Will other digital tokens follow in bitcoin’s footsteps?

According to Pikom, there are thousands of cryptocurrencies out there and they are still growing


Bitcoin’s meteoric 12-fold rise in value to the US$12,000 (RM48,840) level since the start of this year could set the benchmark for other cryptocurrencies, but not all digital coins will enjoy the same fortune.

National ICT Association of Malaysia (Pikom) research committee chair advisor Woon Tai Hai said there are 1,028 types of cryptocurrencies in the market according to Coinmarketcap.com and each cryptocurrency carries a different risk profile.

He said even bitcoin — seen as the mother of all cryptocurrencies — is not free of risks and a plunge in value is possible due to various issues like fraud.

“It has gained 12-fold since early this year, but there are thousands of these cryptocurrencies out there and they are still growing.

“The key question is will these other cryptocurrencies follow bitcoin — bearing in mind that the risk profile, volatility and liquidity of each of these currencies vary,” he told The Malaysian Reserve.

While the market worries about a bitcoin bubble, Woon said fraud related to the cryptocurrency would bring the digital token to the ground.

In 2014, the then world’s largest bitcoin exchange Mt Gox announced that 850,000 bitcoins had been hacked. It was reported that the Japanese-based company lost around US$450 million worth of bitcoins, which are now expected to be valued at US$8.5 billion.

But such threats had not stopped bitcoin’s ascent as investors flocked to this new class of investment asset and rode the boom.

Bitcoin rose to US$12,644 yesterday, reaching new levels as authorities pondered on ways to minimise any financial risk in the event of a fallout.

Bitcoin market capitalisation grew to US$210.8 billion, or just US$86 billion shy of Malaysia’s 2016 gross domestic product of US$296.3 billion.

Ethereum, the world’s second most popular digital currency, is far behind with a market capitalisation of US$43.3 billion.

Since July, bitcoin and ethereum have doubled their market capitalisation. Ethereum joined the market in middle 2015. Though it appears to be very secure and robust, it faces its own setbacks — including risk of failing.

According to the Luno website, ethereum is more volatile compared to other digital coins.

Last September, its price plummeted from US$386 from Sept 1 to US$244 on Sept 17, before bouncing to US$292 on Sept 30, according to Coinmarketcap.com.

Despite the euphoric excitement to the new asset class, Woon said traditional brick-and-mortar investors are still shying away from digital currencies — especially with the monetary authority’s intervention in the conversion of digital token to fiat currency.