23 May 2024

Trading in cryptocurrencies has come under high pressure recently. The value of bitcoin, the most popular cryptocurrency among traders overseas and in Thailand, slumped to US$36,040.92 per bitcoin on May 6, down sharply from 47,686.81 on January 1, according to CoinMarketCap data.

Interestingly, the number of active traders in Thailand also dropped to 420,000 in April, down from 676,000 in January, according to data on the Securities and Exchange Commission’s website.

Analysts in the United States claim that the value of bitcoin and leading cryptocurrencies have only positively correlated to the equity market. Just as investors sold US shares, they also sold cryptocurrencies.

Investors worldwide have been worried about economic woes and the high inflation caused by the war in Ukraine, the COVID-19 lockdown in China and supply chain constraints.

Two schools of thought

The debate on cryptocurrency made news headlines again when Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, and his righthand man Charlie Munger again sharply criticized bitcoin at Berkshire’s annual shareholders’ meeting on April 30.

 “If you told me you own all the bitcoins in the world and you offered it to me for $25 I wouldn’t take it,” said Buffett.

“Assets, to have value, have to deliver something to somebody. And there’s only one currency that’s accepted. You can come up with all kinds of things — we can put up Berkshire coins… but in the end, this is money,” he said, holding up a $20 bill. “And there’s no reason in the world why the United States government … is going to let Berkshire money replace theirs,” CNBC quoted him as saying.

“In my life, I try and avoid things that are stupid and evil and make me look bad in comparison to somebody else – and bitcoin does all three,” Munger said.

The two men have long been opposed to the adoption of bitcoin as a currency. In 2018, Buffett said bitcoin is probably “rat poison squared”.

Proponents of bitcoin are found among the tech-savvy and libertarians.

Elon Musk, the CEO of Tesla, has been a promoter of cryptocurrency. Tesla last year invested $1.5 billion in bitcoin. In January this year, Musk, the world’s richest person, announced that customers could buy small Tesla items, including a belt buckle and a whistle, with Dogecoin — a cryptocurrency.

Over the past few days, he has invited Binance, the world’s largest digital asset exchange to jointly invest with him in buying Twitter, the world’s popular social media platform.

Libertarians consider cryptocurrency a tool to counter the centralized US Federal Reserve system which they claim prints a lot of US dollars leading to its declining value.

They also dislike the presence of middlemen in financial transactions, which increase the cost of money transfer, while crypto transactions are done on a decentralized blockchain, a public ledger.

Meanwhile, some traditional financial institutions have started to recognize bitcoin and other leading cryptocurrencies. They are now advising their clients to hold a small number of cryptocurrencies for investment purposes.

Bitkub Online fined ฿15m over KUB’s listing violation

A Nobel laureate rubbishes crypto

Paul Krugman, a Nobel laureate in economics, is strongly opposed to bitcoin and other cryptocurrencies.

He recently tweeted: “Bitcoin was introduced 13 years ago — an eternity in tech time. It has attracted a fanatical evangelical base, despite constant sniping from skeptics wondering what problem exactly it solves.”

“The skeptics are constantly told that they’re just dinosaurs who don’t get it,” he lamented.

“El Salvador makes bitcoin legal tender, subsidizing the adoption of a bitcoin app, optimal conditions for turning it into a functioning form of money. Overall, despite the legal tender status of bitcoin and the large incentives implemented by the government, the cryptocurrency is largely not an accepted medium of exchange in El Salvador.”

Most businesses don’t take it and few people use it, said Krugman.

“But crypto remains a hammer in search of a nail; or, less charitably, a cult driven by technobabble and libertarian derp,” he added.

A note of caution

Kobsidthi Silpachai, head of capital markets research at Kasikornbank shares Buffet’s views. As a traditional investor, Buffet always asks what is an investment’s intrinsic value, he said.

For example, a stock’s intrinsic value can be found by this formula: dividends/cost of capital less growth rate, but in the case of new investment alternatives like bitcoin, it is very difficult to find their intrinsic value, Kobsidthi explained.

He added that the intrinsic value is also based on supply and demand, like gold. “But these investment alternatives [cryptocurrencies] do not have “cashflow” back to the investors. The only way the investors can get their money back is to sell it to another investor, so it is more a speculative investment in its nature,” he argued.

Money serves three functions — as a unit of account, a store of value, and a medium of exchange.

Digital currencies are more convenient as a “medium of exchange”, Kobsidthi pointed out.

 “As e-commerce continues to grow exponentially, the demand for a convenient medium of exchange is creating a demand for digital money like bitcoin,” he added.

By Thai PBS World’s Business Desk