BIG TECH TO BIG BANKS

Following the height of ‘crypto-mania’, the crypto industry’s agenda is now being driven by enterprise players and regulators.

2017 was a year of recognition for the blockchain industry, suddenly thrust into the public eye amid growing awareness of cryptocurrencies. Many investors will recall the excitement and scepticism that surrounded the nascent asset class, whose volatility proved a boon for those seeking quick returns. Bitcoin is a significant example, as its value soared to almost US$20,000 by end-2017. Its underlying technology, however, fit the mould of the next big innovation that would disrupt one industry after another.

Two years on, the resulting landscape has been marked by an air of correction. Plummeting prices accounted for the gradual disappearance of fraudulent projects in the space, as well as uneducated investment decisions. No longer misguided by an idealistic ‘blockchain for the sake of blockchain’ mantra, the industry is showing signs of maturity that will benefit both institutional and individual investors.

From Idea To Launch

A common criticism of blockchain projects is that 90% fail to make it past the proof-of-concept phase. Facebook’s announcement of the Libra Association and its accompanying Calibra wallet marked one of the most notable mainstream entrances into digital currency. Bolstered by Facebook’s hefty user base of 2.4 billion across the globe in addition to Instagram and WhatsApp, Libra’s vision of financial inclusion aims to address challenges faced by the US$1.54 billion digital remittance industry. Apart from potentially benefitting millions of foreign workers and immigrants around the world, the launch of Libra has defied scepticism and sparked a resurgence of interest in cryptocurrencies.

Aside from renewed conversations on cryptocurrency regulations, perhaps Libra’s most valuable contribution to the space to date is confidence. A globally recognised brand championing the viability of blockchain and digital currencies to solve socio-economic issues is a huge step forward for the industry. Libra will also serve as a gateway for everyday individuals – be it long-term token holders or retail investors – to participate in the space with greater assurances of longevity and potential.

When it comes to trading, Libra is likely to precipitate a rise in investments in legacy cryptocurrencies such as Bitcoin and Ether. The same is expected for altcoins heavily geared toward exploring similar use cases like cross-border payments, remittance, or micropayments.

In turn, new investors should apply a measured approach to assessing investment opportunities, much like they would for traditional investments. Based on individual risk profiles, investors should assess market, technology, operational and executive risks. The reality remains that token values are more determined by market sentiments than project performance; however, seasoned investors will understand the importance of adequate due diligence.

A Better Balance Sheet

Beyond enterprises, the past two years have also seen an influx of regulatory developments and legislative action aimed at providing clarity to projects and investors navigating this rapidly evolving industry. One significant example is Thailand’s Initial Coin Offering (ICO) portal that seeks to access projects and perform necessary due diligence. Another is Singapore’s revision of its Payment Services Act which addressed the need for greater know-your-customer (KYC) and anti-money laundering frameworks across fintech and cryptocurrency projects.

Amidst ongoing efforts of mass digitalisation, institutional-grade attempts at assessing the viability of decentralised technologies in central bank digital currencies (CBDCs) have come to prominence across the globe. With 70% of central banks around the world expressing interest in CBDCs, according to a report published by BIS, a growing emphasis towards cultivating a cashless society has fast emerged as a matter of economic policy across several markets.

Despite an existing ban on cryptocurrencies, ICOs, and Security Token Offerings (STOs), China has been leading the charge with a national CBDC project in the works for the last five years. With heightened development efforts spurred by the launch of Libra and the supposed threat it poses to traditional financial systems, the People’s Bank of China announced in early August that its CBDC would launch soon.

Serving as a replacement for all cash in circulation, consumers and businesses will be able to transact with the digital yuan and have their transactions permanently recorded on a blockchain, leading to greater circulation both domestically and internationally. Benefitting from greater auditability, transparency, and cost-efficiencies in cross-border transactions, the economic implications also extend to geopolitical ones amid ongoing accusations of currency manipulation by the US government. Though contingent on their actual utility, CBDC projects stand to further reinforce the credibility of their technology.

The Ripple Effect

No longer capitalising on the energies of the hype cycle, investments in the blockchain space will continue to be driven by moderation and selectivity. Though aided by greater institutional capital and new participants in the market, the lucrative promise of great returns should not outweigh potential risks. Although blockchain’s utility has been proven in successful use cases by corporations across different sectors such as IBM, Walmart and LVMH, there is still much ground to cover. With Libra as a case study for enterprise implementation, it is likely that investors will wait with bated breath to evaluate its success as a benchmark for other projects.

The last two years have highlighted that investors who have excelled in this space are those with a sound investment strategy. This means going beyond the unique mechanics of the space and grounding decisions in traditional investment principles. Blessed with a honeypot of opportunity, the need of the hour is for investors to examine the convergence of emerging technology and market dynamics, as legacy industries and innovation continue to coalesce.

About The Writer

Nithinan Boonyawattanapisut is the CEO and co-founder of HotNow. A serial entrepreneur with a successful career in the video games industry, Nithinan is also the co-founder of Axion Games, one of the leading AAA independent video game studios in China. Nithinan oversaw record-breaking games such as Gears of War, one of the most successful Xbox games, Infinity Blade, the fastest-selling iOS app in history at launch, and Rising Fire, selected as Tencent’s headline shooting game for 2018. Nithinan is also a venture capital investor who has developed algorithmic trading strategies that generate significant annual returns.

This article was first printed in MillionaireAsia Issue 53 - September 2019


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