Bitcoin buying the drinks in staid Singapore

IFR Asia 834 - March 08, 2014
6 min read

Jonathan Rogers

Jonathan Rogers_ifraweb

Jonathan Rogers

Satisfying as it was to see the anecdotal call I made in my last column confirmed by the Economist Intelligence Unit – that Singapore has indeed become the world’s most expensive city – neither I nor any of my Singapore friends could claim to be surprised. I expect the same result will emerge when the survey is held next year, assuming the yen, the perennial strength of which had for years kept Tokyo in the top spot for metropolitan priciness, remains weak.

But on the subject of currencies and Singapore, something did surprise me last week. In a rather hip bar located in an attic on Boat Quay – afficiandos will know which place I’m referring to if I mention Hilda and the exquisite cocktails she emphatically informs you she will make for you, no choice in the matter on your part – there is a bitcoin ATM. Actually, the bar is called Spiffy Dapper, and theirs was the first bitcoin ATM to open in Singapore.

Whether it’s just for show I have no idea, but I didn’t see any deposits or withdrawals made from it during my visit last week when I first learned of its existence. That’s a shame really because, given the virtual currency’s notorious volatility, it would in theory be possible to buy the entire bar a round based on a sharp spike in bitcoin value during the time it takes to sink a few of Hilda’s specials.

THE BITCOIN ATM will surprise those who regard this city state as something of a stodgy enterprise when it comes to anything that might smack of the dangerously reckless. After all, China banned the use of bitcoins back in December, and Thailand and Vietnam have done the same. Combine the bitcoin’s association with the notorious Silk Road website, where thousands of transactions in hard drugs were facilitated using the virtual currency, with Singapore’s tough stance towards narcotics and the city’s laisser-faire approach seems even more surprising.

Well, Singapore’s finance minister Tharman Shanmugaratnam did issue a warning around a week before the bitcoin ATM got up and running: “Bitcoins are not without risk.”

“Unlike legal tender such as the Singapore dollar, which is issued and backed by the Government, there is no legal obligation for individuals or businesses to accept virtual currencies.”

Despite the warnings and the bans, the bitcoin has been accepted as a medium of exchange by among numerous others the US and the UK. And, despite its own warning, Singapore is simply part of a nexus of countries that reckon more good will come from the use of bitcoins than harm. It might yet close the ATM or ban the currency, but it hasn’t. And why not? I think for good reason.

Despite the strange concept of a virtual currency based on cryptography and with a cap on its total issuance – set at 21 million versus the current 12 million outstanding – the bitcoin is not so different from the “real” currencies that sit in our bank accounts. After all, they are just digits lodged in a bank computer and printed out on monthly statements. They are vulnerable to hacking as is bitcoin. They are apparently convertible into paper notes on demand, either via over-the-counter or ATM withdrawal.

BUT OF COURSE, as the MAS points out, bitcoins are not backed by a government. And therein lies their appeal. No more worries about current account deficits, inflation rates, natural or political disasters or the stock of central bank reserves. If I were a Ukrainian tourist I’d probably rather be drawing money from foreign ATMs via the value of my bitcoin account than the value of the hryvnia as that country teeters on the brink. And what’s more, I don’t need to worry about the bank where I hold my account going bust and wiping me out.

Alright, perhaps I’m being rather facetious. The recent collapse of Mt Gox, the Tokyo-based bitcoin exchange which went bust blaming the cyber theft of a large amount of the currency, prompted a dive in the virtual currency’s value. But it recovered. There is talk of a bubble in bitcoin’s value that could rival the infamous period of speculation on Dutch tulips. That’s probably true but all my banker mates reckon it’s going to US$5,000 a coin. If it happens that wouldn’t be a shabby return from last week’s US$630 print.

If bitcoin is here to stay as a medium of exchange in those countries that haven’t banned it, here’s a challenge to DCM bankers, who are in my experience more keen to crow about product innovation than the average Silicon Valley start-up wonk: issue a bitcoin-denominated bond.

It needn’t be in huge size – something like US$10m would do. The issuer could do something suitably short – a three-year non-call one structure perhaps – and, given that there is no available bitcoin hedge, just leave the proceeds alone. If it does go to US$5,000 a coin, you call it and convert back to your base currency for a sensational gain. The punters would surely love it and I know a place where it could be drinks all round by suitable way of celebration.

Jonathan Rogers_ifraweb