Cryptocurrency market not dying: academic

This year has seen frequent volatility in the cryptocurrency market, with Bitcoin’s value plummeting from a peak of $68,000 on November 9, 2021, to below $16,000 on November 10, 2022, the collapse of Luna, the FTX and BlockFi bankruptcies, the decrease in the value of Binance, and the sharp fall in the value of many other coins. The cryptocurrency market lost more than 80% of Bitcoin millionaires. What do you think about the impact on Vietnamese investors’ sentiment?

Vietnam’s cryptocurrency market has two factors. The first is cheap money. The second is the speculation. It is like fans running after a star. When the star goes up, he or she will attract more fans, and when there is a problem, many of the fans will go away.

Cryptocurrency is a high-risk investment, like a stock that goes up and down a lot. The first characteristic is that cryptocurrency uses a lot of financial leverage. The second is that it depends heavily on new capital flows from traditional investors, new investors and rich people who believe in cryptocurrencies and put their money in them.

In 2022, especially after the Fed reversed actions to hike interest rates, some institutions, which had invested too much in the cryptocurrency market hoping it would go up broke down.

The recent FTX crash is putting a lot of pressure on funds, including relatively traditional funds, which are investing in cryptocurrencies. For example, Singapore’s sovereign fund is under great pressure. It must explain the loss of money.

And now some organizations are calling for a review of the responsibility of funds such as Canada’s Ontario Teachers’ Pension Plan, one of the country’s biggest pension funds, which invested in cryptocurrencies. Market watchdogs have been urged to reassess such funds. This will create unfavorable conditions for the cryptocurrency market, obviously.

However, rich people still want to put their money into cryptocurrencies. For the rich, it does not matter whether they invest 1% or 2% of their assets or lose 1 or 2%. And they want to try it. But for traditional funds, even 1% of the corpus is a huge sum of money. So the cryptocurrency market will change when such funds reverse their investments.

Looking further, the market still has potential in the eyes of some investors. For example, some people forecast Bitcoin prices will reach $200,000, even $1 million. But at the same time, some banks have predicted it will drop to $5,000.

As for the longer term, I think there are two reasons why people buy Bitcoin or cryptocurrencies in general. There is no stock market that can earn that rate of return in just a few days. If you want to make money fast, it is the place. And many people still want to earn that way. So the cryptocurrency market always has customers.

However, the risk is high. Firstly, organizations are still heavily indebted. Secondly, if Bitcoin prices fall, they will trigger off sale by many organizations and companies. Thirdly, some traditional funds are forced to withdraw capital from the cryptocurrency market.

But I still see some investors investing in the market when prices are low. Now, we can only wait and see whether the risk or bottom-fishing affects the market first.

You are also an investor, and you said you have earned a lot from the cryptocurrency market. What are you thinking about the market now?

When I returned to Vietnam in June, I said this market cannot pick up if many investors had borrowed money but had not defaulted yet. Since then, I have seen many borrowers and they have yet to default.

In the case of the stock and bond markets, governments might jump in to assist them more or less. But no government will assist the cryptocurrency market. Binance said it would pour $1 billion into this market, but this amount does not guarantee the market’s stability. Except for Binance’s commitment, I have not seen any other important factor that could push the market up. The most important factor is a large, steady flow of investment into the market, but I do not seen that happening.

But I see many entities have borrowed a lot of money and are in limbo. For the market to pick up, big debtors should "die", default or find a way to recover.

Many recent events such as the crash of FTX and rise and fall in the value of cryptocurrencies have caused huge shocks for the market. Is the cryptocurrency market different from that of other asset classes?

The cryptocurrency market has almost no difference with other markets. The most important factor is still cash flow. If money comes in, it goes up, and if no money comes in, it goes down. That’s all.

If you want money to come in, you should let people see the prospects ahead. The road ahead must be clear and beautiful. If people can see 2-3 kilometers in front of their eyes, they will enter. If people see fog, they will exit the road.

Now people see a lot of fog in the cryptocurrency market. Some organizations are taking risks to fish the bottom, while most are seeing fog and will stay out.

What were the problems in the operation and management of the cryptocurrency market during the past year and currently?

FTX is a very clear lesson. It shows that big institutions in the cryptocurrency market are being managed in a very bad way. In fact, people enter the cryptocurrency market without business management experience. They create a new cryptocurrency but are not able to manage it.

After FTX collapsed, some countries started tightening management. For example, celebrities cannot endorse cryptocurrency any more, or if they do advertise, they have to clearly state that they are promoting a certain organization for money.

In terms of market management in general, the cryptocurrency market is the riskiest among investment markets. If too many things are banned, the market cannot develop. If the market is let to grow, most of these risks will occur naturally. As for the two countries which manage the cryptocurrency market fairly flexibly, the U.S. and Singapore, they will have to reconsider the market management factor.

After a period of crisis caused by the crash of FTX, the price of Bitcoin has started to increase again. Does the recent upheaval mark the end of the cryptocurrency market or a new beginning?

I still am optimistic that it has prospects. The level of winning and losing is big, so it has a certain attractiveness. I have 20 years of experience in the financial market, and so I believe that when a market has such a characteristic, it is not easy to die unless the government strangles it.

If the government does not intend to strangle it, it will not die. Now we have a virtual world in which people have crypto assets, and so it will fit into something like a game, like Meta still building the metaverse. If those things pop up, this market can also boom.

The cryptocurrency market itself has a lot of tools for such development. There is still a lot of potential. But for the time being we have to tweak certain things. Many institutions in the cryptocurrency market must reduce their debts, even default. This will definitely happen.

In your opinion, what should investors do now?

I do not know whether my investment experience is appropriate for them or not. I think that for those who jump from the traditional investment market to the cryptocurrency market, and for those who have little experience in the financial market, and invest little, they should adopt a wait-and-see policy.

It is unrealistic to expect cryptocurrency prices to surge to several hundred thousand dollars. Some banks have predicted Bitcoin prices will drop to $5,000, and if so the prices of other coins will also decrease. But this will offer a bottom-fishing opportunity.

Investors who do not trade much, and tend to buy and hold, or surf when they think the market will rise in a few weeks, still have a chance. But I think they should remember two important things – use less financial leverage and not expect too much. Now the market still faces many difficulties. When the fog in the market clears, people will automatically know whether the trend is upward or not.

I think that fog might become thicker. Bitcoin is $16,000 now, but it may drop to $10,000, or even below $10,000. It will trigger a selloff by investors who are in heavy debt.

I do not see any sign of the fog dispersing in the first 2 or 3 months of next year, even in the first 6 months.