.

In addition to Bitcoin, other popular cryptocurrencies like XRP and Ethereum have also seen similar crashes. From their peak, nearly $ 700 billion has been wiped out by the global cryptocurrency markets.

WHAT SALT MUST LEAVE

The collapse of cryptocurrency prices should not have been a big surprise, given the previous warnings issued by some well-known investors and financial experts.

The billionaire investor Warren Buffett called the "rat poison" of Bitcoin, while the Nobel prize-winning economist Robert Shiller called last year's fad a "passing fad." Both said that Bitcoin was in a bubble, which would eventually appear at some point.

The lack of a good explanation of the Bitcoin meteorological increase – along with the risks associated with investing in it – is not lost to some retail investors such as 26-year-old George Varghees.

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The executive of the logistics operations, who believes in the long-term potential of cryptocurrencies, said the fall was something he had expected.

"The peak of US $ 20,000 is not a conventional peak … much is from speculation, it is normal for the price to fall much more than a normal stabilized rate," he said.

While Mr. Varghees' portfolio has fallen in value by 50% to about $ 3,000, he was one of those who decided to cash in on his profits when cryptocurrency prices skyrocketed last year.

He made a profit of about $ 9,000 last year from his initial investment of S $ 9,000, which partly explains his indifference to his loss of documents. He said:

I understand that … (there is a case) that it may not work. I was ready to lose everything I put.

Observers cited several factors that may have contributed to the downward pressure on cryptocurrency prices.

A Business Insider reports that Goldman Sachs has scrapped plans to open a cryptocurrency trading desk due to an unclear regulatory framework around them that may have caused Bitcoin confidence and the like to fall.

Regulatory authorities around the world are also increasingly examining encrypted businesses.

In June, the Japanese financial regulatory agency, the Financial Services Agency, slapped six exchange rate traders with business improvement orders, after discovering that measures to prevent money laundering and processes of customer knowledge were inadequate.

In September, a federal judge in New York authorized the US securities law to prosecute cases of fraud involving cryptocurrency. The Securities Exchange Commission has also issued fines to two cryptocurrency companies.

The security of cryptocurrency transactions is also being questioned, after the South Korea-based cryptocurrency exchange, Coinrail, has been compromised and lost about 30 percent of the currencies traded on its exchange in June. In the same month, another Bithumb based in South Korea was also violated and lost $ 30 million of cryptocurrencies.

Some analysts predict that the downward trend of cryptocurrencies will continue.

Bloomberg intelligence analyst Mike McGlone said on Thursday (December 6) that Bitcoin prices will likely drop to around $ 1,500.

Professor of finance at the University of Santa Clara, Atulya Sarin wrote in a column for the MarketWatch financial news site that Bitcoin will be "worthless" when its price falls below the cost of extracting it, bringing miners to go out.

He argued that without mining, Bitcoin is "just a set of worthless encrypted numbers".

Mining is a peer-to-peer computer process, in which miners solve mathematical problems to verify transactions or payments, from one user to another on a decentralized network, to obtain Bitcoins.

In Singapore, some miners have effectively shut down their mining facilities in light of the collapse of cryptocurrency prices.

Mr. Ian Chan, 52, produced about $ 270 an average per month for each facility, after taking into account the costs of electricity, when he started digging a digital currency called ZCash in June of last year.

After some experiments, in June of this year he moved to the Bitcoin Gold mines when he realized that the latter produced higher returns.

Again, his returns began to turn negative in July, losing around $ 8 to $ 10 per rig each month. He decided to shut down his plants in Singapore and Malaysia in September, realizing that the downward trend would not end soon.

The IT specialist has left his facilities in Mongolia and Brunei while he is still able to make profits from S $ 10 to S $ 20 per rig each month due to lower electricity costs in these countries.

Chan did not want to reveal how many plants he has.

END OF A VIRTUAL CRAZE?

It is not just cryptocurrency investors who have been affected by falling prices. Also activities related to cryptocurrency are affected.

Singapore-based cryptocurrency exchanges, which are one of the main platforms used by investors to buy cryptocurrencies and trade them, have said that trading activity has shrunk.

Liu Yusho, co-founder of an exchange called CoinHako, said that the volume of trade has decreased five times during the "downtrend" of this year, although he said that the exchange "continues to record steady growth ".

Rune Evensen, co-founder of another stock exchange, Coss, said that compared to the peak at the end of last year, the average number of new subscribers per day has fallen by about 75% in the current market bearish.

"It's completely (like) day and night," said Evensen, adding that such a drastic drop is a "logical consequence" once the market gets worse.

When it comes to a bull market, everyone wanted to jump into Bitcoin. Now, they are not so eager to get in because they do not know where the market is going.

The decrease in the popularity of mining cryptocurrencies can also be seen in Sim Lim Square, with the "crazy purchases" of mining drilling rigs at the end of last year, at the beginning of last year, which had practically ended .

These "mining platforms" are composed of gaming computer components such as graphics processing boards (GPUs), motherboards and cables.

A shopkeeper on one of the top floors of the mall, who only wanted to be known as Glen, declared that the "market is dead".

Staff and retailers said the buying frenzy began to decline between March and April, when bitcoin prices fell below $ 10,000, and have since seen almost zero orders for mining facilities.

Mr. Kenny Tan, 60, part-time of Video-Pro, said the store earns $ 300,000 S $ 400,000 in November and December of last year from sales of these plants.

Now, some of his previous customers have dismantled the plants and offered to resell the parts to the store, which he does not accept, Tan added.

A staff of Dynacore, Mr. Ansari Abdul Pari, 34, said that he sold 5 to 10 sets a day.

Both Dynacore and Video-Pro, which previously were faced with the shortage of GPU cards, are now selling them with a 30 to 50% loss as demand has shrunk before they are able to empty their stocks.

For example, an Nvidia Geforce 1080 Ti GPU used for retail for over $ 1,000. But Video-Pro is only selling it for S $ 700.

Although another Bizgram store does not have the problem of unsold GPUs, it still has 40 to 50 metal frames waiting for buyers since January, said his 36-year-old manager, Niraj Agarwal.

He was not able to sell them even after lowering the price from S $ 120 to S $ 60, which is close to the cost price. The store also has some mining motherboards that have not been canceled.

Mining Rig Club, whose main business "depends heavily" on revenues from hosting mining production platforms for its customers, has had to change its business model in view of the growing popularity of cryptocurrency extraction .

Mr. Leon Lim, CEO of the company, said that approximately 70-80% of its customers closed their plants.

His team took three months to develop a new business strategy. Instead of extracting new cryptocurrencies across the rig, users can presumably receive digital coins as rewards by running "masternodes". These are computerized portfolios within a decentralized network that allows for the processing of transactions, similar to mining, except without the need for hardware.

Aside from mining rigs, the long and dynamic queues of the Bitcoin ATMs (ATMs) observed during last year's frenzy are no longer in sight, said Ms. Zann Kwan, founder of Bitcoin Exchange, who owns and operates four ATMs around Singapore.

Despite the decline in interest for Bitcoin, Ms. Kwan said it did not affect the company as it is still "growing". In fact, it calls the current market a "return to normality".

There have been reports on the machines that have crashed or are ending the Bitcoin during the peak period in December of last year and in January, as the transactions could take up to three days due to a congested Bitcoin network.

Customers who buy Bitcoins from ATMs now do so in small amounts between S $ 50 and S $ 200, compared to over $ 2000 a year.

The customer profile has also changed, said Ms Kwan.

"(Then), the buyers of cryptocurrencies were attracted to the market without knowing what it is, without knowing how to manage the cryptocurrency portfolio.Now, the baseline of the customers are people who are more versed in cryptocurrency," he added.

"And if you look at the price, it's a lesson for most people, people have started to know what they're buying, rather than (follow a) herd mentality."

It is also a lesson for the cryptocurrency industry, said Professor David Lee of the Singapore University of Social Sciences (SUSS).

"Falling prices are a very positive thing for the industry," he added, while stakeholders are now "re-focusing" on the technology behind cryptocurrencies, such as blockchain.

Bitcoin was the first application of blockchain technology: an open and distributed register able to record transactions between two parties efficiently and in a verifiable and permanent way.

The same ledger can also be programmed to activate transactions automatically.

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"We should not focus on price, it's always a cycle … People have to concentrate on how much this technology can do, and the answer is a lot," added Professor Lee.

The CEO of the XSQ cryptocurrency consulting firm, Lim Hong Zhuang, added: "The revenues of the blockchain companies have declined, and many investors or speculative companies that have been launched during the advertising campaign have also seen the closure of people leaving the sector.

"We are seeing real technology companies survive and build their products at the moment."

Anson Zeall, president of the Singapore cryptocurrency and Blockchain Industry Association, is on agreement.

"The new projects that come out are much more solid at this particular time than last November, when everyone is growing ICOs to grow," he said.

The first coin offers (ICO) are used by startups to raise funds for new cryptocurrency initiatives by issuing their digital tokens.

AN INCENTIVE FUTURE ATTENTION

Despite the cryptomance crash of this year, the investors interviewed – Chan, Tan, Vanessa and Varghees – have said that they are not yet leaving the market.

In fact, some of them pay even more money in cryptocurrencies as a way to lower the average cost of investment as prices continue to fall.

Vanessa, for example, said she did not lose confidence in cryptocurrencies even after losing 75% of her investment.

A part of these investors' optimism derives from their belief in blockchain technology and its growing adoption by traditional financial institutions.

Reports and studies have concluded that technology could eliminate back-office roles in financial services and banking activities, such as clearing and settlement of transactions, financing, as well as tax and regulatory relationships.

For example, DBS announced in November that it had set up a blockchain trading platform to provide cross-border assets.

Developed with Agrocorp International, the agri-food company, the platform is able to provide real-time updates on raw material prices and delivery information, helping all those in the supply chain to save costs and increase efficiency and transparency, the bank said.

Outside of Singapore, even the most relevant applications of blockchain-based platforms have started to emerge, in the areas of ticketing systems, pension plans and payments.

For example, the GET protocol based in the Netherlands has developed a blockchain ticketing system which aims to prevent identity fraud.

Once a consumer buys a ticket through this ticketing system, he can be connected to a verified owner via a QR code, which can not be viewed until shortly before the start of the event. The QR code will disappear even after the scan to prevent identity fraud.

Virtual coins also emerged, supported by regulators, such as Paxos.

Approved by the New York Department of Financial Services, the Paxos token is designed to function as a liquid cash alternative that can be used for instant settlement in global financial transactions.

Despite these developments in the cryptocurrency space, Zeall said that retail investors have yet to fully understand what the founders are doing behind the digital coins before taking the plunge.

"It's not just about believing in technology, knowing what the token is doing, knowing the technology, knowing what they're trying to solve, then considering it," he added.

So, while the symbolic economy of the blockchain, represented by its various cryptocurrencies, has been touted for enormous potential, the president of the Token Economy Association, Chia Hock Lai, warned that cryptocurrencies and their underlying blockchain technology are still in the nascent stage of development.

"The end-user usability has more room for improvement, as the failure rate of blockchain companies continues to be high," he added.

In addition to the high failure rate, Zeall also warned that there is a lot of misinformation in which people are not aware of being able to buy tokens issued by startups of cryptocurrencies that have closed.

"Especially those that ICO when Ethereum was US $ 600, and now it's US $ 89, certainly some companies will not be around, but the coin, the token is still around, it will not die. management is still there, there is a foundation that still manages their operations, "he added.

"There will be people trying to fool (retail investors) in moving the (prices) of (those) coins, but in reality there is no (commercial) activity … … If no one is managing the currency, from that sense, it is still useless because nobody supports it ".

Zeall said that the industry still has to "eradicate" these "bad actors".

While investors are hoping to see growth in the sector, as well as the recovery in cryptocurrency prices that are serving in the next three to five years, Evensen has warned that no one knows how many other cryptocurrencies will fall.

According to Chia, for those who are still interested in cryptocurrencies despite the uncertainties, a prudent approach would be to stick to the first five cryptocurrencies.

"Do not invest more than 5% of their total investment portfolio, but above all, never buy more than they can afford to lose," he added.

Mr. Zeall was much more absolute. "The point is … do not speculate."