Crypto risks CRYPTOCURRENCIES are often deemed a risky asset class
Crypto risks
CRYPTOCURRENCIES are often deemed a risky asset class and rightly so. Oftentimes, it is difficult to fathom the underlying values of most cryptocurrencies. No surprise then in the current rout of markets, cryptocurrencies are suffering badly.
Bitcoin has lost a fifth of its value this year, while some smaller coins have posted even larger drops. The Bloomberg Galaxy DeFi Index, which contains some of the largest decentralised finance protocols and apps, has tumbled 31% in the same stretch.
What is also painful is this – 2021 had proved to be a year in which many newbies got into investing in cryptos, including established funds, drawn no doubt by the stellar performance of some tokens.
Bloomberg reports that this means the recent slump could be painful for anyone who got in relatively recently. In fact, a recent Glassnode analysis found that almost all of the supply held by short-term investors is underwater. There are more problems. Crypto exchanges are increasingly coming under the scrutiny of regulators.
Last December, Binance, said to be the world’s largest cryptocurrency exchange, withdrew its application to the Monetary Authority of Singapore (MAS) to operate a regulated cryptocurrency exchange in the country.
MAS told the media that Binance had provided a plan for orderly cessation of its regulated payment services. MAS added that its approach to regulation seeks to “ensure that adequate controls are in place to address key risks such as money laundering and terrorism financing.”
And in July last year, the Securities Commission (SC) took enforcement actions against Binance for illegally operating a Digital Asset Exchange. The SC issued a public reprimand against Binance for continuing to operate illegally in Malaysia despite being included in the SC’s Investor Alert List in July 2020. This is why the crypto space remains very much in risky territory and will continue to do so for the foreseeable future.
Vital forex
AFTER nearly two years of dealing with the Covid-19 pandemic, the wrath of the pandemic has festered itself in more than the loss of lives it has cost.
Economic volatility is a staple byproduct of the disease and the residue of the pandemic has caused inflation to shoot up, jobs lost to the point that companies are finding difficulties to operate and many more issues.
But one of the key takeaways from the loss of business and opportunity has been the tourism industry. A start of any comparison is the numbers from 2019 when tourist arrivals were 26.1 million. Those travellers brought in RM86.1bil in tourist receipts. Fast forward a year into the pandemic in 2020, the number of tourists was 4.3 million people and they brought in RM12.7bil.
The decimation of the tourism industry needs to be reversed and there are countries that are reliant on the tourism industry that are already planning for relaxation.
Thailand is already fast tracking the opening of its borders. The heavily-dependent county on tourism has seen its baht taking a hit. The same with the Philippines which is already planning to open its borders to tourists.
There are many more countries doing so and the extent of the devastation the lack of tourists has brought is no more clearer than Sri Lanka, which has now got a foreign exchange crisis as the US$5bil a year tourists used to bring in has evaporated.
For Malaysia, there is also a need to get along with the opening of the borders. Yes, it is appropriate to have more travel bubbles with countries that have a high vaccination rate, but the clear fact is many countries have continued to vaccinate their citizens.
The option to open our borders to vaccinated and boosted travellers must be taken because the country cannot go on with the dribble of tourists. The industry needs to be allowed to take a calculated risk in order to continue to benefit from the new normal that starts with welcoming in vaccinated travellers. Failure to do so will me losing such tourists to regional countries.
Dealing with subsidies
WHEN Indonesia announced that local planters must sell 20% of their output of palm oil to local refiners, there was of course for concern over that move.
It is claimed there will be less supply headed to the international markets. That is true but prior to the new policy, the refiners that were buying palm oil to making cooking oil were getting their supply from the same suppliers from before.
Now there is a fixed amount that must be diverted for domestic consumption and at a fixed price. As Malaysian planters are large estate owners there, the knock-on effect should be felt by the group of large plantation companies that own vast tracts of land there.
Plantation stocks hardly saw any sell-off as lower supplies will even put more pressure on crude palm oil prices and that will benefit the planters even more.
Indonesia’s move, however, showed a different approach in dealing with subsidies. In this case as cooking oil has gone up by more than 40%, Indonesia’s approach is to get companies to pay a “tax” for operating in Indonesia. It caps the price of cooking oil at the same time afflicting little to no pain on its own budget in terms of providing subsidies to keep cooking oil prices in check.
Countries often use subsidies to fund populist moves and it is used to keep prices in check. It also has its uses in period when otherwise inflation would cause tremendous damage but there is little benefit, apart from the stabilisation effect, to keep extending taxpayer money to subsidise essential items.
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