When investors become cautious, gold usually becomes favourable. But with the advent of advanced technology and integrated global payment systems, digital gold is another investment hedge for a new generation of investors.
The price of bitcoin, the most well-known cryptocurrency, rose by roughly 30% to US$9,350 per bitcoin near the end of January, with a hefty rally in the first two weeks when global markets were rattled by geopolitical tension between Iran and the US.
The rally has not stopped, with bitcoin at almost $9,800 this month.
Jirayut Srupsrisopa, co-founder and group chief executive of Bitkub Capital Group Holdings Co Ltd, said bitcoin could be a speculative opportunity for risk-takers amid growing concerns over the global economic growth outlook and the novel coronavirus outbreak.
The bitcoin price could rise further as the market supply will soon be cut by half, he said.
Mr Jirayut, who operates one of the licensed digital asset exchanges in Thailand, said the trading liquidity on his digital exchange has increased to about 1.5 billion baht a day after a series of events that had a global impact and the imminent halving of the bitcoin supply expected in May.
In the next few months, the supply of bitcoin will decline to 6.25 coin for every 10 minutes, while demand is still sustained or increasing for the niche group that believes this cryptocurrency is like digital gold, enabling them to hedge against inflation and risks happening across the globe.
"Lower supply against higher demand is a market mechanism driving the price to go up," Mr Jirayut said.
Trading volume of bitcoin on Bitkub hovers between 250 and 300 million baht a day.
According to German bank BayernLB, the so-called "halving", a 50% block reward cut to production rate, is a mechanism programmed into the bitcoin blockchain that occurs roughly every four years (or 210,000 blocks).
In November 2012, when the first halving occurred, bitcoin's price, which was at $12.22 at that time, climbed to $1,242 by the end of November 2013.
Sixteen months after the second halving in July 2016, the price jumped from $652 to hit an all-time high of almost $20,000 in December 2017, driven in part by the global bitcoin frenzy as it gained more legitimacy and supporters.
TWO DIFFERENT THINGS
The mainstream perception of bitcoin is much like that of cryptocurrency itself, where volatility is the name of the game.
Despite global economic and geopolitical challenges, speculative opportunities and interests arise for people who are up for the risk, even when halving may result in a price hike. As long as bitcoin is subject to speculation, its store of value will be limited.
Before putting your money into any cryptocurrency, a clear understanding of the difference between two words -- investment and speculation -- is required, Mr Jirayut said.
"Bitcoin is speculative like buying gold," he said. "It cannot give you a return if you do nothing. This is unlike equities, REIT and property rental where you can earn dividends or rental income even you passively invest in them and do nothing."
He said people who want to speculate in bitcoin must "freeze" and "forget" the amount of money they are buying with a hope that the value of this speculative asset will appreciate as time goes by.
The prices of the other top 20 of cryptocurrencies could increase after bitcoin halving, but non-popular digital currencies are not expected to benefit, he added.
'FOR THEIR BABIES'
For some people, bitcoin can be used for payment in daily life, especially in popular tourist destinations like Phuket and Pattaya.
Phawat Lertariyasakchai, a 28-year-old cryptocurrency consultant who gives advice to businesses wanting to adopt digital currency for payment, said many foreign travellers pay with bitcoin instead of cash to get an additional discount from this payment method.
The amount of payment ranges from 10,000 to 100,000 baht for a one-month stay in villas.
"Most businesses offering a discount for bitcoin payment have high profit margins and they are not really affected by this marketing strategy," Mr Phawat said.
As for Thais, he said most of them are speculators in bitcoin rather than using it for daily transactions.
"For a new generation of investors, all of them gave me the same reason: they bought bitcoins for their babies," he said. "If bitcoin becomes a widely popular investment in the future, at least their babies will not miss the train."
Although bitcoin has characteristics of gold, its price fluctuation may not be suitable for daily use.
"The coin that is more fit for daily spending should have a stable price like stablecoins, digital monies created and backed by an equal amount of real assets or pegged to another cryptocurrency," Mr Phawat said.
An advantage of asset-backed cryptocurrencies is that coins are stabilised by assets that fluctuate outside of the cryptocurrency space; that is, the underlying asset is not correlated, reducing financial risk.