Surging bitcoin a temptation for Thai investors, but BOT remains wary

The price of bitcoin, the most prized cryptocurrency, rose to unprecedented heights, crossing the US$100,000 threshold for the first time on December 5, a month following Donald Trump’s re-election as US president.

Bitcoin’s rise has made market experts wonder if it is just a new bull run or there’s more to it than meets the eye.

In Southeast Asia, young Thai investors are showing greater interest in cryptocurrencies for quite some time.

Bitcoin as a global currency?

To be considered a currency, there are three requirements:

First, it must be a unit of account. Second, it must be used as a medium of exchange and third, it can be used as a store of value.

Bitcoin and other cryptocurrencies fail the test on the second and third characteristics of money. Though some businesses may accept bitcoin like fiat money, it is not widely adopted yet.

Bitcoin has emerged as a speculative asset, with no fundamentals to rely on, which is different from even company shares that have intrinsic value. Some people view bitcoin as virtual gold.

But those who are against it, such as highly respected global investor Warren Buffett, see it as a toxic financial product. Buffett has often warned of its danger to investors.

Many investors, however, are having a more positive view on bitcoin and other cryptocurrencies, especially after the US Securities and Exchange Commission (SEC) gave its approval for some investment companies to offer “spot bitcoin” exchange-traded funds (ETFs) in January.

The move led to a large number of institutional investors entering the market that was previously dominated by retail investors.

“Demand and supply has played a role in the surging price of bitcoin,” Nada Chunsom, director of the Master of Economics Program in Financial Economics at the National Institute of Development Administration, explains.

Many investors believed that they could understand the bitcoin movement cycle and bet accordingly after it debuted in 2009, she said.

The number of bitcoins would be limited to 21 million coins while currently about 19.6 million have been mined or issued, she said. The number of new coins that bitcoin miners could obtain is halved every four years.

The year 2024 was one of the halving years, so bitcoin has been on the rising cycle this year, said Nada. It could be a super bull run now and it could retreat from the record high and then it may take some time before the rising cycle comes again,” she predicted.

The Trump factor

Photo by Reuters

President-elect Trump has been seen as crypto-friendly. The industry donated an estimated over $245 million for the US election. Trump had said during the election campaign that bitcoin could be a part of the US reserve currency.

Trump announced plans to nominate Paul Atkins as chairperson of the SEC to replace Gary Gensler, who is not liked by the crypto industry. The US crypto-industry has high hopes that new regulations would favor the digital currency.

“Should the US add crypto to its international reserves, it would lead the way for other central banks to follow suit, leading to more demand for cryptocurrency,” said Nada.

She predicted that many countries would legalize bitcoin as a medium of exchange in the near future.

War and global conflicts boost bitcoin

The Russia-Ukraine war has led to trade and financial sanctions against Russia. While North Korea and Iran have faced sanctions from the West for many years, reports suggest that some of these state agencies have used bitcoin transactions as an alternative channel to circumvent the sanctions.

Individuals who want to move large amounts of money out of their own countries also turn to bitcoin, not to mention criminal and drug traffickers, who use cryptocurrencies as it could be transferred point to point on the blockchain ledger, bypassing the traditional payment network.

Intensified conflicts around the world have apparently boosted the digital currency, said Nada.

Bank of Thailand and bitcoin

Jirayut Srupsrisopa, founder and group CEO of Bitkub Capital Group Holdings Co, suggested that the BOT should accept bitcoin as a reserve currency, citing its growing popularity as an advantage.

“Before making such a decision, the BOT has to first study the pros and cons of bitcoin,” said Nada.

So far, the BOT has been seen as hostile to digital currencies. It has banned the use of cryptocurrency as a medium of exchange, citing wider use could undermine the stability of the financial system. The central bank is in the process of launching its own baht digital currency, known as the central bank digital currency.

Dull stocks and shining bitcoin

Thailand's digital asset market capitalization, dominated by bitcoin, amounted to 62.5 billion baht in October, up 9.8% from September. Daily trade totaled 1.51 billion baht, up 18.19% month on month, and active accounts were 129,000, up 23.93% over September, out of 2.54 million total digital investment accounts, according to Thailand’s Securities and Exchange Commission (SEC).

One reason for many Thai young investors looking to alternative assets such as bitcoin and gold is because the local stock market is no longer attractive. “The investment returns from the local market can no longer help investors beat inflation, so they are turning to cryptocurrency,” Nada lamented.

Besides the marginal return on investment over the past decade, the local stock market has been tarnished by a wave of financial scandals. Some listed firms were accused of doctoring their balance sheets, or committing fraud, while some debenture issuers defaulted on their debt repayment.

Diversified investment would be the best option, but one should not put too much investment into cryptocurrency,” Nada warned. Gold is also favored by Thai retail investors

They should also be aware of financial fraud disguised as bitcoin investment. Criminals may set a Pyramid scheme trap for those seeking high investment returns in cryptocurrency by exploiting the current market frenzy for bitcoin and other cryptocurrencies.

“They should be careful in trading, and they are advised to invest via brokerage firms that have a license or through crypto exchanges approved by the SEC,” she added.

Meanwhile, Napass Masathienvong, an investment consultant at Merkle Capital Co, a digital asset fund manager, said that Thai investors had become more interested in trading in bitcoin after the United States allowed investments in spot bitcoin ETFs and Ethereum ETFs.

Fund flows into those ETFs is huge, running into many billion US dollars, as both individual and institutional investors are pumping their money into the digital asset class.

“In Thailand, the digital asset trade volume now is much higher than it was in the early months of the year,” he said.

In Thailand now, investors can put their money in a fund of funds via a digital asset fund manager licensed by the SEC. In the near future, it is possible that Thai authorities may follow the US and allow options listing for spot bitcoin ETFs, as it has also been available in Hong Kong and Europe, he added.