Bitkub takeover adds impetus to Thai digital asset market
The recent multibillion-baht acquisition of digital exchange Bitkub has stunned Thailand’s finance sector, especially the digital asset market.
On November 2, Siam Commercial Bank announced its acquisition of a 51 percent stake in Bitkub Online Company from Bitkub Capital Group Holding Co for Bt17.85 billion. The deal makes SCB Securities Co (SCBS) the majority shareholder of Bitkub.
The takeover follows a major rebranding and restructuring exercise undertaken by SCB Group, one of Thailand’s older banks and a leader in local financial services.
In September this year, the group established SCBX as a mothership company to accelerate its expansion into the financial business. The sector has been seriously disrupted by financial technology in recent years, forcing businesses to revisit their operational models.
The takeover comes just days after Prime Minister Prayut Chan-o-cha had expressed his concerns over the large number of new generation investors trading digital assets. According to data from the Securities and Exchange Commission (SEC), some 3 percent of the total 1.49 million digital asset holders are investors less than 20 years old, while about 47 percent are aged under 30. Average daily trade amounts to Bt6.6 billion.
Boost for digital asset trading
Sipmex, a rival of Bitkub, has also benefited from the takeover deal as it has imparted momentum to the market.
Proud Limpongpan, chief strategy officer at Zipmex, said the deal was good for the digital asset exchange business. “After the deal, we are seeing more people coming to register with our exchange,” she said, adding she could not confirm if Bitkub has over a 90 percent market share. “There are many people who trade with us, too,” she said.
This year has been the best so far for Zipmex as well, she added.
Bitkub Capital Group CEO and founder Jirayut Srupsrisopa said Bitkub’s market capitalization was Bt35 billion.
Founded in 2018 with a registered capital of Bt290 million, Bitkub is one of Thailand’s few fast-growing startups and has become a unicorn within three years. Bitkub reported a total digital asset trading volume of Bt1.03 trillion to the SEC for the first nine months of this year. The volume represents a 92 percent market share. Bitkub’s total revenue for the period was Bt3.3 billion with a net profit of Bt1.5 billion.
Banks take on fintech firms
In recent years, traditional banks’ earnings from lending, payment and investment products have been challenged by the tech disruption. “So they needed to get into the [digital asset] fray. Many banks have invested in financial technology companies,” said Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities.
On the same day the Bitkub deal sailed through, SCBX — a subsidiary of SCB10X — invested in Sandbox, the leading open non-fungible token (NFT) metaverse platform, which raised funds worth $93 million. Sandbox is a subsidiary of Hong Kong-based Animoca Brands.
Another industry giant, Bank of Ayudhya Pcl, in August joined other investors in raising Bt1.3-billion for Zipmex exchange, a rival of Bitkub.
Kiatnakin Phatra Financial Group is reportedly investing in a digital exchange based in Singapore.
Kasikornbank early this year launched Kubix company, an initial coin offering or ICO portal, acting as an adviser and underwriter of newly issued digital tokens that are offered to investors in the primary market. Last month, it launched Kasikorn X, aiming to groom startups for decentralized finance. Kasikorn X also debuted Coral, an NFT marketplace platform, to help Thai and other Asian artists make their artwork available for sale globally.
Adoption matters most in the cryptocurrency and blockchain industries, while giant techs “of the caliber of Google, Amazon, and Apple” are expected to diversify their assets into cryptocurrency, said Bitkub.com or Bitkub Exchange CEO Atthakrit Chimplapibul in an exclusive interview with Thai PBS World earlier in July.
Many experts have criticized the Bt17.9-billion Bitkub deal as quite expensive. Well-known value investor Niwet Hemwachirawarakorn expressed his skepticism about the deal’s valuation.
“It may be inevitable for SCBX to jump into the digital asset field, but I’m skeptical,” he said.
He believes the digital exchange business might have peaked, or is close to it. So Bitkub’s stakeholders must have thought this is the best time to cash in by selling the majority of their shares, he said.
Operators of a digital asset exchange act like how brokerage firms help investors buy and sell stocks and charge them a fee for their intermediary services. The fee will drop when more digital exchange operators enter the market as there are no entry barriers, and many other banks could follow suit, Niwet said. “It is not like Amazon, Facebook or Apple’s businesses in which the barriers for new entries are high,” Niwet noted.
It could also be price sensitive. As there is no exit cost for investors, they could move to other exchanges that offer lower fees and charges. Digital asset exchanges might end up in the same situation as several stock brokerage firms that compete with each other for very low fees now, he said.
Pipat shares a similar view, explaining that Bitkub made a high profit because it charged digital asset investors 25 basis points as a trading fee, much higher than securities firms that currently charge stock investors about 10 basis points.
Niwet said there is a high chance that digital asset trading may decline in the future, as it may have passed its peak or must be close to it.
What the future holds
Experts have a different perspective on the future of digital assets, which are vulnerable to high volatility as seen in the case of the Bitcoin cryptocurrency. In addition, there is uncertainty about the regulatory framework.
SCBX chief executive officer and chairman of the executive committee, Arthid Nanthawithaya, said that digital asset exchanges have rapidly gained popularity over the past few years and would grow even further in the long term. SCBX Group’s investment in Bitkub will help the group create new growth value in the long term in a new financial world.
“The move is in line with SCBX Group’s strategy to upgrade into a financial technology group, meet new consumer needs and enter a new competitive arena that will emerge very quickly in the next three to five years,” he said.
Pipat said SCBX had made a huge investment in Bitkub. The bank can actually build a significant entity from this amount of money, but it may take a few more years.
He believes that SCBX, by leveraging the large base of the group’s customers, might be planning to exit the deal by launching an initial public offering of Bitkub in the stock market.
Pipat said it was unclear whether the current market was a bubble, likening it to card collection or trading of Thai buddha amulets. “There are people who want to buy products at high prices, and they speculate that they could resell them at higher prices,” he said.
Trading would continue as long as some people want those products, he said.
“We cannot validate the intrinsic value of the digital coins or cryptocurrency,” he said.
His advice to retail investors interested in investing in digital assets is to try to find more information about these assets and set aside a small amount from their savings. “If you can tolerate a 50 percent loss of that amount, you can invest in these high-risk assets,” he said.
Regulations in the future could have a positive or negative impact on digital assets. Currently, some countries have placed restrictions on cryptocurrency trading. Thai regulators — the Bank of Thailand and the SEC — are facing a dilemma on how to regulate digital assets.
“Regulators are facing new paradigm shifts,” said Pipat.
The takeover may give SCBX a competitive edge, as Bitkub is the first mover in the digital asset market, but it will not be much and for long because more competitors are expected to enter the market, Niwet said.
He does not believe the bank will be successful in persuading its customers to trade in digital assets. The bank’s customers usually are very conservative and prefer traditional monetary transactions while those who trade in digital assets are a new breed of investors. So banks may not be able to leverage on their existing customers, he warned.
Since the average investor may not be able to buy high-flying super stocks because of their steep prices, Niwet suggested that the best strategy for them would be to invest in mutual funds that focus on technology firms.
The Bitkub deal is also in line with global business consolidation.
“Previously, we had seen the emergence of many startups, but now large corporations are aggressively acquiring startups and integrating them into their businesses, said Niwet. Even tech giants like Facebook bought other companies, he added. “So, during this consolidation period, we may see only some 10 companies rule the global market,” he said.
By Thai PBS World’s Business Desk