Why the heck crypto takes up >50% of my portfolio? This article would be about my personal story of how I got started in crypto and blockchain. It is not so much on the prediction of where prices are going or whether it is the right time to invest in crypto. But rather, I would like to provide my personal perspective of the crypto space and how I got involved along the way.
Ethereum and Initial Coin Offerings (ICOs)
My very first investment was on 29 March 2017, not stocks, not REITs, not ETFs, but Ethereum. I remembered how intrigued I felt when I came across the concept of a decentralised autonomous organisation (DAO) and paying gas to run transactions on smart contracts. It was something exciting, futuristic, interesting, yet revolutionary.
I bought 2 ETH at $70 and it shot up to US$1,000 in just 1 year. (If you are interested in getting started in crypto, do refer to this guide here.) I still remember talking to this guy who was in his 20s that he had around 400+ ETH. Those were crazy fun times. A few months later, the Initial Coin Offering (ICO) craze came. It was just like an IPO where there is a public crowd sale. ICO was termed the new source of venture capital funding and raising millions within minutes is really easy.
Meeting with the CEO of Humaniq
I also tested out to participate in an ICO. My first project was Humaniq, a blockchain company based in Russia. Their goal was to enable financial inclusion among the unbanked. I have met the CEO of Humaniq, Alex Fork, once for coffee and he was speaking Russian the entire time. The whole conversation went back and forth through the help of his translator.
He is really an intelligent and conceptual guy. There were drawings and scribblings all over his paper as he describes how the invention of automobiles brought about an entire change in the whole value chain. Steel suppliers shot up in demand for the car body, rubbers for the tyres, Asphalt for roads, all of which calls upon new jobs for a new world. In this transitionary phase, haystack farms and feeds for horses became irrelevant, the value of horses decline and so on.
Similarly, bitcoin, blockchain and cryptocurrencies are bridging the gap between physical and virtual. He was saying something along the line of how paper notes like cash is moving from physical to digital. It started with heavy gold coins, then paper money, then credit cards and now we are moving into digital money. Blockchain is building the infrastructure for it to happen, just like how highways and roads are being built for automobiles to be used during the industrial revolution.
Entering the Rabbit Hole
I believe most early adopters and blockchain enthusiasts would relate to this feeling. Many, including Vitalik buterin, would describe this feeling as getting sucked down into a rabbit hole and never returning back to the traditional world.
There are many top executives from wall streets, MNCs, consultancy firms who have since made the career transition into blockchain. Take the most recent tweet about Deutsche Bank layoffs:
Similarly, when I first read the 9-page bitcoin whitepaper written by Satoshi Nakomoto, I got really curious and interested to understand what the heck the author, whose identity is still anonymous till date, is talking about.
I had to re-read again and again to understand how bitcoin works as I come from a non-tech background. Even till today, I still don’t have a clear idea of how it works, probably just 70%?
It is interesting to study how bitcoin solves the problem of double-spending in digital money though SHA 256 hashing, blocks, mining, decentralised nodes, Proof of Work (PoW) and UTXOs.
But it is not the intent of this article to delve into the technicals. If you want to read on it in detail, I have written a layman guide which can be found here.
Basically blockchain, with bitcoin being used as the first use case, allows us to transfer something of value from one user to another without the need for a central authority.
Transitioning from Accounting to Tech & Blockchain
When I first entered university, I wanted to do accounting and auditing. But during the second and third year, I started finding myself moving towards tech and blockchain. My motivation comes from the realisation (personal opinion) that accounting and auditing are gradually eroding in value since we belong to the middleman categories.
If you step back and think about it, the role of auditors is to provide trust to stakeholders that financial statements are prepared with reasonable assurance that there are no frauds or material misstatements. The role of blockchain technology is to provide trust in a peer-to-peer way that eliminates the middleman role such as financial intermediaries.
What if there is a public ledger database that can assure us that every transaction is immutable and trusted? This is very much still research in the works and it is known as triple-entry accounting. However, there are still many challenges and questions that remain unanswered.
While blockchain can verify the integrity of transactions, we still need auditors to evaluate management’s assumptions. This is to say that while we can prove that the figures are untampered, we still need to ensure that the figures coming from the management should be fair and unbiased.
Furthermore, companies spend millions of their capital budget investing in decades-long enterprise systems that are working perfectly fine. Tweaking the enterprise systems to be compatible with some form of blockchain solutions is going to be the last thing on their mind.
Hence, I believe that while blockchain is not going to replace audit in the next decade, it is going to disrupt many other industries and transform the social fabric of our society. I knew I wanted to be involved in this one way or another for my professional career.
Diving Deeper into the Technicals of Blockchain
That is the reason why I got started in crypto. It is fun and exciting and there is just so much going on every day. I started off with nothing, just a curious mind. Then I began attending various 2-days hands-on blockchain workshops from my university and those seminars organised by SGInnovate back then.
After a while, you start hearing every speaker talking about the same stuff. Every networking session is filled with the same group of people and it kind of reach a stagnant saturation point. So I thought to myself that to really understand how blockchain works, you got to understand how the codes in the smart contract works.
Then I started finding internships in blockchain companies with Digix being the first one. After a few months, I went to Turkey for my summer school to learn C programming and found another internship as a blockchain developer at Smartease.
Between this period, I was actively searching for online courses to get myself accredited with the various certs. I went for a professional bitcoin certificate by C4 consortium, which has expired a few weeks back. I am not going to pay more bitcoins to renew my certificate.
Now that I have just graduated, I was contemplating between finance and investments or technology and blockchain. In the end, I chose the latter as I feel the world is moving towards digitalisation. Banks are laying off people across the globe and there is a lesser need for equities analyst on the trading desks.
Personal Thoughts on Blockchain and Cryptocurrencies
To start off, I feel that most people are seeing crypto through a speculative lens, rather than the technology behind crypto, the value proposition and the motivation. They are only interested in whether bitcoin can reach $100,000, instead of how and why bitcoin is created. They are looking at the % gains in a day, instead of the news and developments that are unfolding in the crypto space.
The truth is: Cryptocurrencies and blockchain technology are developing and progressing at an unprecedented pace. This is something that mainstream media don’t cover and you don’t hear about it from your friends and colleagues.
Crypto is still a very niche area and you have to be in the loop to see and feel the pulse. But there is one thing that I am almost certain. Cryptocurrencies and blockchain are the future and they are here to stay.
Singapore’s Relevance to Blockchain
Almost every country is working on this now. Singapore is working on Project Ubin, Facebook is launching Libra, China’s central bank is launching its own version of digital currency, the fed is developing their payment system called FedNow, Walmart wants its own stable coin, Dubai wants to be the first city to be fully powered by blockchain in 2020, South Korea, Samsung, LINE, are all banking big on blockchain. The big 4 accounting firms are rolling out auditing tools for cryptocurrencies. Everyone is racing to meet the demands of the future.
I still remember a speech in 2017 made by Minister Chan Chun Sing at one of the community centres about blockchain. He mentioned briefly that Singapore thrives on three key areas. Airport, Seaport and its role as a financial hub. The emergence of blockchain technology seeks to disrupt financial intermediaries and middlemen, which is exactly what Singapore is. It is extremely important that Singapore gets this right so as to stay relevant and competitive in the future.
Singapore has a small population and it remains a challenge to source for talents, especially in the area of blockchain. That is the reason why MAS has more lax cryptocurrency regulations in comparison to other countries. We need to attract global companies, talents and resources, just like how tax rates are favourable to attract global MNCs into Singapore.
What is my Position on Crypto?
The first reaction I get when people saw that >50% of my portfolio is in Crypto always revolves around these familiar phrases. “Crypto is a scam”, “Crypto is risky”, “Bitcoin is backed by nothing”, “There is no value in these shitcoins” and etc.
After all, they are right in their own way and everyone has their own opinions on everything. There really isn’t any right or wrong answer. Ultimately, it’s about finding what works for you and what doesn’t. This article is about what seems right for me. I have studied through the technicals and I do believe in the future.
To start off, I admitted I have caught on the crypto bubble, allowed greed to get the better of me and am now in a net loss position. Having >50% of my capital investments in crypto is a big mistake on my part. I had no idea what I was doing.
The peak of my crypto portfolio is US$13,000 and it is now at US$2,000. It is definitely a big no-no to over-invest in an asset of such nature. My ignorance would ring a bell with the folly of many beginner investors who just started out, made a lucky break, became over-confident and lost it all in a matter of days.
If you look at the psychology of the market cycle, I have been through the euphoria phase and held on all the way down to capitulation and depression. So people who said that crypto is a bubble are absolutely right in that sense. It has already popped and I believe we are somewhat in the disbelief phase of a recovery rally. The market has definitely matured, realigned investor expectations and is now gathering wider attention from institutions, corporates and government functions.
Why don’t you Sell it All Away?
Therefore, I am now in the painful process of reducing the risk profile and rebalancing my portfolio. Can I sell away all my crypto and reduce my holdings to 5 or 10%? Sure, but I believe it will be a very very bad move to do so. Selling it now means realising my paper losses.
The best time to sell is long gone, which I really regret not doing so. The worst time to sell is now when it’s at its all-time low, but that is also the point where most people sold. If I am selling now, I would probably be making two big major mistakes: 1. Not selling at highs & 2. Selling at extreme lows.
Could it be a thinking fallacy of taking higher risk with losses? Maybe, but the way I see it, the risk-to-reward ratio is clearly in favour of holding on rather than selling. That is the reason why you see it still takes up a large chunk of my portfolio. Or maybe I may be delusional. Bagholders stubbornly hold on to losses, still clinging to the dim hopes that it will all work out one day. The truth is: no one knows and only time will tell.
Hodling on… Look at the Long-Term
I hodl-ed on throughout the crypto winter in 2018 and I believe that we have yet to truly see and realise the potential of the visions that are being set out by many of these crypto companies. Rome is not built overnight and I think the CEO of NEO, Da Hong Fei, summed it up quite nicely. He said that we are digging a deep hole now so that the foundation of a building can be strong. You can see nothing but a flat land from a distance. But in the future, it is going to be filled with skyscrapers. Similarly, a recent tweet by ICON:
These people are working very quietly on the ground, sometimes too quiet until the community thought the project is dead. While it is frustrating for hodlers, there is a reason to remain under-radar because there are many competitors in the space. Their focus is on BUIDL and none of them talks about prices.
Initially, I have much more cryptocurrencies in my portfolio, but I have narrowed it down to just five: Bitcoin, OmiseGO, NEO, Ontology and ICON. These are the earlier projects in 2017 that have seen their value fallen by >90%. Here is the detailed version of my thought process.
What is the Future of Cryptocurrencies?
This is entirely my personal opinion but here are the things that I foresee. Firstly, the narrative has changed from ICOs to bitcoin. No one talks about the next big ICO, it is just bitcoin. In 2017, you will see all sorts of new ICOS ranging from digital identity, social messaging platform, prediction markets, properties, gold, cards, sharing of computation power and etc.
Now? Institutions are focused on getting bitcoin. The more immediate problem is the endless printing of fiat, quantitative easing and how bitcoin can serve to become an alternative. People don’t talk about whether this or that altcoin is going to become the next multi-bagger.
The market has become smarter and more mature. It has realised that unless there are real value and use-case, any price increase would be met with short-sellers without fail. Pumps on partnerships, the launch of the main net, staking, rebranding, halving, doesn’t bother the market anymore.
We are still very early in the Game
Secondly, prices are still very much being manipulated by trading algos and bots. The mass have not entered the market yet due to fear, uncertainty in regulations and a general lack of awareness. This means that the price would move very volatile as the liquidity is still relatively low. At the time of writing, the coin market cap is just $250 billion, not even a trillion yet.
Thirdly, for an alt rally to come. We need more inflow of money into crypto. This means that the coin market cap should reach at least $500 billion or a trillion for the entire crypto market to become more mature. When more people buy BTC, only then will money move from BTC to alts. This is what happens when BTC reaches the peak of 20k in 2017.
Fourthly, this is a long-term play.
As mentioned earlier, Rome is not built overnight. Everyone, including myself, has overestimated what blockchain can do in the next few years. Most crypto companies have failed to realise the ambitions as stated in their whitepaper during the ICO phase. They realised the practicality challenges such as scalability against the idealistic end goal.
But as the saying goes, we often overestimated what we can do in a year and underestimated what we can do in 10 years. Eventually, someway or somehow, technology will find its way around just as the internet did.
Lastly, there is always this time lag between market adoption and emerging technologies. This goes the same for prices too. Sometimes it can take years for the market to realise or rather NOT realise the value of something. But when the time comes, both prices and adoption would rise exponentially. When the time comes, I can finally say: To the MOON!
And if it doesn’t: