Regulators in Asia are warning investors over bitcoin. Queen Capital's crypto guru Bryan Cutter tells finews.asia why investors should be prudent about cryptocurrencies, but not afraid.
Bryan Cutter, do you think the price of bitcoin will collapse?
No, I don't expect there to be a price collapse or even a significant increase in pressure on the sell side. Cryptocurrencies remain poorly understood because they are still so new to most investors. We hear similar thoughts about integrating them into the real world. A parallel I like to draw is that a move from national governments to ban cryptocurrencies would result in them being, quite literally, obliterated. However, most cryptocurrencies are decentralized, so they are resistant to censorship.
Full steam ahead then?
That's not to say that the price for bitcoin won't go down. Bitcoin has had an unprecedented run-up of more than 100 percent, just in the past month. From a technical analysis, it is unsustainable and will eventually correct. However, it will not be because of a massive onslaught of short-sellers.
What do you think about bankers like Jamie Dimon calling cryptocurrencies a fraud?
I was very amused when I heard what Jamie Dimon had to say about cryptocurrencies. I feel that due to a lack of knowledge in this new industry, many people provide emotionally charged, sweeping statements often not based in logic. Put simply, I do not agree with what Jamie Dimon has said.
How do you see traditional finance coping?
I find that eminent people in high finance appear radically divided on cryptocurrencies. Blackrock's CEO, Laurence Fink claims that Bitcoin is doing so well because it is anonymous. He is assuming that the entirety of demand for bitcoin as a means of value transmission is derived from either the paranoid delusional or criminals. DBS' David Gledhill said bitcoin was a Ponzi scheme and that bitcoin transactions are costly with fees hidden through crypto-mechanisms. An interesting choice of words.
Bitcoin has some prominent backers in finance too.
Yes, we can see eminent figures on the other end of the spectrum as well. IMF managing director Christine Lagarde feels that we are about to see massive disruptions and that the IMF could incorporate technology similar to cryptocurrencies. The CEOs of Morgan Stanley and Goldman Sachs are also on record for being open about the possibility of cryptocurrency exposure to investment banks.
Are traditional bankers badly misinformed?
It is safe to say that some of those in prominent positions in finance have little to no clue what cryptocurrencies actually purport to do. These critics are not sufficiently informed with regards to cryptocurrency – through no fault of their own. The other reason for the low level of knowledge in the traditional sphere is the fragmented structure of how information flows. Cryptocurrency is a nascent asset class and as such, quantifiable frameworks specific to measure, evaluate and explain performance or price movement do not yet exist.
How is the market pricing bitcoin then?
The market relies on a mishmash of trading on news, speculation and technical analysis. Financial publications like «Forbes» and «The Wall Street Journal» write articles that attract clicks – and controversy – though headlines. Navigating the crypto landscape is like Columbus setting foot on virgin soil: unchartered territory, difficult to transverse, full of unknown dangers and confusing obstacles. However, the potential opportunities are as lucrative as the journey is perilous.
How can that journey be made less perilous?
Cryptocurrencies require a proper regulatory framework. Their borderless nature is a double-edged sword: it enables criminality just as well as it gives unbanked populations access to cheap and efficient financial services. I would suggest that regulators develop and utilize the cryptographic tools necessary to trace illicit transactions, discouraging the negative applications of cryptocurrencies. To my knowledge, the Federal Bureau of Investigation has been developing such tools for the last two years.
So regulators need to step up?
My advice to regulators is simple: don't be cowed by technological development. A rash response such as an outright blanket ban on cryptocurrencies would send the wrong message to the most innovative members of society. Instead, a balanced approach would embrace the opportunities and economic growth which accompanies technological advances, while limiting any potential threats and downsides.
Will Asian liquidity keep driving prices of digital currencies?
Undoubtedly! We see an approximate 10-15 percent premium on cryptocurrencies in countries such as Japan and Korea. In Japan, established cryptocurrencies are recognised officially as legal currencies and they have also endorsed 11 different cryptocurrency exchanges. Japan has more than 200,000 vendors which accept cryptocurrency as payment, and Korea has stores on the ground which buy and sell cryptocurrencies. In such an environment, the citizenry have embraced cryptocurrencies.
Isn't the speculative aspect a worry?
There is a healthy amount of speculation, but this is endemic to the culture in these countries. They do exactly the same to their penny stock markets. It is probable that speculative demand from other outlets have flowed to the cryptocurrency markets.
«Two or three countries show how nascent crypto markets are»
The outsized impact of these two to three nations on cryptocurrencies is a sign of just how nascent these markets are. If other nations like the U.S. and Australia follow suit, the market size would grow tremendously and dilute the impact that East Asian demand has. This would create more robust markets.
Do you think cryptocurrencies will ever become spendable like cash?
That depends on how much of a population actually possess cryptocurrency and what percentage intend to spend it, as opposed to using it for an investment. I don't think cryptocurrencies should be thought of as cash. Cryptocurrencies are stores of value, derived from their utility and based on pure price discovery.
What would you recommend investors do if they want to build a cryptocurrency portfolio?
I would definitely recommend a diversified portfolio of cryptocurrencies. Investors should essentially build a diversified portfolio of cryptocurrencies and create different categories that each cryptocurrency would occupy. Consider the actual use case of each cryptocurrency as well as the relative maturity of each. Is it a product that has been around for a few years and has its own eco-system, thereby enjoying strong network effects? Or is it closer to a prototype that has yet to be launched, yet yields the promise of wide ranging disruption?
«Investing in crypto is like buying risky tech stocks»
A cryptocurrency investment is akin to one in technology. Just like Netscape and Yahoo, firms can always be superseded by better technology if they are not adaptable. More importantly, I would encourage investors to educate themselves regarding the merits and limitations of the cryptocurrencies that they're considering buying. It might not be easy, but it would be a very educational journey that could yield tremendous rewards along the way.
Bryan Cutter is the chief investment officer for cryptocurrency investments at Queen Capital, a private investment holding in Singapore which invests in private equity investments in blockchain startups, fintech, medtech and logistics solutions, as well as a trading division specializing in cryptocurrencies.
