Monique Verduyn spoke to crypto expert Petri Basson, a CA(SA) who is building digital companies from the Cayman Islands, as well as developing a crypto data aggregation and normalisation business (Hash Data) to simplify digital asset management.
Cryptocurrency is not just for young, tech-savvy millennials anymore. Governments, central banks and major enterprises can no longer ignore its value
Looking beyond the crash
Today, there are more than a thousand different cryptocurrencies with different features. The first and probably most well-known cryptocurrency is Bitcoin, which was created in 2008. A growing number of global firms are buying Bitcoin, including listed companies such as MicroStrategy, Tesla and Coinbase — purchasing billions in the cryptocurrency between them. Why are they seemingly undeterred by the May 2022 crypto market crash?
On New Year’s Day 2017, Bitcoin broke past the $1 000 level and before the end of the year it soared to almost $20 000. Between March 2018 and May 2019, Bitcoin traded below $10 000, dropping to as low as $3 500, as critics and regulators voiced their doubts over its future. During the 2020 lockdown and with government stimulus cheques to spend, retail investors began to invest in Bitcoin’s rise. In six months, the cryptocurrency soared from under $12 000 to over $63 000.
The crypto market works in cycles, just as other markets do,’ says Basson.
Had you bought Bitcoin at the previous high of $20 000 when sentiment was strong in December 2021, you would have been seriously disappointed when the price dropped to $3 500. However, had you held on to that same investment when Bitcoin reached an all-time high of $69 000 you would have felt pretty good about that same investment. It’s all about your time horizon and how long you plan to hold Bitcoin despite market cycles.’
Basson is positive about one key development – the recent collapse has shaken up the market and most likely rid it of risky individuals who promise investors the moon, which has served to strengthen the ecosystem and make it more anti-fragile.
Tips for crypto investors
Whatever negative sentiments there may be about crypto, these assets are an important part of the future economy.
‘Cryptocurrencies are a form of digital money that was originally created to be independent from any central bank or government,’ Basson says. ‘They can be used in many different ways, but the most popular way is for online payments.’
If you are a new or less experienced investor, Basson advises that you do your research. ‘First, it is important to take a long view with crypto. If you are not going to be invested for at least ten years, then it may not be for you. Second, you need to understand the product as closely as possible so that you do not take fright when the market goes awry.’
If it’s too good to be true, he adds, it usually is. On 7 May 2022, the price of the then-$18-billion algorithmic stablecoin terraUSD (UST) crashed. The promised return had been excellent, the risk management not so much. Many people lost a lot of money. ‘Again, as with any investment, do not overexpose yourself in any one asset class,’ says Basson. ‘Diversification is critical.’
Be on the lookout for scams. Basson advises starting with the team behind the project. Look at their backgrounds, website, whitepaper, their LinkedIn profiles, and their presence on other social media platforms.
‘Read as much as you can,’ he adds. ‘It is generally easy to tell if someone has cobbled together a document just to make a quick buck.’
Github is a reliable resource where developers publicly put their code up. Millions of developers and companies build, ship, and maintain their software on GitHub, which is also a real-time collaboration platform for developers to simultaneously work on the same source code. It tracks the history of changes to a project’s source code, including what specifically has been changed, who has changed what and when. It reveals how active people are and how big the supporting community is too.
There is much more information out there than ever before, so it easier to do the research, provided you are willing to take the time,’ Basson adds. ‘Tokenomics, for example, the supply and demand characteristics of the cryptocurrency you are researching, is a great source of data. If developers are trying to attract investors, they may create lots of tokens over a short period to incentivise them. A big spike in availability usually affects value negatively in the long term.’
What does the future hold?
Basson predicts an upswing in use cases for non-fungible tokens (NFTs). Having started out as ownership of a specific image or piece of art, NFTs have evolved into unique assets, each with its own characteristics, value and ownership.
‘We are going to see many more NFTs with utility attached to them not just ownership. I recently bought a Permie, a unique NFT that gives the buyer lifetime access to Permissionless, a conference where the audience can hear from the leading voices in crypto during three days of expert panels.’
NFTs can also store much more data than normal tokens, including description, source, and much more. As a result, there are multiple use cases in finance. ‘Uniswap, a decentralised exchange, recently implemented NFTs in their liquidity pools where users can add liquidity in a very narrow band of trading activity. This is only possible with an NFT where you can store that data in the NFT,’ he adds. ‘Imagine a structured product in the future that is made public on the blockchain, with all information about the underlying assets embedded in it.’
In the end the digital asset space is still very new compared to traditional markets with a current market cap of approximately $1 trillion. There are many great opportunities and innovations, but also many risks to consider. As a CA(SA) its important that you start to understand this space and how it may impact your day-to-day life and job in the future.