The cryptocurrency frenzy dominated the headlines in 2017 as investors were hooked when bitcoin's value skyrocketed from US$330 (10,524 baht) to around $7,500 (238,935 baht) in just 24 months, sparking a gold rush in the virtual world.
While cryptocurrency investment could ignite your investment appetite, one should keep in mind that high investment returns are associated with high risk. Despite the use of the revolutionary blockchain technology, which records all confirmed transactions, digital assets and exchanges are not immune to scams and cyberhacking.
Initial coin offerings (ICOs) have also been on investors' radar, with several tech companies and startups opting to raise funds through this method. ICO transactions are similar to crowdfunding, whereby an issuer presents a business model to investors. The difference is that the raised funds are in the form of digital currencies using blockchain, and the deals are enforced using smart contracts.
But investors should temper their enthusiasm until they learn the basics of cryptocurrency investment, the better to prevent huge losses and avoid becoming the victim of fraud.
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SUGGESTIONS FOR NEW INVESTORS
Sakolkorn Sakavee, a co-founder of Bitcoin Thai Club who has invested in bitcoin since 2013 and has earned a profit of over 100 times his initial investment, says there are huge opportunities to create wealth from digital currencies, especially bitcoin and ethereum, as these are the two benchmark digital currencies.
"Whenever new digital currencies are launched, these two major digital currencies still have opportunities to grow, as the trade of new digital assets drives up demand for bitcoin and ethereum," Mr Sakolkorn says.
His advice for new cryptocurrency investors differs depending on their age, investment experience and risk appetite.
Younger folks with no investment experience and a familiarity with the internet and mobile technology could easily invest in cryptocurrencies, he says, because they can simply open an online trading account through the digital authentication process, as opposed to face-to-face authentication when opening a securities trading account offline.
"You can invest only thousands of baht in cryptocurrencies, and it's a good way to make a larger gain," Mr Sakolkorn says.
For people who have some investment experience, his advice depends on their level of risk appetite.
"If you can accept a loss of 60% within a week or a month, cryptocurrencies might suit you," he says. "If this is the case, you must ask yourself about your investment purpose, whether you can accept high risk for a high return, or rather you want to invest for the long term."
A clear investment purpose is essential, as there are more than 1,500 digital currencies available along with an abundance of ICOs.
"We will never know whether a digital currency or an ICO we have invested in is a hoax or not," Mr Sakolkorn says.
The safest way is to pick from the top 10 or 20 digital currencies that have strong fundamentals or a history backing their value, he says.
Cryptocurrencies are the investment of the future, according to Mr Sakolkorn. He compares it to buying Amazon shares over the past decade as the e-commerce revolution took over, as cryptocurrency is expected to revolutionise the financial realm and transform the world into a cashless society.
"Selecting the right one means an opportunity to gain long-term profit," he says.
TRADING PRINCIPLES
After assessing your investment purpose, the first step is getting to know the technical terms of digital currencies and observing the investment methods of other digital currency investors.
As digital currencies are related to technology, especially blockchain, currencies with high potential should ideally be used widely as a medium of exchange when society becomes cashless in the future, Mr Sakolkorn says.
"Startups tend to raise funds from ICOs to initially run their projects, then raise funds from a stock exchange when their businesses have stable revenue," he says. "This means investment in a company at its initial stages."
Mr Sakolkorn reiterates that while cryptocurrencies have boomed over the past two years, with some up 1,000% in value, others have dwindled because investors lack confidence in them.
"There are high risks for people who are not familiar with technology," he says. "This asset is different from stocks, which have numbers and data to help investors with their analysis, as cryptocurrencies are purely dependent on technology."
Mr Sakolkorn recommends the Siam Blockchain website for obtaining information and news on cryptocurrencies.
There are also Facebook groups such as Bitcoin Thai Club and Crypto Trading Club that provide updates to paid members about interesting cryptocurrencies and ICOs.
Furthermore, several seminars on digital asset investment are easy to find on the internet, Mr Sakolkorn says.
The next step is selecting a credible and secure digital exchange, which is vital because these digital assets are kept on the exchange. If a digital exchange lacks sufficient IT security, it could be a target of cyberhacking.
There are five to six digital asset exchanges in Thailand. Bitcoin Exchange, known as BX, is the first and largest in Thailand, gaining popularity among bitcoin investors.
Another choice for investors to protect their digital assets is to create their own e-wallets to withdraw the tokens (after trading is completed on a digital exchange). E-wallets have an encrypted password for a high level of cybersecurity, Mr Sakolkorn says.
Investors have a choice when engaging in digital asset trading: (1) select among the top 10 or 20 cryptocurrencies, which are suitable for investors with less risk appetite and who need liquidity; (2) speculate on unpopular digital assets. Investors choosing the latter need to do a lot of homework, such as reading the white papers of ICOs to find out if a token is undervalued, Mr Sakolkorn says.
"There are more than 1,500 tokens right now," he says. "It's like buying a lottery ticket, as investors could lose the whole investment, but if they pick the right one they could receive a big jackpot." By his reckoning, his largest loss in cryptocurrency trading is around 80%.
Mr Sakolkorn stresses that enthusiastic investors should not bet their physical assets, such as houses, cars or a lot of cash, in digital assets with the hope that the value will increase in the near future.
He also cautioned not to bet on only one token; diversifying investment into as many tokens as possible is more prudent, managing the investment by gradually buying for 2-3 rounds.
HOW TO SELECT ICOs
Here are some tips on investing in ICOs from cryptocurrency gurus.
Bhume Bhumiratana, an adviser to the Thai Fintech Association and a consultant for the Securities and Exchange Commission:
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Select a project that has potential to succeed. There are a lot of criteria to consider, such as team experience, credibility, unique technology, and an ability to do something difficult, which is a barrier to entry for any ICO.
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A good white paper will show that the team understands the problem and offers a method of solution.
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The product's process, a demo or a prototype can help create investor confidence.
- Mr Sakolkorn, chief executive of Bitkub Online, a new digital exchange that recently launched with registered capital of 50 million baht:
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Good team management emphasising the importance of project development. However, a good project and management team don't always guarantee the success of an ICO if market sentiment is unfavourable, such as plenty of supply but low demand.
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Beware of an ICO guaranteeing a precise rate of return. This might be a Ponzi scheme.
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Invest in global ICOs, as they will generate higher liquidity than domestic ICOs. Demand from domestic investors might not be enough to drive capital gains. A good way to look for investment in global ICOs is through online search sites such as www.icodrops.com.