Winds of Change: Big Banks, Crypto and Us

Introduction

From barter to digital currencies, the natural evolution of money is always as a store of value that is easier to move, more secure, and more private. The crypto behemoth has set tongues wagging across the globe from time to time, it is evident that there is a wind of change in the financial industry. As money transforms into strings of ones and zeroes, what does the future hold for the financial industry? The broad effects of cryptocurrency can be surmised into three different headings — the investors, the financial institutions, and the consumers. 

To help Malaysians surf through the wave of crypto-exuberance, FLY journalists – Bryan Ng and Yean Quen have spoken to Hong Qi Yu, founder of Tokenize Exchange. This article touches upon his journey of establishing a cryptocurrency exchange, the investment strategy of cryptocurrency, and the role of financial institutions in this crypto space. 

A Discovery by Accident

When Qi Yu was an Electrical and Electronics Engineering student in Singapore Polytechnic and Nanyang Technology University, his interest in FinTech flourished alongside his passion for coding. In his early 20’s, he started investing in the stock market and suffered some hefty losses. Even though he learned it the hard way, he stresses that it was his mistakes that led him to be a more informed investor later.

In 2017, Qi Yu’s journey into cryptocurrency had an unexpected beginning while he was exploring blockchain technology and smart contracts. In order to be written and deployed, a smart contract requires an Ethereum network. Therefore, he bought Ether. Little did he know what was coming to him — the price of Ethereum doubled in a week or two after that purchase. He had never experienced such high returns in a short period and this encouraged him to dig deeper into the crypto rabbit hole, leading towards the establishment of Tokenize Exchange in 2018.

 Navigating in The Sea of Crypto Investment 

“It’s just like being given a second chance: like after the tech bubble in 2001 or 2002, where you have a chance to invest in companies like Amazon. This is why it creates a huge opportunity for the young investors to participate.”

Qi Yu believes that cryptocurrency is still at an early stage with a lot of upsides and that poses a huge opportunity especially for young investors as they still have a lot of time, and can aggressively build their investment portfolio. Even if they make some losses at this stage, they still have sufficient time to recoup from the losses. However, risk management and portfolio sizing matters a lot because investing comes with risks.

“There are a lot of companies like Google and Amazon. 9 out of 10 failed.”

Qi Yu suggested allocating 5% to 10% of the portfolio to cryptocurrency. He emphasized on the “risk to reward ratio” mindset, whereby we as investors should take a calculated and necessary risk if the reward ratio is higher. In his opinion, cryptocurrencies like Bitcoin and Ethereum realistically have a 10 times return; he is bullish on crypto and believes that it’s just a matter of time before the price of crypto grows.

When asked whether Dollar-Cost Averaging (DCA) — an investment strategy where investing in an asset is spread across a period instead of a one-off purchase, is a good strategy for the youths, Qi Yu opined that DCA is indeed a good and easy strategy, especially for newcomers. He stresses that this strategy can utilize time to reduce temporary market volatility and also lessen the psychological stress as investing can get emotional sometimes.

“Even a 5% could be very emotional. Imagine putting 5% of your portfolio into buying bitcoin at 60k or above and compare to RM1000 spread across these past few months; you construct it into a significant size; definitely in terms of psychology it will help a lot.”

With so many different cryptocurrencies out there, deciding on which one to invest in inevitably becomes a tough move. Qi Yu suggested that we should pay attention to the market capitalization of a cryptocurrency — a larger market capitalization for a digital coin means greater liquidity and lower volatility.

“Bitcoin is first in terms of market cap, almost 1 trillion USD, Ethereum is second and comes at 300 billion USD. With such a good market cap, if you wanna sell, you have no problem selling as there will be buyers.”

The Next Wave – Pivoting to The Generational Shift

When asked why some investors like John Paulsen remain convinced that cryptocurrency is merely a worthless bubble, Qi Yu opined that the old rich make money in traditional ways. Many performing companies are now tech orientated, therefore it is tough for them to understand the new innovations in this generational shift. 

“It is very hard to have right and wrong in investment. They always say hindsight is 20/20, when you go past, it’s a lot of what ifs, the foresight is tough.” 

 The Ripples Felt – Positions of Traditional Institutions 

 Will cryptocurrencies democratize the financial sector and affect the strong position of big financial institutions? These future-focused questions have become more salient as the number of digital coins and tokens grows. Qi Yu was of the stance that both worlds will coexist instead of one dominating the other. He further explained, despite Bitcoin having been in the market for 12 years, we are still getting our arms wrapped around the concept of cryptocurrency, so widespread adoption and acceptance may be a long way off. Until then, both are expected to exist side by side. 

Furnished by Qi Yu, a prime example of where cryptocurrencies are heading is Singapore, which has been offering crypto trust solutions to their private clients and followed suit in different jurisdictions — it is inevitable that banks will embrace cryptocurrencies as an asset class. Wearing the logical hat, the variation for a lot of asset classes is at an all time high; cryptocurrency being at its infancy stage, it makes a lot of sense to have it be a part of the component of the digital assets, as these are the value propositions of the bank to their clients.  

  “When I started my career, It’s so crazy to maintain the legacy system. The change request and approval you have to go through is so tedious.” 

Innovations in investment vehicles and transaction services are helpful for players like banks, when they have a lot of legacy systems, upgrading and changing it is hard due to the bureaucratic hurdles. He propounded that moving forward, banks should adopt a progressive approach. 

“If blockchain technology is now giving them another opportunity, instead of choosing whether to upgrade or to maintain the legacy system, why not concurrently, try the alternative solution and do a huge dynamic shifting on the system and operation.”

 Liquidity Surge Caused by Pandemic Induced Volatility

Qi Yu emphasized that if cryptocurrency were to become mainstream, it would definitely reduce the liquidity of traditional banks. This is perfectly illustrated when the COVID-19 pandemic was leveraged to seamlessly redirect consumers to digital channels, crashing the traditional market. Instead of more liquidity reshuffling back to traditional banks, more of it went into the digital assets in the cryptocurrency state. To salvage the economy ravaged by this pandemic, the Federal Government printed more money resulting in a decrease in its value. 

For the banks to get on board with the digital trend, Qi Yu suggested that they can start with investing in the related companies. Good thing about Malaysia is that the regulations are already in place, therefore it depends on how the banks are embracing this new innovation. In fact, a lot of banks are doing this but the offer was limited to private clients. This is because when offering products in this fast-developing sector, banks need to protect themselves and their customers against the risks that such new technology can bring. Rest assured, the upsides are more motivating than the downsides.

Kenanga Investment Bank is in Pole Position for the Digital Future 

Upon being questioned about what the gain points are for Kenanga to hop on the cryptocurrency bandwagon, Qi Yu drew us back to the current reality and the potential development, where he reiterates that many banks are already embracing it, hence cryptocurrency and digitalization is definitely here to stay.

 Currently, Tokenize is trying to work closely with regulators so they can offer more products which the local scene can support. They are aiming to push hard to get more retails; to achieve the desirable economic landscape, it takes both arenas to complete the whole picture.

Giving Back to Society 

The pandemic has been very destructive, unfortunately some industries and companies have been more negatively impacted than others, but we are the least affected by it, says Qi Yu. Hence, Tokenize is planning to give back to society by offering job opportunities amidst these unprecedented trying times. 

 He adds: “We are here as one, we try to help each other in this uncertain period, if anyone needs aid they can come to us and we can see how we can help. It’s always our direction to always contribute back to society.”

Based on the interview, it is safe for us to conclude that cryptocurrencies are poised to alter our financial infrastructure in profound ways over the next few years — a technology replacing claimed skills; a new way of paying your bills.

“You really need to take the first step and unfortunately the first step is very challenging.”


Journalists: Cheam Yean Quen, Bryan Ng

Reviewer: Hurriya Irfan

Editor: Johanna Lok  

Download Article: Winds-of-Change_Big-Banks-Crypto-and-Us.pdf


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