An extravagant gold rush has been happening this year, but unlike the California Gold Rush during the mid-19th century, this phenomenon is occurring in the virtual world. Bitcoin is the name of the game and its price has skyrocketed by 20-fold year-to-date, catching everyone's attention including financial authorities worldwide.
A customer pays for a meal at Lim Lao Ngow, a noodle shop in Siam Square One, with bitcoin. The shop is one of the few merchants in Thailand accepting crypto-currency as payment. Photos by PAWAT LAOPAISARNTAKSIN
The price of bitcoin has seen a roller coaster ride the past few years as it fluctuated so heavily in a day investors clinched their fists either in ecstatic joy or manic despair.
Bitcoin is essentially a technology and an international system of payment and exchange. The currency is decentralised -- it does not rely on banks, governments or even a central company. No one owns it and no single person, corporation or government controls it.
Instead of physical coins, the technology uses a combination of mathematics and cryptography to confirm transactions and reward "miners" for doing so. Bitcoin has begun to acquire some of the basic characteristics of money.
Bitcoins are not yet legal tender, but fears over speculative bubbles for the digital currency are mounting, with experts voicing concerns it could resemble the dot-com bubble burst in the late 1990s.
RIPE FOR SPECULATION
Bitcoin's current price is growing too fast, mainly because of speculation rather than supply and demand for cryptocurrency, said Jarit Sidhu, head of operations at IDC Thailand, a local unit of a global technology research firm.
What is more concerning is the claim that cryptocurrencies such as OneCoin are being used for multi-level marketing and Ponzi schemes, said Mr Jarit.
He said Thailand is not a destination for bitcoin mining because the price of electricity remains high. It was recently reported the total electricity used for bitcoin mining is equivalent to the total electricity use for the country of Denmark.
Cryptocurrencies and digital currency exchanges are also attack targets for cybercriminals, said Mr Jarit. Users are advised to change their e-wallet identifications often to avoid hacking.
A Reuters report in November put the aggregate value of all cryptocurrencies at a record high of over US$200 billion, according to industry website CoinMarketCap.
The new record came as bitcoin, the biggest and best known cryptocurrency, hit a record high of $16,667 on Bitstamp, $17,171 on Bitfinex, and $19,340 on Coinbase this month, after more than a 20-fold increase in value over the past 12 months.
"Bitcoin, I'm afraid, is just as much a pump-and-dump as any other manipulated crypto. That doesn't mean there aren't opportunities to profit from, but just as in Bangkok after dark, things aren't always as you'd expect," said Paul Gambles, a Bangkok-based managing director at MBMG Investment Advisory Co Ltd.
"The lack of regulation is so evident that our research led us to discover there are quite open pumping and dumping websites and that users of Russian communication app Telegram actually brazenly band together to choose which crypto to pump and dump each week."
He said pump-and-dump scams typically involve parties whose identities are hidden, acquiring low or zero-value assets and then bidding up the price in such a way that genuine investors find themselves tempted to part with hard-earned cash for fake promises.
Sometimes these assets are shells registered for the purpose by pumpers. Other times they can be legitimate, innocent assets that have suffered setbacks, causing their values to fall sufficiently to allow pumpers to acquire a sufficient float to manipulate the price, said Mr Gambles.
Hacking is another problem. In 2011, Tokyo-based bitcoin exchange Mt Gox collapsed into bankruptcy as $460 million disappeared, apparently stolen by hackers, while another $27.4 million went missing from its bank accounts.
"We had weaknesses in our system and our bitcoins vanished," said Mt Gox chief executive Mark Karpeles.
REGULATORY APPROACH
With the recent bitcoin rally, global central banks, typically known as guardians of the economy, are divided on cryptocurrencies. Some are taking a cautious approach towards regulation, but others are branding digital currencies a pyramid scheme and placing them on a blacklist of contraband.
Like in most Southeast Asian countries, the legal status of bitcoin remains a grey area in Thailand. The Bank of Thailand in 2013 briefly banned trading in bitcoin.
Early in 2014, the central bank lifted the ban on its usage, but would not be held responsible for any losses incurred in digital holdings. It also issued a statement warning consumers and investors that bitcoin is not a legal tender and comes with inherent risks.
Thailand's central bank is studying whether bitcoin usage will be harmful to the country's economic system, said Finance Minister Apisak Tantivorawong.
Singapore and other countries are testing their own digital currencies and services, but usage is limited to central and commercial banks, said Mr Apisak.
Rom Hiranyapruk, a technology adviser for the Bank of Thailand, said blockchain technology is real and solid, but the price of bitcoin and other cryptocurrencies is fuelled by speculation.
"Cryptocurrencies are like the dotcom era where the price of anything related to the internet rose by a thousand times," said Mr Rom.
Cryptocurrencies can be used by swindlers to lure victims to invest by offering a high return, he said.
There have been cases in other countries where investors are lured into a pyramid scheme through investment fraud involving payment of purported returns on cryptocurrencies, said Mr Rom.
Unlike China, which dominates half of bitcoin mining, Mr Rom said bitcoin mining in Thailand remains on a small scale and is done by amateurs at prices of 10,000-20,000 baht.
Use of bitcoin is still limited as very few merchants accept it as payment, though Lim Lao Ngow, a fishball noodle shop located in Siam Square One, does.
"Investors who are interested in investing in cryptocurrencies need to study [such investment] carefully," he said.
AQR Capital Management said around 1,000 people own 40% of the world's bitcoins and interested investors should know those 1,000 people have a strong influence on the movement of bitcoin prices.
Mr Rom said another concern should be initial coin offerings (ICO), as they are digital coins where investors could be lured into such investment, but those coins could disappear into thin air. There is a need to verify ICO investments as ICOs are projected to surpass venture capital for startup fundraising schemes, he said.
The Securities and Exchange Commission is set to conduct a public hearing on regulating ICO transactions in an effort to prevent investment scams similar to those that have occurred in other countries.
ICO transactions are similar to crowdfunding, where an issuer presents a business model to investors, but the difference is that the raised funds are in the form of digital currencies using blockchain technology, and the contracts are enforced under smart contracts.
As bitcoin continues its wild rise, the Bank of Thailand is keeping a close watch, said Deputy Finance Minister Wisudhi Srisuphan, warning such transactions in the local market remain unregulated.
The Revenue Department has also been assigned to tax such transactions, he said.
Permanent secretary for finance Somchai Sujjapongse said the guideline for regulating cryptocurrency transactions will become clearer after bitcoin transactions gain in volume, with the SEC urging the public that bitcoin warrants monitoring.
Mr Somchai warned investors they are on their own in terms of losses incurred from bitcoin as there is no law to regulate cryptocurrency transactions.
Finance Ministry spokeswoman Kulaya Tantitemit said cryptocurrency usage does not affect Thailand's economic stability because of limited transaction value.
A FORCE TO BE RECKONED WITH
Despite controversies and scepticism, bitcoin has already prompted many who would have never thought about participating in the financial markets to invest in high-performing and extremely volatile assets.
In Thailand, a country where less than 40% of the adult population owns a debit card, allowing bitcoin to be traded for cash could allow ownership to expand beyond the middle and upper classes. An early signal of the potential of these cash alternatives to expand access to the financial markets is apparent in the location of bitcoin ATMs.
One of the dangers is people without particular expertise in markets are investing a good percentage of their net worth in it, unaware of the high risk involved. As Barry Ritholtz, author of Bailout Nation, said, "if you are not willing to play against a professional football player, why would you be willing to play in the stock market against investment banks?"
Jirayut Srupsrisopa, a Thai bitcoin guru and the founder of coins.co.th, said digital currencies are going to grow and become a borderless payment intermediary because of there is no payment transaction.
The trading volume of Bitcoin Co Ltd Thailand (www.bx.in.th) is around 1-1.5 billion bitcoins per day, a value of around 600 million baht, said Mr Jirayut.
This is about 1% of the average trading volume of the Stock Exchange of Thailand, some 50 billion baht per day.
The trade volume in the US is in the billions of dollars, dwarfing the Thai market, he said.
"The new generation looks at bitcoin like gold or another asset class. The Chicago Board Options Exchange recently opened bitcoin futures trading on Dec 11, which is another channel allowing institutional investors to trade bitcoin as a financial instrument and pave its future growth path," said Mr Jirayut.
He believes retail investors in foreign countries will begin to invest more in digital currencies in 2018.
"The market for digital currency has two sides. One side compares it with Tulipmania and the dotcom bubble, while the other side thinks bitcoin can continue growing because of its small market size," said Mr Jirayut.
The global cryptocurrency market has a combined value of $500 billion, less than 1% of the $500 trillion value of global stock markets.
"No one can tell whether bitcoin is a bubble or not because it is constantly setting new record highs," he said.
