One of the topics we tackled on Day 2 of FSMOne’s “What and Where to Invest 2022” which was held on Saturday 15 January 2022, is: “Eternal investment strategies that will work for investors and why Cryptocurrencies ain’t one of them”.
I had the pleasure of having Katherine (from our FSMOne’s Investment Advisory team) and Yang Zhi (Team Director at iFAST Global Markets) in my panel. Before getting them to answer a few questions on cryptos and share their tips and eternal strategies for investors, I presented a few points on why cryptos are not an eternal investment strategy.
Following our panel discussion, the top voted question from the audience was related to cryptos:
Question: If Crypto is that bad as you mentioned, what are your views about Singapore having grand ambitions to become a global crypto hub despite other countries banning it?
And this was our reply: The authorities have actually been cautioning retail investors pertaining to cryptocurrency. They may be looking into how to grow the digital currency, e.g., via development of central bank digital currency and issuing licenses to some entities to allow crypto trading, but that's limited to more institutional clients.
In fact, there have been warnings including this new report published in The Edge on Monday 17 January 2022, where it was reported that MAS stops crypto service providers from marketing to general public: “MAS’ assistant managing director of the policy, payments and financial crime group Loo Siew Yee said that MAS strongly encourages the development of blockchain technology and innovative application of crypto tokens in value-adding use cases. However, the trading of cryptocurrencies is highly risky and not suitable for the general public.”
As mentioned in our reply to this top-voted question on Day 2 of What and Where to Invest 2022, it is important to note that the MAS and even members of the government had been warning retail investors regarding cryptos for quite a while.
Back in April 2021, Senior Minister and Coordinating Minister for Social Policies Mr Tharman Shanmugaratnam said in his parliamentary reply to a question related to cryptos: “Cryptocurrencies can be highly volatile, as their value is typically not related to any economic fundamentals. They are hence highly risky as investment products, and certainly not suitable for retail investors. MAS has issued numerous consumer advisories to warn the public of the risks of trading these products.”
So the warnings on crypto trading are not new, but the impression that some investors may have on crypto trading can be understandable, given the prominence of advertisements from crypto companies on the ease of getting started, as well as some news headlines on the Binance saga and crypto licenses being given out to companies to operate digital payment token (DPT) services.
It is also important for investors to differentiate the ever-growing hype over cryptos and blockchain technologies. Technologies that can help promote blockchain technology growth can prove to be beneficial, including reduced costs, faster transactions, greater security and transparency, in terms of transactions across different industries.
During my panel discussion, I noted that there have been increased discussion among gatherings of friends on how easy and pervasive cryptocurrency trading has become. This was a concern to me, because not many may be aware of the risks of investing in cryptos. There was even a story shared about someone who is very cautious about her money – which had been invested for a few years in money market funds which tend to be one of the safer bond options – wanting to switch out entirely into cryptos. If she had proceeded with the switch just because her friends are encouraging her to do so, it would have led to her having to deal with totally different risks and would very likely lead to numerous sleepless nights.
The kind of volatility, lack of fundamentals and intrinsic value to measure a cryptocurrency, and fear-of-missing-out (FOMO) stories and headlines for not trading in cryptos, are truly red flags or as we spoke about on Day 1 of What and Where to Invest 2022, “red lights” as opposed to “green lights” as referenced in Squid Game, Netflix’s Korean blockbuster drama. On Day 1 of FSMOne’s What and Where to Invest 2022 held on Saturday 8 January 2022, I also brought up the dangers of cryptos with my guests Katherine and Rusmin from The Fifth Person. You can watch the video here on iFAST TV: Investment lessons we can learn from movies & TV shows
Two polls we did at What and Where to Invest 2022 also raised warning signals.
On Day 1 of our event on 8 January 2022, 48% of investors polled said never ever had they invested in cryptos, suggesting that there could be a fairly high number of investors who have dabbled in crypto trading. Day 2 of our event on 15 January 2022 reinforced this point, because 35% of investors polled said they believe cryptos, NFTs and other new forms of financial products, as the “future of investing”. Cryptos or NFTs (Non-fungible tokens) should not be seen as “investing”; in fact, these should be seen for retail investors as purely speculative bets, very akin to the gambles we make at the casinos.
Recent stories about how Eminem spent US$450,000 in Ethereum cryptocurrency (one of the largest cryptos by market cap behind Bitcoin), to buy “Bored Ape No. 0955” or “EminApe”, is a classic example of hype backed by no fundamentals, as Senior Lecturer John Hawkish at the Canberra School of Politics, Economics and NATSEM, University of Canberra, wrote recently in “Commentary: NFTs are one big inflated balloon”.
To conclude, here are a few points that I shared in the panel discussion as to why cryptos are not a good investment option:
1. They do not have any fundamentals and intrinsic value: Unlike a stock or bond we invest into, we can measure their intrinsic value and try to conclude if it is trading at an attractive level based on measures such as the stock’s cashflows, potential earnings in the next 1-2 years or dividend policy (if we are looking for income). As for bonds, we can look into the price, the credit outlook, the yield-to-maturity or yield-to-worst.
2. They are very momentum-driven and highly leveraged. This means that reversal in trends or momentum could lead to outsized declines in the cryptos.
3. They have benefited from the US Fed’s easy monetary policy, something which will come to an end soon in 2022, as inflation risks persist in the US. Higher interest rates are expected soon to combat inflationary dangers.
4. There is concrete tangible progress made in the cross-border digital currency world among a few central banks including the likes of France, Switzerland, Sweden and China. It is likely that these developments will continue within regulated frameworks and this is how the future of digital currency cross-border flows will look like, not in the form of the cryptos.
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