With the recent news of the SCB X-Bitkub deal falling apart and the Zipmex incident, investors in Thailand's digital currency market are facing a negative outlook. The Bangkok Post provides a recap of these events and gathers the views of investment analysts on the lessons learned and where things are heading going forward.
Q: What happened to the SCB X-Bitkub deal?
The investment arm of the oldest Thai bank, Siam Commercial Bank (now known as SCB X), recently released a statement that rocked the Thai crypto world. It announced the 17.8-billion-baht deal to acquire 51% of Bitkub Online, which is part of Thailand's largest digital asset exchange Bitkub Capital Group Holdings, had been scrapped.
"Whilst the results of the due diligence exercise did not reveal any significant abnormal issues which are irremediable, Bitkub is currently in the process of resolving various issues as per the recommendations and orders of the Securities and Exchange Commission (SEC), which are uncertain in terms of time frame in resolving those issues," read the bank's statement. It concluded as a result of the SEC issues, both SCB X and Bitkub agreed to terminate the transaction.
After eight months of the due diligence process, the strongest hint of the termination came in July when SCB X notified the Stock Exchange of Thailand (SET) through a filing that it had postponed its 51% acquisition of Bitkub "indefinitely".
Back in March, the Bank of Thailand announced a new rule to cap investment by commercial banks in digital asset businesses at less than 3% of their capital in order to reduce risk. The SCB X-Bitkub deal represented roughly 5% of the bank's capital, meaning it would have exceeded the threshold.
Q: Why is the SCB X-Bitkub deal significant?
The SCB X-Bitkub deal is of interest for several reasons -- the main one being when the proposed acquisition was announced in November of 2021, the digital exchange platform became Thailand's first fintech startup to notch up a valuation of more than US$1 billion, reaching unicorn status.
Around the time of the announcement, the deal was seen as a bold move as it signalled an upbeat tone and confidence in digital currencies and alternative financial products from one of Thailand's most significant financial institutions.
This year, the outlook for cryptocurrency and digital assets has dimmed worldwide with several high-profile meltdowns involving asset exchanges and stablecoins. Thailand also tightened its regulations and last month the SEC ordered Bitkub to review the listing process of the KUB coin on its exchange.
On the day the deal was scrapped, SCB X's share price surged 5.74% to close at 110.50 baht, while the price of KUB coin, issued by Bitkub, swung between 43-75 baht.
Jirayut Srupsrisopa, the founder of Bitkub Capital, posted on his Facebook page following the termination of the deal last week that the decision was the best solution for the time being, given the delays in the transaction (from resolving unsettled issues with the SEC).
Q: What happened to Thai digital asset platform Zipmex?
In July Zipmex, another leading crypto player in the Thai market, reported it faced a liquidity crunch because of its exposure to troubled crypto lenders Babel Finance and Celsius.
The exchange faced problems after releasing ZipUp+, a yield-based investment product for depositing cryptocurrencies such as Bitcoin and lending money to crypto companies, including Celsius and Babel.
Zipmex said in its recent statement it requested meetings with the SEC and government agencies to present a recovery plan, with potential Zipmex investors attending the meetings.
Q: What can we learn from the Bitkub deal collapse and the Zipmex incident?
Jitipol Puksamatanan, a financial economist and investment strategist at UOB Asset Management, said Bitkub and Zipmex faced different issues.
"The Bitkub deal was mostly a business proposition. When the valuation of Bitkub did not add up or was not worth as much as estimated when the deal was announced, that became a big problem that resulted in the deal not moving forward. It had to do with the price," he said.
"As for the Zipmex case, it was apparent risk could come from exposure within the exchange itself too, so having good digital tokens or coins was not enough to cushion the impact."
Mr Jitipol said the two incidents served as an essential lesson for firms wanting to venture into the crypto craze.
"Many firms have now 'repriced' the cost of doing crypto-related investment. Of course, everyone initially wanted to jump in and try to expand or expose their business in this new exciting economy. Now they have become more aware of the risks involved," he said.
Anusorn Tamajai, a former board member of the central bank, had a similar view.
"The failure of the Bitkub-SCB X deal is a business decision, not a regulation issue. Businesses nowadays are 'Fast fish eat slow fish', rather than 'Big fish eat small fish', like it used to be," he said.
"Being agile and taking speedy action is crucial."
Poramin Insom, the founder of Satang Corporation, a cryptocurrency exchange operator, said he believes the deal failed for a number of reasons, including the downturn in the crypto market and more intense competition with many newcomers such as Gulf Energy Development's partnership with Binance.
Q: How is the country's crypto market doing and what is its outlook?
The SEC released its latest data on the Thai crypto market over the weekend. The data shows a sharp drop in active trading accounts, from 692,000 in January of this year to 208,000 in August.
The statistics also revealed the value of monthly crypto trading in the country has continued to decline in line with the drop in trading accounts, from total trading of 129 billion baht in January to 53 billion as of Aug 22.
Mr Anusorn, the former member of the central bank board, said he expects a slowdown in Thai crypto-related businesses. However, he said policies and measures to support financial innovation and decentralised finance, as long as there is good governance, are crucial for the future of Thailand's financial sector and the overall economy.
As for institutional investors such as asset management and securities firms, Mr Jitipol said UOB Asset Management's attitude towards the crypto market has shifted.
"Before this, most institutional investors believed if they did not offer financial products that have crypto, they would be left behind by investors, seen as out of touch. But with recent incidents, it is clear that crypto investment is not mandatory," he said.
"Exposure to digital assets has changed to become more of a marketing tool nowadays."
Q: What are the effects from US activities?
Poon Panichpibool, a global markets strategist at Krungthai Bank, said concerns over the Federal Reserve's aggressive rate hikes have triggered a sell-off among interest rate-sensitive assets such as cryptocurrencies, tech and growth stocks. This seems to be highly correlated with risk sentiment in the equity markets.
Looking outside of Thailand, Pew Research Center published a recent study that found 46% of Americans who invested in cryptocurrency did not think their investment would be in the condition it is today. Some 31% said the performance was about the same as they expected, while only 15% said their allocation turned out to be better than anticipated.
