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Bitcoin, Killing the Market?

Bitcoin was invented as open source software in 2009 by one or a group of people by the name Satoshi Nakamoto. Bitcoin is a form of cryptocurrency and worldwide payment system. Transactions via peer-to-peer system are performed without a central bank or a regulator. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger known as blockchain.

Bitcoins are stored in a digital wallet in either the cloud or on a Bitcoin user’s computer/laptop. The digital wallet operates as a virtual bank account that allows the transfer of bitcoins to perform payment for goods or store their money. To-date, companies from all over the world in various industries accept bitcoins as a currency. Notable companies in certain countries include KFC, Subway, Microsoft, Expedia, The Pirate Bay, Zynga, Bloomberg, and Rakuten.

Based on the above graph (Bitcoin vs. FBM KLCI), it appears that there is no correlation between the two asset class. The sharp rally in Bitcoin started in May 2017 after breaching above the US$2,000 level towards the high of US$19,511 on 14th December 2017, before taking a sharp dive towards the recent low of US$5,922 on 6th February 2018. In the meantime, the FBM KLCI was traded in a choppy manner throughout 2017 before staging a late rally in December 2017. For instance, back in August 2017, global equities took a major setback amid the rising tensions between the U.S. and North Korea, but the Bitcoin market rally remains unfazed.

The soaring popularity of Bitcoin since May 2017 has also not affected the liquidity on the local bourse. For 2017, average trading volume stood at 2.54 bln shares with value transacted at an average of RM2.31 bln vs. 1.67 bln shares and value transacted at an average of RM1.81 bln recorded in 2016. This implies that investors who were positioned in the stock market did not cash out and went over to Bitcoin or other cryptocurrencies.

Therefore we can see that the Malaysian market as a whole is still highly unaffected by the “Rise of Cryptocurrency”. As regulations have not been established, the people might still be doubtful of cryptocurrency and are still mainly trading on equities or derivatives markets. So fret not! Keep calm and continue trading.

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