Cryptocurrencies have been gaining favour among investors as we saw Bitcoin prices breaching 12,000 recently. But are prices set for a dramatic pullback similar to what we saw a few years back?

On Market View, Prime Time’s JP Ong speaks with the Co-Founder of CryptoTrader, Chris Long, about the differences this time around for digital currencies and what first-time investors should look out for when choosing their first cryptocurrency investment.

JP Ong: Cryptocurrency, or Bitcoin in particular, breached 12,000 and investors are saying that this is a rally that could extend. But in 2018, we saw it hit record highs and then plunge dramatically back down. What do you think is different this time with regards to Bitcoin and the cryptocurrency market’s recent pick up in comparison to previous cycles?

Chris Long: One of the differences from two years ago is that governments have more clarity on how they want to regulate cryptocurrency [now]. For example in the US, they are clamping down Initial Coin Offerings (ICOs). The Singapore government has also introduced the Payment Service (PS) act.

Another difference is that a lot more cryptocurrency trading is happening directly on the block chain itself now in comparison to centralised cryptocurrency exchanges.

JP: Do you think that the regulations enacted by the governments are accurate and reflect an understanding of the cryptocurrency markets and the challenges they have to address?

CL: I think Singapore has done pretty well. It has been clear on some activities in terms of the initial coin offerings and that has brought down the level of irresponsible fundraising when it comes to companies trying to create a cryptocurrency just for funding. That being said, we still see funds being raised for certain projects even though some of them are created by anonymous developers. A lot of this money flows into projects based on trust, such as with a post on Twitter. Investors will deposit money and start to mine or get an allocation of these tokens. So, the regulations helped but it did not eliminate the activity.

JP: Do you think that this is an area where regulation can actually improve if they are more transparent because it seems that there was a point where every week either a company or an (anonymous) individual was coming up with a coin a couple years ago?

CL: Due to the presence of regulations, people think twice before trying to come up with a coin. A lot of companies have been stopped and fined by the US government. [Regulations] make such companies a lot more careful when deciding on raising funds this way. However, I think even with these regulations, there is still a level of innovation and flexibility for developers to come up with protocols and raise money for it.

JP: The choice of cryptocurrencies to invest in has grown dramatically by leaps and bounds. What are the 3 main things you would look at when evaluating a cryptocurrency to invest in?

CL:
(1) Liquidity of the token
How easy can you sell or trade this token if you were to invest in it? Are these tokens trading at various different exchanges already? Do they have sufficient debts in their order book so that you can sell it off when you want to?

For beginners, you can [check] if the coins are listed in bigger exchanges. Coins listed would have gone through a certain level of due diligence.

(2) The team behind the token
How has the team developed? Has the team delivered their promises on the project? Do they have any kind of bad reputation or history?

(3) Which category does the token belong to and what is the function of it
What is the token used for and why would investors buy it?

JP: What kind of upside do you see from Bitcoin and is there a fear that we might see shades of 2017 or 2018 where it hit a high and plummet back down?

CL: I don't think that it will plummet again this year. In terms of recognition and adoption, Bitcoin is a lot more recognised now compared to 2018. There are more funds coming in as well. Recently, a Nasdaq-listed company made a 215 million dollar Bitcoin investment because they want to maintain the value of their treasury in the midst of the central bank's printing of the US dollar. So, I believe that in the next few years, we will begin to see more treasury and fund managers consider allocating some of their funds to Bitcoin and other cryptocurrencies. As more cryptocurrency assets gain traction and have increased liquidity, some of these funds will begin to allocate into smaller cryptocurrency assets.

Can there ever be a fine balance between having too much or too little regulations for cryptocurrencies? Listen to the full podcast to find out.

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For more, tune in to Prime Time with Howie Lim, Rachel Kelly & Finance Presenter JP Ong on weekdays from 4PM to 7PM.
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This interview was broadcasted on MONEY FM 89.3 on 18 August 2020.

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