Experts advise caution as Bitcoin drops to 5-month low

The largest cryptocurrency dropped as much as 7.4 per cent to US$38,261 (S$51,500). PHOTO: REUTERS

SINGAPORE - Cryptocurrencies have been losing their value since peaking in November, underscoring the risks involved in trading them and on the back of more stringent regulations announced by the Monetary Authority (MAS) this week.

Bitcoin sank to its lowest level in more than five months yesterday, as risk aversion again swept across global markets. The largest cryptocurrency dropped as much as 7.4 per cent to US$38,261 (S$51,500), while Ether was below US$3,000, down by almost 8 per cent.

Compared with its November peak of almost US$69,000, Bitcoin is down by more than 40 per cent. Ether is down by around 62 per cent from its record high of US$4,670.

Analysts say the recent drop in Bitcoin, which had soared in the past few years on the back of a growing acceptance of the cryptocurrency as a store of value and portfolio hedge, was triggered by expectations of higher interest rates in the US and a lower appetite for speculative investments. 

All this is coming at a time when analysts and investment bankers are advising their clients to pay attention to the metaverse, which has its foundations in crypto and other blockchain technologies.

At a UOB Asset Management conference on Tuesday, analysts noted that the metaverse would rise in popularity in the future.

Analysts at a Bank of Singapore investor conference on Jan 11 said that the development of the metaverse could catalyse “a wide spectrum of opportunities” in digital wallets and custody services, exchanges and cryptocurrency trading and mining. 

But the volatility of cryptocurrencies also underscores the high risks involved in trading cryptocurrencies, prompting MAS this week to tighten regulations around crypto-related activities. 

In a set of guidelines issued on Monday, MAS said crypto service providers in Singapore were not to portray the trading of cryptocurrencies in a manner that “trivialises the high risks” involved, and limit any promotional material to their own corporate websites, mobile applications or official social media accounts.

MAS also reiterated its warning that the trading of cryptocurrencies “is highly risky and not suitable for the general public”.

Members of the public are currently not subject to any statutory protection.

At the UOB Asset Management conference, Mr Paul Ho, senior director of Asia-Pacific equities, said that even if they have a positive long-term view of cryptocurrencies such as Bitcoin, investors should avoid allocating too much capital into the asset class.

“If you do go ahead to invest in Bitcoin for diversification, just remember to make sure that the bet size isn’t too big and that you are ready to stomach frequent crashes of 50 per cent or more, as we have seen happen many times in its history.”

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