The intriguing world of Cryptocurrencies.

BitCoin (the OG crypto currency), DogeCoin (Elon Musk’s favorite), ShibaInuCoin (not created for Japanese dogs) and even, DubaiCoin (not related to the middle eastern city),

These are just some of the seemingly weird names that come with the world of cryptocurrencies.

Love it or hate it, you probably can’t avoid it now since the recent bull market (that is, till the recent dip or start of the bear, crypto experts can’t seem to agree on this but time will tell) has catapulted cryptocurrency news into mainstream media.

It seems like crypto advocates and critics are featured on major news outlets every other day. On one hand, you have top crypto advocates like Michael (Saylor Moon) Saylor organising talks between Elon (Dogefather) Musk and the Bitcoin miners association regarding green energy usage for mining. On the other, you have Warren (the Sage) Buffet, dubbing Bitcoin “Rat poison squared”.

There’s no lack of highly divisive technological or financial innovations in our brief modern history, but few rival the wrangle brought upon by the first ever cryptocurrency.

As a financial consultant, I’ve always viewed this matter with part intrigue as well as part resistance. I won’t say I’m an expert on the Blockchain technology but after months of exposure and learning from both industry experts (shoutout to Yap Jun Hao over at Xfers) and my good old teacher, Youtube.com; I’ve come to grasp the fundamentals of this breakthrough technology. So if you’re looking to learn how to be a developer for the latest alt coin projects, I suggest you look for some of my tech friends.

And if you’re like me, or have watched at least a couple of Youtube videos regarding crypto, you would have heard the standard disclaimer that none of the Youtubers are giving financial advice as they are not financial consultants. So here comes my own disclaimer.

I am a licensed financial consultant AND I am NOT giving any advice regarding the trading or holding of cryptocurrencies as I am not licensed to do so. No one is, I think, at least not in Singapore. And nothing in this commentary piece shall constitute advice of any sort.

I am, however, going to base my commentary on my personal hands-on experience regarding cryptocurrencies and the relevant innovations of blockchain technology; as well as my interactions with some of the newly minted crypto millionaires (billionaires?), relevant professionals in legal, accounting and fund management, and also the techies developing everything behind the scenes.

I will continue this commentary piece in three parts as listed below.

PART ONE - Investing? in the volatile world of Crypto - Emotions of Crypto investing

PART TWO - Stakeholders in the crypto space - Real world usage cases of blockchain

PART THREE

- Time tested strategies that are not limited to crypto

- Enjoying the ride

PART ONE

Investing? in the volatile world of Crypto. Now, on to the main reason why you even bothered to read till this part. That is, how did the college friend of the boyfriend of my ex-neighbour make so much money in crypto? (or so they claimed)

And yes, if you bothered to read my disclaimer, you will know that was a click bait. So instead of sharing with you the next big Alt coin that will go to the moon (basically crypto-speak for the equivalent of striking 4D), I will share my personal experience dabbling a little into the world of crypto and DeFi.

DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries. What started as a dinner conversation regarding tax treatment of crypto investment returns, turned into a new hobby of learning and exploring the intriguing world of cryptocurrency and DeFi. In hindsight, I will liken the experience to that of my mum, when we moved into our new place with her very own balcony garden.

1. HODL major Coins When we first moved to our new house, my mum was elated with her new allocated garden, as such, she did what all gardener-mums did, she started buying (and hoarding) new pots of plants to populate her mini nursery. Just as how she started with her garden, I started by HODLing major coins like Bitcoin and Ethereum through simple dollar-cost-averaging strategies. Hodling is simply crypto-speak for buying and holding cryptocurrencies.

2. Staking for higher APY Once the initial phase of simply buying plants passed, my mum moved on to sowing seeds to yield new crops and fruits. And with the new fruits, more seeds and so on. Just like her, I ventured into the world of Staking my cryptocurrencies to reap returns beyond the capital appreciation of the underlying cryptocurrency. And with that, I began my first step into the DeFi space. Through staking, I’m basically participating in transaction validation for a proof-of-stake blockchain. This is similar to the act of mining in a proof-of-work blockchain, except it’s through staking instead of mining with hardware. Staking (assuming proof of stake) is securing the network and getting paid as a result of said work.

3. Liquidity Pool yield farming Eventually, my mum grew more adventurous. She started mixing breeds of similar plants to grow new crops which yields more fruits but doesn’t always taste as good. After my initial step into DeFi, it’s time to dabble into something more interesting. That’s when I started providing liquidity into Liquidity Pools, basically adding two tokens of equivalent value into a pool governed by smart contracts to facilitate trading of the two said tokens. And in return, I get to earn trading fees from the trades that happen in the pool, proportional to my share of the total liquidity.

LP yield farming is providing liquidity required for decentralised exchanges (DEX) to work and getting paid as a result of making the DEX work.

If any of the above sounds like some technical financial hubbub, don’t worry. It took me quite a while to understand how some of this stuff works, and I have some financial background. I guess the key is to have some form of exposure so you can start learning about something that you might have to adopt in the future. I mean, no one knew how to use the internet, send an email or even operate an Iphone right from day one right?

Emotions of crypto investing Since the flash crash in March 2020, the crypto space has ballooned in market capitalisation, with many coins peaking at their all time highs in April this year. We have since seen a drop off from those all time highs with the recent dips, some will call it the beginning of a bear market or even go as far as to proclaim the arrival of the dreaded long crypto-winter. (Winter is coming, as Ned Stark always preached).

In this period, we have seen many fortunes made, as well as destroyed. So what can we learn from this roller coaster ride? Well, it usually comes down to two simple concepts. FOMO and FUD or in plan English, greed and fear. FOMO refers to fear of missing out, while FUD refers to fear, uncertainty and doubt.

1. FOMO From March 2020 till April 2021, it was the period of greed or FOMO. I will attempt to share my two cents on why the market kept going up during this period of euphoria in a later segment. For now, let’s focus on the emotions during this period. Everyone wanted a piece of the action. The promise of the next big Alt coin was plastered all over social media and youtube. Every new investor thought they had the midas touch, since almost everything anyone touched tended to turn to gold. It was common for portfolios to reap ridiculously high levels of returns. You often hear hubris from the common guy about retiring from their day jobs just to focus on trading. Even the taxi chatter started to include crypto tips and recommendations. According to those who have been through the previous cycles, such ‘market top’ signs started popping out during the run up to the 2017 crypto bull market as well. And just when it all seems too good to be true, it was.

2. FUD Elon Musk’s tweets and conspiracy theories (Wyckoff distribution anyone?) aside, there are probably multiple reasons why the crypto markets cooled off significantly in May 2021. Again, without trying to second guess the market dynamics, I will focus more on the total change in tone during this period. Sentiments took a major turn and it was the period of FUD. The same people who wanted to buy bitcoin at all time highs started preaching about selling their holdings at half that level. Many of those who leveraged in anticipation of the continued bull had their positions liquidated. Even though price dipped and rebounded significantly in a matter of hours, the aforementioned leveraged investors were wiped out of the game on the former event. As more positions were liquidated, so began the cascading downward spiral that added to the downward price pressures in the crypto market. Suddenly, crypto was a scam and everyone wanted to get out. Everyone who is an inexperienced retail investor that is. Word on the street (aka on-chain analysis of wallet activities) is that long time investors were either still Hodling or are buying the dip, while institutional investors were doing the same, albeit at a larger quantum.

If any of the above two scenarios sound familiar, they basically represent the ongoing cycle of investor emotions in any investment market. Many jump into the latest investment fad without having much of a plan, often falling trap to one or both of the above mentioned scenarios of FOMO and/or FUD. The most baffling part for me? It’s that all these could have been prevented by having a proper plan to enter or exit the market depending on the prevalent financial goals and standing.

I’ve had the luck (or misfortune?) to have gone through the 07/08 subprime crisis early in my career. And since then, my observation of investment markets has been pretty consistent. In any investment or financial planning strategy, the tough part isn't about the numbers or the theories, it’s almost always about the emotions of the investor. And it seems that this is very much evident in the crypto investment market as well.

End of the day, personal finance will always be more personal than finance. Master your emotions, and you will be better off than most of the investors out there!

Closing thoughts For those who have reached this part. Kudos, you have a longer attention span than the average teenager. Frankly speaking, this went on a little longer than I thought it'll be for an initial dive into this topic.

In part two of this commentary, we will look into the different stakeholders in the crypto space as well as explore some real world usage cases of blockchain technology.

Till then, laters.

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Edmund Xu is an Advisory Director representing finexis advisory Pte Ltd.

This article contains only his personal views and opinions and is for informational purposes only. The information provided is of a general nature only and does not take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and should not be relied upon as financial advice. You should seek advice from your financial consultant before making any financial decisions.