The slump in the stock markets around the world in 2022 has been painful. Global equities were down 18%. Not just the shares, even in the more speculative assets of cryptocurrencies. The market value of all cryptocurrencies surged to nearly three trillion in 2021, has fallen to ~$800 billion by year end 2022. Safer assets such as bonds are not spared either. Global bonds have all dropped by 15% in 2022.
So what exactly is a 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 a crypto: being digital (not physical notes and coins like the former) and being decentralised 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 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 comes the distinct advantages of the crypto, which lies in the anonymity and lack of any government centralised control. What is the implication here? Some of the payment for, say, illegal services, are best done without using your true namesake. Criminal activities are best paid for using a currency that the government cannot seized. Or, an account that law enforcement cannot freeze. Cryptos are the products made in heaven for the criminal underworld. Thus they will only get more traction for years to come.
FTX and Crypto Fraud
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 crypto currencies. Think of crypto exchange as any other stock exchange, e.g., YSX, or SET. Instead of trading stocks and bonds, the crypto exchanges trade in various crypto currencies, from the popular Bitcoin, 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 have to go through the KYC (Know Your Customer procedures) with the exchange first. This involves picture ID in English such as 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 buying can be initiated.
Shall I invest in Crypto?
Buying and holding crypto currencies is akin to buying and holding any other currencies or things that has some exchange value ($, gold, etc). The value of these will go up or down over the course of time. All these medium 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 a crypto, you are simply hoping for the price to go up. There would be times like 2022, where crypto values fall over 70%. Do you really have a risk appetite to wait for someone else 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 the cyber theft, fraud and security risks. We have all heard of credit details being stolen digitally or the bank accounts being hijacked by cybercriminals. Once this happened, cryptos being without a jurisdiction, there is nothing much one could do. No government or authority can take actions against the collapse of the blockchain (the decentralised 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 exchange such as FTX. In physical world, e.g., you can be pretty sure YSX will not collapse nor will it defraud your investments. The same cannot be said of extrajurisdictional crypto exchanges. Imagine the collapse of the Binance. What would happened to the coins
that you bought via that exchange. FTX customers might not even receive 10c for every 1$ that they invested through the exchange.
Among many investment opportunities out there, buying cryptos carry a significantly higher risks than the rest of the crowd. The potential returns or crypto price increase may not be able to justify a higher standard deviation from the mean.
