Then came the litmus
test. As if to underscore the volatility of this new-age investment, Bit- coin
prices plunged nearly 20% in less than 90 minutes after a massive spike in
exchange traffic led to outages.
over the past few days have served as fodder for those who believe that the
cryptocurrency is trading at speculative and unsustainable levels.
The big question mark is what is driving
Bitcoin’s and other cryptocurrencies’ price surge, according to MTC Asset
Management (M) Sdn Bhd co-founder & executive director Donovan Ng.
Originally, there was significant demand from
all over the world from non-traditional investors, many of whom have lost
confidence in the established financial systems governed by central banks.
Ng says that these investors see the
unregulated cryptocurrency world as their saviour. On the supply side, Ng
points to the fact that the availability of cryptocurrencies is limited. For
example, there can only be 21 million Bitcoins at any time.
“Any small movements out of one asset class
such as equities, bonds, and currencies into cryptocurrencies will generally
drive a big surge,” he tells Focus M. “In
view of the small supply, a sudden surge in demand is naturally going to force
the price up.
However, there are concerns that Bitcoin and
several other rival cryptocurrencies are attracting more speculators instead of
investors who truly believe it should be adopted and utilised as a legitimate
While there are signs of growing usage of the
crypto- currency, iFAST Capital Sdn Bhd Tan Wei Yine is of the view that
speculative activities are playing a big part behind Bitcoin’s current rise.
Similar sentiments are echoed by Kent Lee who
is the co-founder of Specter Indus- tries, a provider of hosting services for
mining machines. He, too, believes that the current cryptocurrency price trend
is “mainly due to the speculative behaviour of investors and traders and not
purely due to adoption and usage”.
Lee also attributes the Bitcoin surge to the
hype surrounding Chicago Mercantile Exchanges introduction of futures trading
for Bitcoin. According to him, this has led to many cases of betting and
trading of Bitcoin rather than its actual use as an alternative currency.
Lee’s fellow co-founder Timothy Tan adds that
while demand is growing, the adoption of cryptocurrencies remains at a nascent
stage. He believes their true value can only be established once mass adoption
Tan foresees this happening only once more
than 50% of the world’s population are able to comprehend as well as willing to
adopt cryptocurrencies as legal tender.
However, such a level of adoption is seen as
being far away given not all cryptocurrencies are seeing similar levels of
“In general, cryptocurrencies’ growth are
heavily dependent on two factors. One being the speculative nature of a
cryptocurrency and second being the utilisation and current development of the
cryptocurrency,” explains Lee.
While the overall sentiment is bullish due to
Bitcoin, there are other cryptocurrencies which have been falling because of
weak utilisation and poor development. On the other hand, others are rising
because of good utilisation and development.
While most believe that the price surge is being
driven by speculators rather than actual adoption and usage, there are
differing views on whether or not Bitcoin has developed a bubble that is close
to popping. From a valuation point of view, iFast’s Tan argues that it is hard
to determine Bitcoin’s true worth.
“Current buying interests are being fueled by
speculation and hope that Bitcoin’s usage will eventually be adopted widely,”
“Should there be any material threat that
could shut off the possibilities of adapting further usage of Bitcoins, a sharp
fall is likely on the cards.”
MTC’s Ng adopts a similar stance which he
says is driven by his more conventional view on currencies.
“If people truly believe in Bitcoin as a
currency, then currencies would not fluctuate and would not be as volatile as
Bitcoin; it is as simple as that,” he asserts.
“Moreover, currencies have to be tied to an
economy; in Bitcoin’s case, it is being tied to pure demand from a lot of
In this regard, Ng believes that the
tell-tale signs of the bubble popping is already there. “It just takes an
instant for Bitcoin to fall [sharply] before coming back up again. I don’t know
if it is something that is naturally sustainable,” he says. “If something is
going up several thousand percent, it is not going to go up [at similar levels]
the following year. It is close to
impossible and if it does, it is almost certainly already in a bubble state and
the next question is when will it pop,” expands Ng further.
However, Specter’s Tan takes a contrasting
view by arguing that those who see a bubble do not understand the underlying
blockchain technology behind cryptocurrencies.
“As cryptocurrency is at a very early stage,
I believe the bubble will only surface when there is mass adoption and the market
adjusts prices naturally,” he reckons.
He does not see this happening before
cryptocurrencies hit 50% worldwide adoption and are accepted as a legal tender.
All agree, however, that investing in Bitcoin
is not for the uninitiated, especially at current prices.
MTC’s Ng says at current valuations,
investing is an “absolute no” because it is too expensive.
“Secondly, not many understand
cryptocurrencies and I am a strong believer of investing only in things you are
confident about – otherwise it is like taking a bet,” he stresses. Specter’s
Lee agrees given much of the current market behaviour is driven by the “fear of
missing out”. “Anyone interested in cryptocurrencies should understand
blockchain technology first” is his reminder.
Broadly lower in Asia
Major Asian markets – except for Japan – ended broadly
lower on Nov 30 on the back of drastic overnight technology stocks sell-off on
Wall Street. This was despite the
Dow Jones Industrial Average scaling a new high of 23,940.68 (up 103.97
Japan’s Nikkei 225
edged up 0.57% or 127.76 points to 22,724.96 in stark contrast to Hong Kong’s
Hang Seng index and South Korea’s Kospi index which plummeted to 29,177.35
(down 446.48 points) and 2,476.37 (down 36.53 points) respectively.
Shanghai Composite erased 0.62% or 20.67 points to 3,317.19 while Australia’s
S&P/ASX 200 retreated 0.69% or 41.22 points to 5,969.89.
Brent crude rebounded
to hover around US$63.50 (RM260.35) per barrel during Asian time trading after
falling 50 cents overnight to settle at US$63.11.
The ringgit slipped
0.23% against the greenback to 4.0910 from the previous day’s close of 4.0817
while the FBM KLCI shed 2.52 points to 1,717.86 amid the lack of fresh leads.
Market breadth was
negative with losers thumping gainers by 500 to 367. Trading volume rose to
2.47 billion shares worth RM6.03 bil from Nov 29’s 1.96 billion shares worth