Industry analysts believe digital currency, particularly bitcoin, may be embraced by local investors aggressively within the next financial cycle

By AFIQ AZIZ

Cryptocurrencies may seem to have lost some of their charm, but it would be a mistake to write off the digital coin just yet.

Industry analysts believe digital currency, particularly bitcoin, may be embraced by local investors aggressively within the next financial cycle, as most players are eagerly waiting for the the government’s regulations on cryptocurrency.

In December 2017, bitcoin had reached its highest market capitalisation of US$322.5 billion (RM1.3 trillion at that time), eclipsing Malaysia’s 2016 GDP of RM1.21 trillion, and almost 13 times the size of Malayan Banking Bhd’s market cap of  RM102 billion.

The digital token rose by 19-fold in the 12 months period from January, priced at about US$19,000 in December 2017.

However, as at Nov 16 this year, bitcoin was traded at only about US$5,582 with a market capitalisation of US$97.1 million, according to coinmarketcap.com.

Still, the majority of industry players remain calm over the bitcoin dives, describing this movement as a mere transition phase,.

Malaysia Investors’ Association VP Aaron Ting acknowledged that unstable prices did hamper the cryptocurrency market this year.

“What we have seen towards the end of 2018 was the peak, then in 2019 is the decline — leading us into a period called the ‘trough of disillusion’.

“I believe we are in the middle of this period and it will recover from here eventually, before experiencing a slower ascent,” Ting said, using the Gartner Hype Chart Cycle, to gauge the movement of digital coins.

Meanwhile, Ting — who is also the secretary of Access Blockchain Association Malaysia — said every new technology would experience the same phase.

“In today’s world, due to the Internet and social media, the hype chart cycle tends to be compressed.

“For example, 3D was introduced decades ago, but it took until recent years for 3D to be widely adopted,” he said.

Ting further said cryptocurrency, via the emergence of bitcoin, has been transformed into a worldwide industry — with the entire ecosystem of developers, miners, node operators, users and investors all engaged in the new technology of a decentralised system.

“The space has made major contributions to the distributed ledger technology sector through its open source environment and resilient nature of public permissionless blockchains.

“I expect it to continue to yield technological advancements that governments and enterprises can capitalise on.

“The rapid development of technologies in this space indicates we are still in the early days and there remain plenty of opportunities in this space in Malaysia, as well as the world,” he added.

More Local ICOs to be Established?

The government’s step to regulate cryptocurrency may result in more industry players to venture in the market.

Property developer Country Heights Holdings Bhd is poised to be the first Malaysian listed company to issue an initial coin offering (ICO) called “Horse Currency” after having obtained 99% of its shareholders’ approval recently.

The group, however, would need to wait for the government’s detailed frameworks in the next few months to tailor the digital coin functions, which are expected to be backed by assets.

For the past 12 months, many local players had tried and failed to establish their ICOs.

They were either alarmed by the regulators, or found it hard to survive due to the lack of a friendly environment for cryptocurrencies in the local marketplace for the past 12 months.

Only one local digital coin exchange was formed this year, the Ipoh-based company called Pinkexc.

However, following the latest developments, an industry observer believes this is the time for local players to embark and explore blockchain technology by creating their own ICO.

The observer who wishes to remain anonymous said, to establish a common digital currency, a stable platform such as bitcoin and ethereum must be developed and accepted by the country.

Currently, many ICO start-ups could not enter the local market and many of the firms had shifted across the causeway to Singapore, leaving the local marketplace behind.

According to the ICO Bench rating analyst, Singapore registered 14 new ICO projects last September, coming only behind the US with 21 ICOs.

Nonetheless, in terms of investment, Singapore remains at the top with a US$85.7 million (RM359.2 million) fund.

“We are way behind on regulations compared to Singapore. This resulted in the loss of income for Malaysia as more and more crypto businesses were registered in Singapore because we do not have a friendly environment here,” the observer said.

Additionally, Ting said the Malaysia Digital Economy Corp is currently looking at Singapore when it comes to initiatives involving cryptocurrency.

He believes it is the right time for the distributed ledger technology to be adopted by Malaysia, replacing the currently what he described as “outdated” financial systems.

“The truth is, cash from printing to issuance to distribution, handling and storage costs the government billions of ringgit every year — and yet, we lack transparency into the actual circulation or where it goes.

“There is tremendous value to have from the savings to be realised and the increase in efficiency and control it gives our central bank and any parties on boarding including e-wallet providers, banks, merchants and the general public on this system.

“I believe if we were to offer this as an option, the money in circulation will gravitate towards this form until it is the preferred form of the ringgit,” he said.

Embracing Blockchain Technology

SysCode Sdn Bhd CEO Reza Ismail proposed that instead of countries, businesses should start to explore the potential of creating their own cryptocurrency platforms.

“We should not just think about cryptocurrency alone, but how to build its own blockchain platform to facilitate inter-token transactions.

“This way, potentially all transactions can be managed, taxed or regulated. I believe once this is possible, cryptocurrency will no longer be a taboo for governments,” he told The Malaysian Reserve.

National ICT Association of Malaysia advisor Woon Tai Hai concurred that, while the cryptocurrency industry is highly dependant on the regulators’ attitude, the public will realise that there is more to bitcoin — such as the blockchain technology.

“It will certainly take centre stage in the coming months and years as more people understand that blockchain technology is not cryptocurrency.

“A viable business model on blockchain platforms and having an optional token or cryptocurrency to facilitate transactions within that business ecosystem can perhaps give more attainable values and benefits in the long run, as opposed to a speculative nature like bitcoin trading,” he said.