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Crypto controversy: investors split following Bitcoin drop

Three investors explain why they're for or against investing in the cryptocurrency sector.

Cryptocurrency investors panicked on 10 June 2018 as Coinrail, a major cryptocurrency exchange, was hacked. It's a date now being nicknamed 'Bloody Sunday'.

The South Korea-based index announced in a statement that it had frozen all trading as 30% of its cryptocurrencies were considered compromised. Bitcoin in particular fell to below $7,000 - a considerable drop since its $20,000 heyday.

Following the hack, investors from Vaduz and Zurich told Citywire Switzerland why they will or will not continue betting on Bitcoin, as well as their cryptocurrency predictions for the rest of 2018.

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Cryptocurrency investors panicked on 10 June 2018 as Coinrail, a major cryptocurrency exchange, was hacked. It's a date now being nicknamed 'Bloody Sunday'.

The South Korea-based index announced in a statement that it had frozen all trading as 30% of its cryptocurrencies were considered compromised. Bitcoin in particular fell to below $7,000 - a considerable drop since its $20,000 heyday.

Following the hack, investors from Vaduz and Zurich told Citywire Switzerland why they will or will not continue betting on Bitcoin, as well as their cryptocurrency predictions for the rest of 2018.

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Manuel Bolkart

Managing director, MCVM

Vaduz

MC Vermögensmanagement (MCVM) managing director Manuel Bolkart said he believes the hack on Coinrail isn't to blame for Bitcoin's drop. Instead, he cites simple economics. 

'The main reason for the ongoing downtrend is, in my view, simply that the supply has, at least for the moment, overtaken the demand. This is a very simple explanation of course, but I think it perfectly sums up the current market situation,' he said. 

'Hacks happen all the time, regulators take action all the time. But now it comes together with a bear market accompanied with declining interest in this new asset class.'

Bolkart also said that having a cryptocurrency bear market isn't necessarily a bad thing - in fact, he believes past bear markets have been key to making crypto more secure.

'We could see several bear markets in the crypto market in the past. These were all very important periods, in which traditionally a lot of value was added and a lot of technical improvements were made.'

2018 Outlook

Bolkart said he and his team at MCVM are holding out hope for the future of crypto.

'Last year, we saw a huge price increases, which was much faster then the increase of the underlying value of the technology. Now we see the complete opposite, prices are decline and at the same time the value of the infrastructure increases. I think that a lot of value is being added right now. We see major good things happening regarding the technical progress of the infrastructure and this will play out in the prices of the market in the future.'

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Viktor Izakowicz

Managing director, Alpha Leonis Partners

Zurich 

Viktor Izakowicz, managing director at Alpha Leonis Partners, said he believes cryptocurrency is too risky.

He said: 'While we are intellectually intrigued by cryptocurrencies and the technology underpinning direct transfer for immediate settlement, we have not invested into cryptocurrencies as we believe it is still in a nascent phase with challenges around security.

'Bitcoin has historically and continues to be a very volatile instrument, and accordingly it should be viewed as high risk.'

He also believes Bitcoin's market-leading position may lose momentum in the future.

He said: 'While, Bitcoin is currently the market leader today, by market capitalisation, with the longest track record, other currencies are developing and could overtake Bitcoin in the future.

'There are many exciting cryptocurrencies developing, such as Etherium, EOS, IOTA or OmiseGo. To the extent that one recognises that all of these cryptos represent higher risk, investors should approach investing in cryptocurrencies in a diversified way. With that said there will be common risks to all of them. In many ways, it's similar to investing in venture capital, where some business ideas turns into “unicorns” and others struggle to survive.'

2018 Outlook

'The hype in 2017 with investors was “cryptos were going to the moon”. This exuberance has now faded and the bubble that was expanding in late 2017 has been pricked.

'We believe that the short term outlook for the rest of the year is also likely to be paired with high volatility and be largely "trend-less" until there is more regulatory and application clarity, and acceptance/usability across end markets. However, longer term, there is a strong business case for cryptocurrencies but it will some time to develop the robust infrastructure needed to support it its more widespread adoption.'

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Marcos Benvenuto

Investment manager, Crypto Fund

Zurich

Marcos Benvenuto is an investment manager at Crypto Fund, a subsidiary of Crypto Finance. He believes crypto can be a good investment, so long as investors understand the market. 

'I'm not going to disagree that price volatility of this emerging asset class is quite high compared to traditional asset classes. Investors cannot perceive this as an investment comparable to equities or bonds. It's more like a VC, startup-style fund,' he said.

'But, at the same time, you maintain investment liquidity, which one doesn't have with a traditional VC investments.'

He also said he expects that the market will stabilise as it matures and welcomes institutional-style investors.

He said: 'Given that this market is mainly retail-driven with a few long-term institutional investors, one observes these points in time where price volatility increases. As more institutional investors enter this market, they're more long-term oriented; investment periods are longer. It is expected that current high price volatility will compress over time.'

2018 Outlook

According to Benvenuto, investors can expect Bitcoin to recover, though not to hit its all-time high. 

'In my personal opinion, we've seen a hype bubble come through in December and January, where we saw the price of Bitcoin reach nearly $20,000 and then come down along this year. Given the evolution of this market, I don't think we are in bubble mode anymore.

'I think now we’ve entered a price stability period. The price ranges traded have tightened significantly. I believe we will see crypto assets bounce back from current yearly lows, and expect prices will start trending up along the year, but at a much lower pace compared to last year’s rally. We might observe Bitcoin hitting the $12-15 thousand range and to stay within that range - in my opinion, I don’t see it going up to $20,000 this year.'

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