I was shocked. I mean, who would have guessed FTX would crumble just like that?
First was Do-Kwon and Terra. Then a crypto hedge fund — Three Arrows Capital — defaulted on a US$670 million loan.
Is it me, or it seems like these days, we have been sucked in by the huge successes of entrepreneurs and their ventures. I don’t understand why there’s so much public adulation around them.
Clearly, I’m from a different era.
What caught my eye in this whole FTX saga, was how some of the biggest investors also got scammed into FTX.
There were sources reported that the Ontario Teachers’ Pension Fund, Tiger Global, Sequoia and Temasek had lost hundreds of millions of dollars invested in FTX.
I can tell you their investments will be written off.
Again, I cannot help but tell myself: investing isn’t about how smart, how academically endowed you are, or you need to work in finance.
I believe we still can invest successfully just by using a little bit of common sense. Sometimes, investing really is simple.
I was a bonds analyst in 2013. And one thing I learnt was knowing that a bond must be backed by a physical asset. Because I needed to be sure my bond would pay me coupons and principal back safely.
If not, at least I could claim the assets if bonds defaulted.
Now FTX went bust, US regulators and authorities are investigating if there could be a potential fraud. Before that, the crypto exchange was already lathered with liabilities worth billions of dollars.
So where did all the customers’ deposit go to? I don’t know.
Once, I knew during my army in-camp training in 2021, this guy laughed at my “pitiful” REIT dividends, when he compared to his crypto holdings, earning him interest with at least 20% annual yield. I’m not sure if he’s still laughing today.
They say cryptocurrencies will replace our fiat currency. But how is that even possible?
In the first place, currencies derive their importance from the size of their economies that issued them, the volume of trade and the number of financial transactions these countries engage.
For instance, our Singapore dollar currency is so strong was largely because of our geographical position as an entrepot hub — which has now turned into global financial hub.
Over the years, this allowed Singapore to accumulate massive foreign currency reserves, which we use to buy and sell currencies to manage the Singapore dollar.
People trust a currency when it’s stable.
This attracts more demand for that currency.
Like a flywheel.
That’s why the US dollar, till today, is still seen as a safe haven — and the centre of gravity for which all other currencies trade peripherally. Don’t forget, oil, gold, stocks, government debt are still traded in the US dollar.
On the other hand, cryptocurrency’s value is derived by licking your finger, then sticking it in the air.
Its importance is tied next to nothing.
Even when the euro was first considered “toilet paper currency” in the 1990s, the euro went on to appreciate in value since its founding.
This was because of the EU’s economic importance to the world. In fact, the 19 EU countries using the euro are still major trading partners to both the US and China.
I believe a new currency, or a replacement to currency must have some economic value to the world.
Otherwise, it’s bogus money.
Now, this whole cryptocurrency mess is really just the tip of the iceberg.
China was right to have banned all cryptocurrency transactions. Charlie Munger said cryptocurrency is “likely to go zero.”
According to CoinGecko, the total market value of all crypto tokens has tanked more than 70% from its peak of US$3 trillion from a year ago. The crypto market currently worth only US$843 billion.
Earlier this year, a J.P. Morgan Chase strategist wrote Bitcoin could “theoretically reach US$146,000 in the long-term by crowding out gold. A survey by PWC from April found that 42 per cent of crypto hedge funds were predicting Bitcoin to trade between US$75,000 and US$100,000 by the end of 2022.”
Well, now I don’t know whether I can believe such predictions anymore. I’ll always remember from a book, it’s the devil that takes the hindmost.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan