Last month at our inaugural Asia Investment Opportunities Conference, I introduced one of our speakers, my good friend Brendan Blumer, to talk about blockchain and the future of decentralised companies.
Brendan is the CEO of Block.One, a company with offices in Hong Kong, India and the U.S., that on Monday began distributing its own blockchain token, called EOS.
I made (what I thought was) a bold prediction to the audience. I said that Brendan’s company would be worth US$1 billion within 12 months. There were a few wry smiles and a couple of chuckles.
I was wrong.
Last Monday, Brendan’s company started taking in revenue for its token, EOS. Less than two weeks later is has pulled in over US$200 million in revenue. The blockchain token is trading at a market cap north of US$3 billion.
(Although as I’ve said many times in previous articles on cryptocurrencies, this is a rollercoaster ride.)
Today, I’m not here to talk about Block.One or about EOS. Peter and I are small shareholders, and I’m a director of the company, so it’s wholly inappropriate for me to comment. What I’ve stated above are just facts, available to anyone with an internet connection.
But my involvement in this insta-unicorn has given me a few insights into the cryptocurrency space – and today I’d like to share with you one of those insights: Asia is truly the epicentre of the global cryptocurrency boom.
Here’s some proof…
The chart below ranks the global cryptocurrency exchanges’ total U.S. dollar-equivalent trading volume across all cryptocurrencies.
As you can see, four of the top six are based in Asia. In fact, around 50 percent more volume has been done through Asia than the U.S. over the past 24 hours.
Now, I’m not saying that Asia is churning out more blockchain-related startups than the rest of the world, because it’s not. But it’s absolutely clear from the above chart that Asian money is a massive force in cryptocurrency prices.
Why?
Around the corner from our office here in Hong Kong is a street market, with fruit and vegetable stalls lining narrow alleyways. There’s one stall owner who, when she’s not selling you vegetables from the side of the road, is visibly day trading stocks on her smartphone.
Do I think she has any particular insight into the markets? I hesitate to judge, but it would appear unlikely.
At the risk of generalisation, folks in Asia, especially the Chinese, love to roll the dice. Gambling is a regional pastime.
Take a look at the gambling hub of Macau. In 2007, gross gaming revenue was US$10.5 billion. It then rose four-fold to over US$45 billion in 2013 before, after a prolonged anti-corruption drive by Chinese authorities, settling to around US$28 billion last year. By comparison, Las Vegas brought in US$6.3 billion in 2016.
You’ll also notice two South Korean exchanges on the chart above (the first and the tenth largest). South Korea is another wealthy country partial to a bit of speculation. And whilst there are casinos in Korea, most are off-limits to locals.
I can’t think of a better way to speculate, if you are that way inclined, than cryptocurrencies.
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In Korea, demand for bitcoin was so high back in May that the Korean won (local currency) price reached up to US$4,500 versus the US$2,700 price traded elsewhere as Koreans rushed to buy bitcoin on local exchanges.
That gives you an idea of the kind of speculative fervour we can see in this part of the world. People in Korea were so eager to get their hands on bitcoin that they were willing to pay nearly double what people were paying elsewhere.
The second reason is that Asian governments have been much more proactively constructive in their attitudes towards cryptocurrencies.
For example, Japan’s government put laws into effect on April 1 this year recognising bitcoin as a legal method of payment, bringing exchanges under anti-money laundering rules, along with capital requirements and operational security regulations.
At the end of this month, an Indian governmental committee assembled by the Ministry of Finance will submit its findings – the general view from the cryptocurrency industry participants is that legalisation (and regulation) are likely.
China’s central bank, the People’s Bank of China (PBOC) seems set on regulating cryptocurrency exchanges. Earlier this year it outlined a list of rules that exchanges must follow, like restricting leverage or margin trading, violating anti-money laundering laws or tax evasion.
Every day that passes where we don’t see an outright ban on cryptocurrencies by Chinese authorities is a step closer to regulation, and mainstream acceptance.
In Asia, cash can be fragile
Another reason is that in Asia, we are continually reminded that local currency is hardly an enduring asset.
Let’s say you lived in India, and last year on November 1 you decided to put your life savings in carefully bundled 1,000 and 500-rupee banknotes (notes bearing the head of Mahatma Gandhi no less) under a mattress and head off into the mountains to meditate with monks for a couple of months, unconnected to the outside world.
Unfortunately, you would have returned home on New Year’s Day to find that your life savings were now completely worthless. (Hopefully, after two months of meditation you would possess enough inner peace to deal with your new-found poverty.)
This is because on November 8 last year, Indian Prime Minister Narendra Modi made a surprise televised announcement that all 1,000 and 500-rupee banknotes would be invalid as of midnight, and only changeable to new notes until midnight on the 31st of December.
Peter experienced something similar (albeit less drastic) last year whilst in Indonesia. He took some old Indonesian rupiah notes with him, only to have them rejected by vendors. The reason? His notes were dated between 2000 and 2003, and have not been accepted as legal tender since 2008.
So when you take the fragility of Asian fiat currencies into account, alongside a population that is increasingly internet-connected, then cryptocurrencies which can be instantly bought, sold and speculated on, appear pretty attractive.
If we see the Chinese and Indian governments in particular, along with South Korea adopt the kind of permissive legislation that Japan has, then we could see a whole lot more money flow into the cryptocurrency space.
And this is just one more reason why I think you should buy a little bit of bitcoin.
Good investing,
Tama
P.S. We put together a free report on bitcoin… how to buy it, move it and store it – you can download it at absolutely no charge by clicking here.
