Despite the downside, cryptocurrencies remain appealing for both their potential to generate outsized returns and, more uniquely, their unprecedented portability of wealth, according to DBS.

«Imagine if you face a situation where there was civil unrest and you needed to leave a country quickly and have your wealth with you,» said DBS investment strategist Darryl Ho during a virtual briefing yesterday. 

According to Ho, all the world’s bitcoin private keys to $600 billion of market value could be stored in a nano ledger that is the size of a single AA battery. In contrast, the highest grade diamonds of the same weight would only be worth around $2 million.

«If you try to do it with cash, you will have it confiscated at the border. You try to run with bags of gold and you’ll probably be too tired out before you even reach the airport,» Ho illustrated. «For bitcoin, all you need to do is memorize your private keys or password and you can literally head anywhere to begin life afresh with just the clothes on your back.» 

Scarcity 

Another uniquely functional characteristic behind cryptocurrencies like bitcoin is that a limited supply – 21 million in this case – is hard-coded within. This makes it an especially timely financial tool due to the historically unmatched rate of monetary easing that the world has undergone with the top four central banks alone tripling their balance sheets to nearly $30 trillion since the birth of bitcoin. 

«[M]arkets are kind of losing faith that central banks will ever be able to wind down the size of their balance sheets,» Ho said.

«So if these central banks will need to keep printing money to support the financial system then maybe a neutral digital asset that lies outside the system of fiat currencies isn’t such a bad bet after all.»

Boom-and-Bust as a Norm

And for those concerned about recent volatility, Ho notes that bitcoin has gone through a boom-and-bust cycle once every four years, halving the rewards thereafter.

«Every time a halving cycle begins, it sparks some kind of boom in the price of bitcoin – something like a supply shock in commodities,» Ho said, referencing the cryptocurrency’s historical performance. 

«This isn’t the first time we've had a huge run-up in prices and it’s probably not the last time as well.» 

Bitcoin Risks

Despite the optimism, Ho highlighted three key risks behind bitcoin: scalability issues due to slow transactional speeds, the mental stress of constant volatility and, most notably, government resistance. 

«Governments are unlikely to just sit by and watch their monopolies of currency get undermined by crypto,» he said, noting the potential for capital gains taxes on profits when converting to fiat money for daily use. 

Crypto Allocation

For those interested and can afford to deploy with expectations of potentially significant losses, Ho suggests diversifying across cryptocurrencies with fundamental value and applicable protocols in society. 

And for those that doubt the crypto outlook, Ho cites the dot-com bubble of the late 19990s as a noteworthy event for comparison to observe a meeting between new technologies and excited investors. 

«For every Pets.com that failed, there was also the Amazon that succeeded and disrupted all industries as we know today. What this tells you is that there is a gap between a technological idea and the investor’s ability to capture the value of that idea,» he said. «As with all investments, you will lose 100 percent of the shots that you don’t [take].»