Time to jump on the ICO bandwagon?

Time to jump on the ICO bandwagon?

Regulation could bring calm to the cryptocurrency market, weed out bad players and open quality investment opportunities.

A customer pays for a meal at a noodle shop in Siam Square One with bitcoin. PAWAT LAOPAISARNTAKSIN
A customer pays for a meal at a noodle shop in Siam Square One with bitcoin. PAWAT LAOPAISARNTAKSIN

The cryptocurrency market has been an exhilarating, if sometimes scary, roller-coaster ride that has left most traders anticipating more profit-making opportunities. From a total capitalisation of US$17 billion in January 2017, the global crypto market surged to a peak of $828 billion in January 2018, but has since subsided to $203 billion as of the start of this week.

Most traders in Thailand are asking: Where will this ride take us? Are we preparing for a deep dive in the cryptocurrency price or are we approaching the next full-throttle ride upward?

A total of $5.5 billion worth of initial coin offerings (ICO) were held worldwide in 2017, and the total so far this year has already reached $6.3 billion. The market is now waiting for the successful launches of the projects linked to the ICOs to which investors have subscribed.

Fundamentally, we can say that the price exhaustion seen in cryptocurrency this year reflects the development phase of ICO projects. However, once large corporations are able to start delivering what they promised in the white papers that accompanied their offerings, we can expect the market to soar.

STEADY AT THE SUPPORT

Looking at the technical side, the benchmark Bitcoin price is still hovering above the key support level around $6,400, which has been tested several times but has not yet broken below that point. This suggests that there is a strong hold in demand for cryptocurrencies.

Now that the Securities and Exchange Commission has announced criteria for ICO portal and cryptocurrency exchange licence applicants in Thailand, the local cryptocurrency industry is expected to start blossoming with investment opportunities. Why, you may ask?

ICO portal licensing and regulation represent the starting point for cryptocurrencies to be transformed into investment-grade products. We can look at the experience of the United States to see how the market started to evolve when cryptocurrency regulations took effect.

As the cryptocurrency space becomes more legitimate through official regulation, digital assets are slowly converted into investment grade, as pioneered by the ETF (exchange-traded fund) initiative in the US. Thus, institutional investors (large banks, funds, trusts and others) will be able to diversify their portfolios into the cryptocurrency market.

We already are seeing the beginning of this transformation locally, with the Bank of Thailand announcing recently that local banks would be allowed to set up subsidiaries dealing with cryptocurrencies.

This will help to promote consolidation in the market, along with lower volatility because large institutions, accounting for the majority of investors, usually hold their trading positions longer than cryptocurrency speculators.

The regulation will also automatically reduce trading fraud and ICO scams through measures related to KYC (know your customer), CDD (customer due diligence), and AML/CFT (anti money laundering/countering financing of terrorism). We should not see a repeat of the recent $24-million "Dragon Coin" scam locally.

As the cryptocurrency market gains the ability to eliminate bad players, the market will also be able to improve its reputation. And while some people are unsure about how helpful the SEC policies will be, there is potential upside for the overall crypto-space from the point of view of institutional investors.

The regulations now in place were not drawn up in isolation. The SEC enlisted feedback from banks, developers and cryptocurrency exchanges for a joint effort to create an effective ecosystem for Blockchain and ICO services. The Commerce Ministry, meanwhile, is also starting to understand the benefits of blockchain in trade finance and in protecting intellectual property.

SECURITY IN FOCUS

The security aspects of blockchain cannot be overstated. A recent incident involving the leak of private data of up to 120,000 customers of Thailand's two biggest banks was a wake-up call for the sector that cybersecurity needs to be improved. The use of blockchain technology and its decentralised nature merit further exploration.

Blockchain is the underlying technology of cryptocurrencies but the crypto market is just the tip of the iceberg for blockchain applications. For example, Bitkub Blockchain Technology, the sister company of Bitkub.com, is currently working on a blockchain-enabled food-tracing project.

Although we are all curious about whether cryptocurrency prices will soar or crash, the real question to address now is, when will blockchain penetrate the mainstream and become integrated into more business operations.


Atichanan Pulges is the co-founder of Bitkub.com

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