“We received lots of enquiries from inexperienced investors over the last two to three months. These are people who have never even invested in the stock market before, and they have no idea what [Ether] is,” says Thomas Glucksmann, head of marketing at Hong Kong-based Bitcoin and Ethereum token exchange Gatecoin.
Driven by surging demand, Bitcoin’s market capitalization rose to over US$44 billion on August 1, as it was trading at around US$2,709.31, approaching its historical high. Ethereum was trading at US$212.29, down over 40 percent from the record high in June, with market capitalization nearly at US$20 billion.
Both Ethereum and Bitcoin have rallied strongly since the start of the year. However, Ethereum experienced a flash crash in late June, which saw the digital currency drop from around US$300 to just 10 cents in minutes, before rebounding later.
“Ether price will remain volatile,” Glucksmann told the Hong Kong Economic Journal. For now, “it is easy for major traders called whales to influence the price.”
He believes the digital currency will stabilize as more liquidity from institutional investors enters the market.
“The daily trading volume of all crypto-currencies and tokens equates to several billion dollars per day, but this is nothing compared with trading volumes in the foreign exchange market, or any other major financial market.”
“Ether is used to fuel the smart contract-based decentralized applications or DApps which are built, stored and run on Ethereum blockchain,” noted Aurélien Menant, founder and CEO of Gatecoin.
According to Menant, “Ether is like a commodity, such as oil, as the fuel of the Ethereum ecosystem; whereas Ethereum-based tokens tied to DApps, such as REP or ICN have more ambiguous properties depending on their use case. They can either be security-like investment products or protocol-stake tokens, used almost like a voucher which can be exchanged for rights to access the dapp. Bitcoin in contrast, resembles more of a secure store of value such as gold.”
Menant, a former investment banker, founded Gatecoin in July 2013. The company became the first crypto-currency exchange to list Ethereum (ETH) in August 2015.
“The market was dominated by individual investors, like software engineers, or people working as bank traders during the day, and then trading Bitcoin and Ether by night. However, right now we are seeing more institutional investors enter the market,” said Menant.
For Gatecoin, retail investors constitute 80 percent of daily trading volumes, while trading firms and funds account for the remaining share.
Glucksmann told HKEJ that they receive many enquiries from professional investors such as fund managers, family offices and high-net-worth-individuals, “but so far they are just curious [about investing in crypto-currency], and waiting for regulation to determine the status of these assets before taking further action.”
He added that interest from institutions has risen as Bitcoin and Ether are viewed as haven assets, which are not vulnerable to potential financial crisis in mainstream financial markets.
The returns are also better, he says. “What kind of a return you can get from savings account today?”
In May 2016, Gatecoin experienced a hack amid a crowdsale of TheDAO, an initiative aimed at providing a funding mechanism for Ethereum projects. They shut down the exchange and took the website offline in order to minimize further potential losses.
As Menant announced, 185,000 Ethers and 250 Bitcoins, worth around US$2 million, were lost during the cyber-attack. It is reported that Gatecoin sought funding to reimburse lost assets for its clients after the incident.
“Ethereum is an extremely new technology; the current development stage resembles the early stage of internet. At that time, people using the internet were not familiar with the technology and how to protect themselves online so it was easy for hackers to find loopholes,” says Menant.
Glucksmann added that security hinges on how one stores the digital assets.
“When Bitcoin is stolen from an individual’s Bitcoin wallet, this is caused by weak security practices on behalf of that individual, as most people are often unaware of how to adequately prevent the theft of their private keys by hackers.”
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