Last week’s $40 billion collapse in the Terra Luna stable currency platform is a major setback for cryptocurrencies and digital assets in Asia. The sector had won a great deal of support from investors in the region, particularly wealthy families, but is now facing considerable scepticism.
“How ironic it is that a stablecoin caused an upheaval in the crypto markets,” said Edward Foo, managing director at Singapore-based Pacific Harbor Group, in an online forum on Monday.
“Oh what a brave new world we live in now. Perhaps in the crypto metaverse, the word ‘stable’ means something else.”
Iu-Jin Ong, CEO at Ambitum Capital Limited, a Hong Kong-based single-family office, told AsianInvestor, “It is certainly a concern that any instrument (such as Luna) can have such a systemic impact on the market, but at the same time it is not surprising given the relative infancy of crypto.”
Do Kwon, the Korean entrepreneur who created Luna, was known for his arrogant and abrasive character, that drew in backers and investors convinced of his genius in devising a supposedly secure algorithmic ecosystem. Investors angry at Luna's collapse are now pursuing him through the courts.
Crypto exchanges such as Binance and Coinbase claim they operate a rigorous due diligence process for listed coins, but unlike mainstream stock exchanges, no formal listing requirements underpin this.
As Nicolas Hesse, Bali-based founder at Bit of (un)limited remarked online: “Where are the crypto rating agencies?”
Foo replied, “There aren’t any, at least not that I am aware of. I suppose this is what is referred to as the “trustless trust” enabled by crypto."
The blockchain technology that underpins crypto transactions is not in question and still continues to function securely. As AI has reported, new custodian services utilising blockchain technology have helped institutional investors to increase their exposure to digital assets.
Many investors and others still don’t see the point of it, however.
In the same online forum, game designer Dan Felder pointed out that many world-changing technologies had no obvious use for them when first invented.
“What confuses me, though, is when people are convinced blockchain technology is going to revolutionise every industry, but they have trouble naming even a few revolutionary use cases.”
Horace Ma, director at Chevalier International in Hong Kong, told AsianInvestor, “While we have learnt that blockchain is much more foolproof, the Luna collapse has painted a black picture of it. Of course, the ‘experts’ in the field would protest that this is a misunderstanding of blockchain.
“However, the general public’s idea about crypto is that things that are blockchained are not safe and secure ultimately, no matter how advanced the technology and foolproofed the algo behind it.”
The recent performance of the NFT market also exacerbates this negativity too, said Ma. “All in all, people are shying away from cryptos, NFTs, blockchain or digital-related assets at the moment.”
Faye Yang, a Singapore-based arttech and self-proclaimed NFT guru, published a paper on May 23, suggesting that “with NFT crashing and P2E (play to earn gaming) to follow, this is playing out to look more and more like the dotcom crash 20 years ago. It's not that the technology isn't great, but that it's so new that most don't understand it and scammers take the opportunity to do what they do best.”
In Foo's view, while there are parallels to the dotcom bubble, “there is one key difference that must not be overlooked: Crypto currencies have the stated intent to supplant existing systems and financial structures.
“The tech is but a tool. Managed poorly, its long-tail effects might be more than we would like. At the same time, should crypto be weaponised, the asymmetry of conflicts will be very difficult to manage. As the saying goes, never give a 3 year-old a loaded gun.”
Although this latest correction may not herald a new phase for crypto, investors feel the speculative risk-reward equation has changed.
“It really depends if the cryptocurrency suppliers are ready to make amends and show their integrity; that they do really want to make a viable and ethical market out there for people to participate in,” said Ma.
“Otherwise, it will still remain as a bunch of kids playing in a pool of balls while people outside the ring watching how naughty they could be!”
However, he remains bullish about some digital assets. “NFTs are not for speculation, but can be a good medium to help link the physical assets to virtual applications.
“For example, I am advising a 3D imaging and scanning company in the field of arts and antiques, where the technology is enhancing the provenance and authentication of antiques and art pieces to be auctioned or traded in the market.
“By minting these real 3D images to NFT, these antiques and art pieces would be more easily identified and accessible to a larger group of people via your handheld gadgets like mobile phones.”
For the next phase of the crypto revolution, Ong’s view is that “early stage opportunities with substance” will be in hot demand.
Ma agreed: “Setting aside gambling your money away, people are looking into disruptive technologies and business models that are able to link the two worlds together, ie the physical world and virtual world.”