By U AC
The slump in the stock markets around the world in 2022 has been painful. Global equities were down 18 per cent. Not just the shares, but even the more speculative assets of cryptocurrencies. The market value of all cryptocurrencies surged to nearly three trillion in 2021 and has fallen to ~$800 billion by the year-end of 2022. Safer assets such as bonds are not spared either. Global bonds have all dropped by 15 per cent in 2022.
So, what exactly is crypto or cryptocurrency?
A good way to understand would be to think of it as any other currency just like the $, Euro or Baht. There are two differences between them and crypto: being digital (not physical notes and coins like the former) and being decentralized i.e., not subject to any central bank or jurisdiction of a particular country.
Cryptos become popular after the number of people accepting them increased as the popularity of any currency depends on a large number of people accepting it as a medium of exchange. This came after accessibility to purchase the crypto increased throughout the world. In Singapore, e.g., there are ATM machines selling crypto across the island. Hence, the overall popularity leads to widespread usage. Just analogous to a physical currency, if you compared the Japanese Yen with Myanmar Kyat, the former is more accessible across the world, more popular, better accepted as a medium of exchange and thus more widespread usage.
Here come the distinct advantages of crypto, which lie in the anonymity and lack of any government centralized control. What is the implication here? Some of the payments for, say, illegal services, are best done without your true namesake. Criminal activities are best paid for using a currency that the government cannot seize. Or, an account that law enforcement cannot freeze. Cryptos are products made heavily for the criminal underworld. Thus, they will only get more traction for years to come.
FTX and Crypto Fraud
The crypto market nearly collapsed when one of the major crypto exchanges, FTX went bankrupt amidst the fraudulent use of customers’ deposits, paid in for buying various cryptocurrencies. Think of crypto exchange as any other stock exchange, e.g., YSX, or SET.
Instead of trading stocks and bonds, the crypto exchange trade in various cryptocurrencies, from the popular Bitcoin, and Ethereum to some coins that no one even heard of.
Traders/customers pay money to the exchange to buy the coins and the coins went into their digital wallets. Operating an unsupervised exchange, the bosses of FTX illegally diverted massive sums of customer money from FTX to make lavish real estate purchases for themselves as well as fund their personal billionaire lifestyles.
How do you buy crypto?
First and foremost, you have to note that trading (buying and selling) of cryptos is illegal in Myanmar (CBM notification). If one insists on buying and holding, he or she would definitely be doing something against the law of this land.
Almost all crypto buyers in Myanmar however, bought their currencies through exchanges advertised through Facebook, e.g., Binance or Coinbase Exchange. The buyer first has to go through the KYC (Know Your Customer procedures) with the exchange first. This involves a picture ID in English such as a passport or driving license. Once it is done, the money transfer can be made to the exchange via agents using mobile banking such as K Pay. Then the buyer can be initiated.
Shall I invest in Crypto?
Buying and holding cryptocurrencies is akin to buying and holding any other currencies or things that have some exchange value ($, gold, etc.). The value of these will go up or down over the course of time. All these media of exchanges are not investments. Gold may be an inflation-proof asset, yet, it is not an investment that provides any return. Properties may give you rental income. Stocks will give you dividends. Bonds provide interest. Yet after buying and holding onto crypto, you are simply hoping for the price to go up. There would be times like 2022 when crypto values fall over 70 per cent. Do you really have a risk appetite to wait for someone more foolish than yourself to buy the item you bought at a significantly higher price?
There is a further downside to this. The fact that it is digital and all being done online, it is subject to cyber theft, fraud and security risks. We have all heard of credit details being stolen digitally or bank accounts being hijacked by cybercriminals. Once this happened, cryptos being without jurisdiction, there is nothing much one could do. No government or authority can take action against the collapse of the blockchain (the decentralized system in which transaction records are maintained across computers via a peer-to-peer network) or the coin issuer.
The second downside is the collapse of the exchanges such as FTX. In the physical world, e.g., you can be pretty sure YSX (Yangon Stock Exchange) will not collapse nor will it defraud your investments. The same cannot be said of extra-jurisdictional crypto exchanges. Imagine the collapse of Binance. What would happen to the coins that you bought via that exchange? FTX customers might not even receive 10c for every 1$ that they invested.
Among many investment opportunities out there, buying cryptos carries significantly higher risks than the rest of the crowd. The potential returns or crypto price increases may not be able to justify a higher standard deviation from the mean.
