The appeals of cryptocurrencies
Ever since I started my first job ten years ago, I have been doing stock and bond investing in my free time. By saying investing, I do not mean trading, whereby one is supposed to track the price movement minute-by-minute. Trading is not really for people like me who held full-time job and who are unable to continuously monitor price movement and took corrective actions. As such, the only thing I could do by not ‘gambling’ is by buying shares which I think is at the right price and then held onto them in view of getting dividends and share price rise in the future, like any other sensible people would do.
I’m pretty sure plenty of full time professionals like me are buying shares online and I’m equally sure that there is a larger number of them out there who are doing active trading. Now, I’m writing this as a non-professional and ‘value investing enthusiast’ who have been observing and feeling that stock market is on the ‘high’ end of the chart. I could be wrong to which I think I am, but I can’t help observing and feeling that these prices are just way off. Firstly, although buying shares constitute to a risk taking or gambling to a certain degree, I have learnt to buy shares based on the Companies’ financial performance and their balance sheet. Think of PE ratio, PBV, Quick Ratio, Net income, Total Liabilities, Total Assets, Net Asset Value per share, and you would get what I mean.
The thing is that there is only so much ‘blue chip’ companies out there listed on Singapore Exchange and you would tend to grasp relatively quickly how each company’s share price have been performing and their trends. Even though a lot of factors affect the price movement both internal and external to the companies as we all know, some companies’ share price movement didn’t make sense at all given all those factors mentioned earlier. Take Singapore Airlines (SIA) for an example. We all knew how bad the pandemic has been affecting the travel, tourism and the airlines industry as a whole and our flag carrier is no exempt. SIA is burning cash each day at a high level even though it hardly flies passengers and cargoes compared to pre-pandemic level.
Before the pandemic, it is estimated that SIA is burning around $350 Million per month when operating normally and now, SIA said that it has managed to bring down the cost to about $100-$150 Million, as reported by Straits Times. For those who have been following the stock market and SIA in particular, one would be familiar on the financial challenges that have befell SIA, and as such, have taken some well-thought measures recently to boost its cash and financial strength. With the support of Temasek, it has managed to raise $8.8 Billion last year through rights and MCB (mandatory convertible bonds) issuance, and another $6.6 Billion through debt instruments such as bond and secured financing. This year, due to the ongoing pandemic, it announced that it will put forward another round of MCB issuance, aiming to raise up to $6.2 Billion. A seasoned professional would immediately notice what effects that could have on the share price if one were to look forward into the future and if all the bonds were one day converted into equities.
Yet, market is not that efficient perhaps as SIA share price today is still roughly half of that before the pandemic. Trading volumes have swelled and yet buyers are still flocking to SIA shares in the belief that market will return to normal, and both SIA and the shares will ‘fly’ again in the future so the explanation went. How much of that is pure speculation or value investment is unknown, except that there has been rise and more volatility in the stock market recently. One example is the GameStop saga in the US, whereby non-professional stock buyers and traders have been driving up the money-losing company shares, beating up Wall Street and sent a few Hedge Funds into losses. It was further revealed that those non-professionals have been exchanging ideas and communicating through a Reddit forum titled WallStreetBet.
Perhaps the pandemic played a big part too. People who worked at home coupled with the rise in Digital/Information Technology suddenly found themselves able to participate online in stock trading relatively easily, compared to few years ago whereby stock trading were in the realm of big stock brokers and investment funds. A lot of digital apps dedicated to trading could be downloaded freely into one’s mobile phones today, and with just a few clicks, one could start trading on his own. The excitement of risk taking or betting has always been part of human nature and this drove more and more people into trading, and thus injecting more uncertainties and volatility in the market. Perhaps this is the reason on why value investing wouldn’t quite work out this time.
The rise in digital technology such as blockchain has also opened up and created a lot of opportunities for profit taking activities such as trading in NFTs (non-fungible tokens) and Cryptocurrencies (Cryptos) such as BitCoins, Ethereums and Dogecoins (which was initially conceptualised as a meme and jokes). If you were to look at the price of 1 Dogecoin today, it is trading at about 0.4 USD and I’m sure you wouldn’t know if you were to laugh or to take it seriously.
With so much money poured into these crypto exchanges and the surrounding controversies, it is no wonder that it has attracted so many warnings from various authorities and central banks around the World notably from the Fed and PBOC. Nonetheless, apart from the 25% slump in Bitcoins price as recently as some investors heed into the advice, those various Cryptos exchange platforms such as Binance and Coinbase are still largely functioning and that trading has returned to its normalcy. Part of the appeal of owning those cryptos are the anonymity that it conferred to its holders, and as such, Cryptos have recently been the default ransom payment for Cyber attacks, notably the US Colonial Pipeline Cyber attacks case.
The thing here is that it is getting harder to assign a ‘fair’ or even monetary value if any at all, to assets such as Companies Shares and to more obscure products such as NFTs and cryptocurrencies which have no physical value to back for unlike the Gold and Silver. But then, the US Dollar is also no longer being backed by Gold after the US Government abandoned its Dollar convertibility into Gold in 1971, and that the ‘Greenbacks’ are what they are now.
Perhaps, this is also the other appeal of cyrptocurrencies to their proponents, on why such digital coins could not one day replace the Governments’ issued currencies.
Editor note: These days, if you were to start trading in various Cyptocurrency exchanges, you are required by Law to furnish your Identity and Proof of ID statements, part of the Authority measures to combat anonymous crimes.https://straitsjournal.com/the-appeals-of-cryptocurrencies/Digital TechnologyLatest Thinkingbinance,blockchain,coinbase,cryptocurrencies,digital,dollar,ethereum,finance,Shares,stockEver since I started my first job ten years ago, I have been doing stock and bond investing in my free time. By saying investing, I do not mean trading, whereby one is supposed to track the price movement minute-by-minute. Trading is not really for people like me who...escveritas [email protected]AdministratorThe Straits Journal