11 July 2024

Siam Commercial Bank (now named SCB X), Thailand’s oldest commercial bank, created a flutter in the markets in November last year when it announced a multibillion deal to buy a majority stake in Bitkub Online Co, Thailand’s largest digital asset exchange.

The 17.8-billion-baht deal made headlines and spurred excitement in the financial and startup communities. SCB X said at the time that the deal was part of its efforts to transform its business and to ride the rapid popularity of digital assets.

The deal was expected to hoist Bitkub Capital Group Holdings Co, the parent company of Bitkub Online, to unicorn status — a startup worth over US$1 billion (about 36 billion baht currently) — and make Jirayut Srupsrisopa, the founder and CEO of Bitkub Capital Group, as potentially a new billionaire.

Things, however, did not go as planned.

The two sides had planned to complete the due diligence process in the first quarter of this year before SCB Securities Co, a subsidiary of SCB X, acquired 51 percent of Bitkub Online’s shares from Bitkub Capital. In a corporate anticlimax, the two parties announced the cancellation of the deal on August 25.

When SCB X had first announced its intention to take a majority stake, the markets were excited and it was seen as proof of the potential of the digital assets market. Skeptics, however, were shocked by the high price tag and questioned the viability of digital assets. The about-turn in the deal, it would seem now, vindicated their doubts.

“The deal was announced during the market peak when the value of the digital assets had skyrocketed and a million Thai traders had entered the digital assets market,” Niwes Hemvachiravarakorn, a well-known local value investor, recounted.

He had predicted then that the market value of digital assets worldwide, including that of the Bitkub exchange, had peaked and were set to go down.

The impact of COVID-19 lockdowns disrupted global supply chains, resulting in the rising price of goods and services. Inflation in developed countries in Europe, and the US, has been shooting up since Russia’s invasion of Ukraine in February, leading to economic sanctions and high prices of gas and oil.

Central banks in many countries, the US in particular, started to raise interest rates sharply in order to contain runaway inflation.

Unfavorable market conditions globally, local rate hikes, and the deceleration of cash injection into the economy, have sparked investor fears of an economic recession, leading to a sell-off of equity and other risky assets.

As huge liquidity starts to dry up, it is taking its toll on the digital asset market. The values of digital assets have plummeted in recent months. Bitcoin, for instance, was recently traded at slightly over $20,000 from the peak of around $68,000 in November last year.

The sentiment has hit Thai local digital assets, too. For instance, Bitkub Coin, the digital token issued by Bitkub, was traded recently at about 60 baht, from its peak of close to 600 baht in December last year.

Cost of regulation  

Skeptics worldwide have shunned digital assets and see no role for them in the global economy.

In May this year, legendary value investor Warren Buffett dismissed the usefulness of a digital currency, saying he would refuse to buy bitcoin even if it were offered to him for $25. At the time he issued his strong denunciation of cryptos, the market cap of bitcoin was over $700 billion.

Regulators worldwide also cautioned about adopting cryptocurrencies as a medium of exchange, despite a few countries, such as El Salvador, adopting bitcoin as legal tender since September last year.

Concerned about the large number of young investors entering digital asset trading, Thai authorities this year stepped in to tighten the regulations for the digital market. Among measures, the Securities and Exchange Commission (SEC) limited the scope of advertising by digital exchange operators.

Worried about the impact on the stability of the baht, and the overall financial system, the Bank of Thailand this year banned the use of cryptocurrencies as a means of payment for goods and services.

Other countries such as China have also banned cryptocurrencies issued by private companies. New regulations have limited the scope of usage of cryptocurrencies and other digital assets.

The regulatory interventions have made digital assets less attractive, as their potential for growth has been reined in by the authorities. “High competition in the digital asset exchange business has also made Bitkub’s business less attractive,” said Niwes.

Problem with the crypto ecosystem  

As the digital market has been hit hard this year, many companies engaged in the digital asset business have gone bankrupt. Zipmex, a rival of Bitkub, in July applied for bankruptcy protection in Singapore as it could not repay clients who had deposited cryptocurrencies in its platform for interest rate returns.

Though Bitkub Online has not suffered a financial loss, the SEC has come down hard on the company and imposed fines on Bitkub and its executives several times since 2020 for operating the business in an opulent way in the past.

The share price of SCB X rose after the acquisition deal was scrapped, suggesting the market was happy with the decision of the executives to back off, while the price of Bitkub coin saw a sharp plunge.

Niwes believes the decision is good for SCB X, while Bitkub might also have more freedom to run their business. He also warned investors against being lured by market hype, and to keep their focus on reality.

By Thai PBS World’s Business Desk