Cryptocurrency investing

Bitcoins sit in a pile.
Bitcoins sit in a pile. PHOTO: BLOOMBERG

HOW TO START

An investor first needs to open a cryptocurrency wallet - either through a wallet service or a cryptocurrency exchange.

"A wallet is akin to a bank account, allowing investors to store, receive and pay cryptocurrencies," says Mr Sachin Mittal of DBS Group Research.

"Most cryptocurrency exchanges offer wallet services as well, but investors must be careful to choose one that trades the cryptocurrency they wish to purchase."

SUSS Prof David Lee notes that you can get the cryptocurrency from mining cryptocoins, buying from another person who owns them, selling goods to exchange for the currency, or buying from a vending machine or an exchange.

IN SINGAPORE

Mr Mittal says exchanges here are required by the Monetary Authority of Singapore to verify the identity of investors.

Wallet and exchange services here include CoinHako, Coinbase, Luno and ItBit.

Prof Lee tells his students to learn about cryptocurrencies and blockchain before investing, "if they wish to prepare themselves for the new economy".

Hence, he recommends buying a few dollars of bitcoin from vending machines - not as an investment but as a way to understand how the cryptocurrency works.

WHY NOW?

The emergence of the bitcoin is by no means coincidental, says Prof Lee, adding that it is a symptom of over-printing of currency declared as legal tender by governments, and a growing loss of confidence in the old-economy financial architecture.

He notes that experts say assets not backed by commodities like gold and silver - such as cash, bonds, hedge funds and real estate - are in a huge bubble, with prices continuing to go up despite poor fundamentals.

The bitcoin became a legal form of payment system in Japan on April 1 this year, Prof Lee notes, and many anticipate that more governments will accept cryptocurrencies as a new alternative class of investment as its trading volume and total market value increases beyond US$100 billion (S$138 billion).

As a new asset class, Luno's Mr Vijay Ayyar notes that reports show this asset class is not related to all the other asset classes, such as stocks, bonds and gold.

"In fact, over the past year, what we've seen is that people buy bitcoins when faced with uncertain events such as Brexit, demonetisation in India or (Donald) Trump's election."

A version of this article appeared in the print edition of The Sunday Times on July 16, 2017, with the headline 'Cryptocurrency investing'. Print Edition | Subscribe