IFR Asia – January 20, 2018

Keeping the crypto craze alive

RETROSPECTIVE TRADING IS always
something that sticks in the craw,
but when one is on the record as
having “recommended” a particular
instrument in the pages of a
RESPECTEDûlNANCIALûPUBLICATIONûTHENû
it sometimes does pay to revisit that
recommendation – if only for the sake
of personal amusement.
Almost four years ago, I
recommended in this column buying
bitcoin when it was trading at a
miniscule US$630 a coin. Yes, we all
know what has happened in the interim
and I won’t comment on whether or
not I put my money where my mouth
was at the time. (I’m still writing this
column, so maybe there’s your clue.)
I actually recommended that a company in Asia do a
bitcoin bond, with a callable structure – it would have been
best done in dual-currency format, but I neglected to make
that explicit – and park the proceeds unhedged (well, there
was no suitable hedge back then, and in fact there still
isn’t).
No one took me up on that offer, but I still reckon it
WOULDûHAVEûmOWN
That might well have been one of the earliest calls to
“institutionalise” that currency, although in its wake much
has occurred in both the secondary and primary markets
related to bitcoin and other attendant cryptocurrencies.
The “initial coin offering” in both bitcoin and other
similar units of exchange – including such sexy items
as Ethereum, Litecoin and Ripple – has become a
staple for those who are true believers in the future of
cryptocurrencies. Some have performed, although under
the taint of naysayers who regard these offerings as little
MOREûTHANûGLORIlEDû0ONZIûSCHEMES

THERE HAVE BEEN some notable examples involving companies
attempting to leverage the ongoing – if recently subdued –
mania for cryptocurrencies, including a frenzied US$300m
ICO for technology company Gnosis last year, and criminal
proceedings in India related to an ICO for a company called
OneCoin.
Such situations are inevitable in the context of a mania
which seems already to be subsiding, with winners and
losers on both sides of the sellside and buyside divide.
"UTûTHEûREALûQUESTIONûISûJUSTûWHATûPLACEûCRYPTOCURRENCIESû
HAVEûWITHINûTHEûGLOBALûlNANCIALûSYSTEM
During the stellar surge of bitcoin in the run-up to last
Christmas – when the unit chalked up a print of US$19,
per coin – I was of the opinion that the currency had some

notable elements on its side.

For example, I thought of it as a sanction-busting

instrument, one which could be mined using all the

relevant technology by regimes such as North Korea and

Iran to produce an exchangeable medium which would

ALLOWûTRADEûTOûmOWûMOREûFREELYûTHANûTHEû53ûDESIREDûUNDERû

its edicts excluding those countries from the global trade

system.

Then it was pointed out to me that the volume available

to those countries for use in the international trade system

• assuming the mining machines were numerous and
  working at full power grid-busting capacity – was so tiny
  RELATIVEûTOûTHEûAMOUNTûREQUIREDûFORûMEANINGFULûTRADEûTHATû
  the sanction-busting idea was an absurdity.
  On the other hand, I wanted to contrast the massive
  price explosion seen in cryptocurrencies over the past six
  months-odd with the surge of stock prices seen during the
  doctcom bubble of the late 1990s.
  I reasoned that the manic increase in single stocks during
  that period – such as a travel agency, which had suddenly
  put up a website and seen its stock surge by 5,000% – was
  another thing entirely from a cryptocurrency that could be
  used as a medium of exchange around the world.

PART OF ME still harbours the notion

that the cryptocurrency bubble –

for it contains every element that

characterises a bubble – might have

more legs than previous bubbles,

whether for Dutch tulips, the South

Sea Company, or whatever else.

In this, I’m thinking of the

underlying technology, principally

blockchain, which I believe will be

as big a game-changer for the global

economy as the internet.

That technology need not necessarily

be based on cryptocurrencies, but

I suspect that it points naturally

to cryptocurrency for settlement,

simply based on the notion that third-

PARTYûVERIlCATIONûPROVIDERSûAREûUNNECESSARYûWITHINûTHEû

blockchain.

My sense is that cryptocurrency is an essential aspect of

the march of this new technology and that the markets

are working out which ones are going to feature as a core

aspect. That points to a bounce back from the current

slough in prices.

But as to which currency will become essential? That, I

don’t know. If I were, however, to be judged on the basis

of an initial pricing call in this column, I would stick to the

oldest and most famous one.

I actually

recommended

that a

company in

Asia do a

bitcoin bond,

with a callable

structure,

and park the

proceeds

unhedged

The bitcoin bubble has
not yet run its course,
says JONATHAN ROGERS

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