On January 17, the Monetary Authority of Singapore (MAS) issued guidelines discouraging cryptocurrency firms from advertising in public spaces. This was followed shortly by the UK’s Chancellor of the Exchequer Rishi Sunak pointing out that crypto assets can provide exciting new opportunities and offer people new ways to transact and invest but it is important that consumers are not being sold products with misleading claims. However, is it really all just about false advertising?
The late January crypto news flow did not improve globally as the Biden administration gets ready to take centre stage from the White House in driving what has thus far been a classic laissez-faire approach to crypto assets, with a lack of clarity and confusing regulation among various agencies from the US Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Reserve.
Back in Singapore, Crypto.com lost a modest (by crypto standards) US$35 million ($47 million) to a hack involving around 500 customers. Fortunately, users who had placed their faith in Matt Damon’s advertisement were reimbursed the stolen coins.
Less than a month into the new year, the cascade of negative news including a 17-hour outage on blockchain platform Solana, did little to soothe digital confidence as Bitcoin continued its relentless sell-off to below US$34,000. At this level, it is less than half its all-time high last November of US$69,000, which was also the double tops flagged by this column last Christmas when the US$48,000 technical chart neckline was broken. I was asked what do conventional market charts have to with cryptos. Well, there’s your answer.
The corrections were larger the deeper into the metaverse of meme coins, Altcoins and outright frauds. The hotter the air, the louder the pop. Even Elon Musk’s adoption of Dogecoin as a means of payment for Tesla’s merchandise — but not the car — did not stop it from spiralling down. This is almost akin to the relative preservation of value in any downdraft between blue chips, small caps, and irrational random meme stocks and unprofitable platforms as markets “rotate to reality”.
Who can we blame for this debacle?
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For those looking at the metaphysical and not merely the metaverse, the Water/Wood Year of the Tiger holds little guide. At least for me, it is still unclear which of the five elements crypto falls under? Although I am sure in time to come fengshui masters will be able to make a better call. Since it is technically digital, it is neither a metal (which is supported by water/wood this year) nor grounded by earth with only small fires in the almanac to look forward to from 2025 onwards. Therefore, we can at best say “not supportive”.
Experts claim that the Fed’s plans for central bank digital currency (CBDC) and its hawkishness has temporarily outweighed crypto’s unproven claim that it can both be an inflation hedge and a risk diversifier to conventional asset classes. That has not borne out of late. Policy normalisation is challenging the notion that crypto is really better money. Yet, CBDC can deal with pain points such as expensive, inaccessible banks and payment systems, lending more credence to CBDCs to be deployed by those wielding the sovereign rights to tax or print money. Coupled with increasing regulatory scrutiny of an industry plagued with as high as 70% of wash trades on unregulated crypto exchanges and an almost daily deluge of stories about licence applications, withdrawals and rejections, the trust deficit is still hard to fill.
Furthermore, the underpinning technology, which is supposed to be bigger than the internet, has yet to be fully developed. There are growing concerns as pointed out in UBS’s Crypto Keys report on Jan 14 from a rising chorus of software engineers and cryptographers, “that blockchains don’t scale in practice without turning into the same ‘plutocratic’ systems they were designed to replace because they need to minimise program execution times from resource-intensive decentralised recomputing to reach global consensus”.
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For decentralised finance (DeFi) to be hailed as the future — even if the assets have spiralled from US$1 billion to US$200 billion in two years since the beginning of 2022 — blockchain technology has to be less clunky. Bitcoin and Ethereum used “proof of work”, quantified by almost 7 transactions per second for Bitcoin and Ethereum’s at a more voluminous 15 transactions per second. Congestion at peak times leads to high costs to use it.
In contrast, “proof of stake” is more easily scalable as an alternative by splitting up the load and capacity on the blockchain through a process called “sharding”. Unfortunately, reliability isn’t a certainty. Solana, the blockchain platform, has touted its ability to handle “Visascale volumes” with “settlement finality in about 400 milliseconds”. Yet, just as pricing volatility spiked and volume surged, the platform suffered multiple outages.
Down but not out
For some coins and innocents who got caught in this downward spiral, perhaps it is painful but hopefully not too traumatic. However, one wonders about the tweet from one of the crypto barons, Zhao Changpeng, better known as “CZ” of Binance. “If I told you you have to be rich to be allowed investing, you’d be pissed right? Ok, you just have to be an accredited investor to invest. How do you become an accredited investor? You have to be rich. It’s for your protection.”
True believers of crypto assets thrive on anarchism while those in the regulatory seats have to tread the thin line, balancing the march of innovation against social costs of unintended consequences for the uninitiated.
The great democratic levelling through DeFi does indeed have the potential to foster massive financial inclusion, and cut through expensive charges by banks and payment systems, especially on cross-border transactions.
For countries that struggle with managing the balance of payments and currency reserves (if they have any), a breakaway from the conventional plumbing that enslaves the “have nots”, making Bitcoin legal tender, such as El Salvador, may prove useful for a season.
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Ironically, back behind the great firewall of China, the approach to crypto has already been an unequivocal “No”, based on the judgemental view that it will most certainly get in the way of “common prosperity”.
That said, whether Bitcoin reaches US$100,000 by June 22 as hoped by many believers or grinds back to its last Ice Age lows in 2018 after the initial coin offering bubble, in time to come, that too will end up as a mere data point in history.
If this current season results in greater awareness, less speculation and a focus on the practical usefulness of the underlying technology applied responsibility with sensible regulation, there will be a new spring eventually which will transform many industries and how we live in the future. But if what follows is an age of decentralised anarchy, some of us may just prefer to stay in hibernation.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award in 2021
Photo: Bloomberg
