Virtual money, led by Bitcoin, is currently in a tailspin. I have consistently advised that since it is difficult to calculate the intrinsic value of cryptocurrencies, those who wish to commit their capital should only risk amounts they are prepared to lose—treating it as an exploration of the “uncharted territory” (a byproduct of blockchain technology).
Late last year, before my departure, an acquaintance with no background in finance or economics (who works in the food service industry) sought my advice. He claimed to have parlayed a few million won into 100 million won in three or four months through his own market research, chart study, and even a paid signaling service. He argued that the prospects for cryptocurrency were bright and shared his plan that he was considering quitting his current job (!).
As he has occasionally sought my counsel over the years, I gave him my honest opinion: “Unless you have already earned billions of KRWs, converted them into cash, and deposited it into a standard account, keep your job." I added:
“In the stock market, there is a saying when shoeshine boys and taxi driver starts talking about stocks, it’s time to sell. Seeing even you talk about virtual money makes me think we’ve reached the peak. I don’t trade it myself, so I can’t be sure, but while the future of blockchain may be bright, I don’t see the same for cryptocurrency.
Even if cryptocurrencies grow large enough to threaten the existing monetary system—however unlikely that may be—will the reserve currency nations simply stand by? Especially when the trading prices themselves are based on the U.S. Dollar, much like crude oil? If you want to ‘invest’ based solely on blockchain, buy Samsung SDS instead. The government’s movements are also unusual; if you’ve seen a twenty- or thirty-fold profit, sell now. If you must continue, wait for a correction before re-entering.”
I wonder if he managed to sell well back then (when Bitcoin was around KRW 25 million).
From the government’s perspective, virtual currency still does not perform a monetary function,
so we are trying, wherever possible, not to use the term “money.”
The issue of cryptocurrency regulation is back in the headlines again today, and while reading the coverage I found myself thinking about Hong’s remark that even the terminology needed to be clarified. In English, the terms are virtual money and cryptocurrency. Since cryptocurrency is one type of cyber money with blockchain technology built into it, I think that is the more accurate expression. Yet this asset is commonly lumped together in Korea under the label “암호화폐,” which, literally translated, would come out as “cryptomoney”—a term the English-speaking world does not even use. Among the people trading that asset and then claiming harm from government regulation of virtual-money trading, how many could actually explain the difference between money and currency?
If people simply understood that the generic label attached to Bitcoin and the like is crypto’currency’, we would probably hear a lot less talk of “investing” in Bitcoin. Nobody says they are investing in the USD itself unless they are putting on a currency hedge against the dollar or building long/short positions on it. They could simply admit that they are speculating, but instead they keep trying to force it into the language of investment. Poker player is a perfectly recognized profession, so why is it so hard for people to say plainly that they are speculating in coins?
Furthermore, the Blue House’s inconsistency is laughable. One moment they brief that “virtual currency has no monetary function,” and the next they state that “virtual money exchanges are being classified as non-electronic communication businesses.” Is ItemBay or ItemMania a financial institution then? Are ItemBay and ItemMania financial businesses? In so many ways, this administration is genuinely absurd.
Cryptocurrency—virtual money, if you prefer—is already one of the biggest concerns among people in their twenties, even going by article-view statistics, and this is how the government is handling it.
Which only makes me think my election forecast is getting more and more likely to prove correct.
Appendix: Samsung SDS as a Proxy for Blockchain
Subscriber comment (2018.1.18. 16:33):
I read your earlier posts on LG Chem and Samsung SDI in relation to electric batteries. As someone who has been holding them for a few weeks, I have to admit it feels good to see them rising these days. Not that I should get too emotional about it, since I bought them with a longer-term horizon in mind. Samsung SDS, though, has already surged quite a bit lately. Is it not a little late to be getting in now?My reply (2018.1.19. 00:01):
I recommended LG Chem to people around me in November 2016 and Samsung SDI in March 2017. I have not researched either of them since then, so I do not know what a fair price for either would be now. These days I just read the news when something comes up… haha
What I told that acquaintance was this: if he had made that much money trading coins, he should take profit first, and if he still wanted to “invest” in blockchain after that, he should stop trading coins and buy Samsung SDS instead. More specifically, I had roughly three reasons in mind.
It has a real underlying business. Its parent group is one of the largest conglomerates in Korea.
Even if it has already risen a lot, compared with Bitcoin the size of the move—or the daily swing—is hardly worth talking about. Anyone willing to jump into virtual currency trading should be able to handle a spot asset with a “mere” 30% daily drop at maximum should be manageable.
If one doesn’t understand the intrinsic value, the market, or even proper technical analysis, and is only “investing” because of blockchain, they should only risk what they can afford to lose as part of “studying new technology”.
Even PhDs in the field are still only at the very beginning of researching this technology. An ordinary layman should not delude himself into thinking he has mastered it after spending a few days googling it. Stock prices, by contrast, reflect future value anyway, and at the very least you can still do company analysis or traditional technical analysis—not those ridiculous gimmick charts.