The news that South Korea was considering banning trading in virtual currencies gave many cryptocurrency investors the jitters. Bitcoin sank around 30% on the news and hasn’t really recovered since. By late last week, the biggest cryptocurrency had erased more than half of its value from a record high in December. It has also tumbled 22% since the start of the month.
While many investors have been selling their Bitcoin at a rapid rate, Fred Pye, CEO of 3iQ, believes the activity in South Korea is good news for cryptocurrency investors.
“It’s not the ban that is good news, but the potential for regulation; we don’t have a problem with regulation,” Pye said.
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“People that are looking at bitcoin as a solid store of value for the future because of its ease of use and transferability will not be bothered by regulation. Every time someone has put regulation into Bitcoin it has rallied.”
Pye believes that cryptocurrencies can be the legitimate asset class that the world is looking for and is encouraged that North American exchanges have committed to AML and KYC compliance. “When I realized that, I knew we had a product that the average investor can use to hedge everything else in their portfolio,” Pye said.
“It’s a beautiful, non-correlated asset with a Sharpe ratio of 3. It should be in every client’s portfolio without question. But they can’t do it themselves because it is very complicated to buy and sell bitcoin in any size, that’s why we try to create investment products.”
Pye expects cryptocurrencies built on mineable blockchains, like Bitcoin and Ethereum, to have a bright future. However, his outlook for tokens and cryptoassets that sit on top of those blockchains is less certain.
“They could either be really valuable or worth zero,” says Pye. “I would liken those to the dotcom bubble of the 90's and early 2000’s. It is going to be a long time before this gets sorted out. Some of the tokens that are currently worth $4 billion are probably worth zero and some that are worth $200 million are probably worth $4 billion, and that is going to be the trick for the next year.”
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