Prestige Woman of Power and CEO of consultancy Stratford Finance Angelina Kwan believes digital assets, such as Bitcoin and NFTs, will soon transform the private wealth landscape and urges investors to keep an eye out on current and forthcoming financial regulations.
What are digital assets?
The Web3 platform Chainlink is tearing apart what used to be kept in Google or Meta, creating decentralised networks, a type of blockchain. And the virtual assets that come out of these networks are rewards or tokens awarded to people after they invest in these projects. Now, if you had a piece of property in Central, you could either use the old-fashioned paper or, if people had agreed on a protocol, instead of an overwhelming stack of documents, you’d get one token, which designates the ownership right. There’s so much interest in tokenisation and trade of tokens, so much so that the Securities and Futures Commission (SFC) will issue a final guidance paper in about two months on the tokenisation of assets.
In 2008, Satoshi Nakamoto created a peer-to-peer version of electronic cash that enabled payments to be sent back and forth through a network that didn’t require a bank. The people behind the pseudonym even created a schematic of how to build it. The network timestamps transactions by hashing them into an ongoing chain of hash space- based proof of work, forming a record that can’t be changed without redoing the proof of work. Banks, for example, can still negate and hide things, but that’s not the case here. It requires minimal structure and rewards you with tokens through a process called mining. Then, there’s a chain of computers that approve and reject submitted transactions. So, when you plug in your PC, the blockchain recognises you and allows you to continue mining, so you get your little tokens (Bitcoins) in your wallet each day based on how much time you work on it. These tokens can be used for checking balances, transferring and so on. If you were a bank, you could put this in place and quickly replace your clunky systems. But, of course, none of the banks can do that because the regulators don’t allow them to.
If you think about it, the initial coin offerings came out suddenly and collapsed – it was a pump and dump, and there was no documentation for many of these deals. They’d say they wanted to put $100,000 in to tokenise gold. Yet, there was no proof. This was why people didn’t trust tokens, because there was no regulatory body that could intervene.
What’s the relationship between physical currency and Bitcoin?
A Bitcoin has no intrinsic value. There are only 21 million of them, so if you think it’s worth something, you’ll assign to it a value based on scarcity. If you think it’s worth US$25,000, which is what it’s currently trading at now, then you might buy it. When it goes up to 30, you’ll think you made a smart decision. But if it goes down, you’re going to be bummed. Securities tokens can start as traditional assets. So, if you have a house on the Peak, it’ll probably be a couple of hundred million dollars. But if you divide it by a million tokens, you’ll know that each coin will be worth $500.
Is there a synthetic scarcity of Bitcoin?
Everybody involved with Bitcoin at that time knew there would only be 21 million coins. It was decided by the founder – whoever Satoshi Nakamoto is. But what happens when the 21 million are already issued? You go into fractions. So, you may be selling a small portion, which might appreciate. You can’t do that with the US dollar, because it keeps getting printed. The founders wanted a finite amount of Bitcoin, so people would know exactly what they were getting. Nakamoto never thought of it as an investment – it was a reward for keeping up the system. So, why Bitcoin? It’s a tamper-proof digital record that’s efficient and cryptographic. And it’s important for financial services. For other coins, like Ethereum, its value goes up based on its popularity. It’s used in games on the blockchain. Because more users get into that blockchain, its value has become thousands of dollars now. These developments are why Web3 and the new things coming out from it are a matter of mankind moving faster in terms of discoveries, computer power, and creativity.
How about NFTs?
They can store data, be used as tickets and be monitored. For example, there’s a company using blockchain to tag cows, tracking their locations and growth. The technology is immutable, so you can’t change the tag unless the cow dies. And once the SFC issues the anticipated tokenisation paper, you will see people tokenising crap assets and selling them. I believe if the asset was crap, it’d be crap when they sell it. But, if you have good assets, it’s a good way of getting asset classes out to more people, because instead of using a listing document that you still must fill out, you can register with your wallet on blockchain.
Why is licensing so important?
It provides recognition that for anything sold to an investor, there’d better be agreed-upon documentation. So, if there are specific things about the digital asset, there must be a document explaining what it is. It brings up the fact that digital assets will be sold like securities through licenced brokers. That’s why we’re putting together licencing examinations, so that people selling them possess the general knowledge and skills to explain the product. Furthermore, before someone invests for the first time, they’ll have to take a quick exam to ensure they understand what they just learned about this asset class.
What’s a digital-assets investment strategy?
If someone came to me (and I’m not giving investment advice) and said they wanted to build a portfolio, I’d suggest buying a little bit of the major coins: Ethereum and Bitcoin. Track them and start studying. Then you’ll see what other coins are coming out. Only trade through a licensed exchange or company to ensure you’re getting the real thing. Venture funds that manage digital assets are another way to get exposure: let a professional do it for you. You’re going to see more projects like this soon enough. Those haven’t yet been licensed though, so you take your own risk.