Investment in initial coin offerings (ICOs) and digital currencies could ignite a global stock market crisis if their asset value deteriorates, says Asia Plus Securities (ASP).
Investors should be aware of the risks and fundamentals related to ICOs, an asset class that has become the most recent buzz, said ASP chief executive Kongkiat Opaswongkarn.
"I do not believe somebody can generate money from thin air," said Mr Kongkiat, an investment banker with experience in startups, private equity and venture capital. "Whenever global interest rates are low, investors opt to put a risk-acceptable amount of their money into new investments."
An ICO is when a company, usually a tech startup, issues digital tokens, typically in exchange for cryptocurrency such as bitcoin or ethereum. Tokens can be used to buy future services from the issuer or can be sold to ostensibly reap a handsome return.
The ICO market is being led by ICO issuers, as financial regulators and investors do not have a very good understanding of this fund-raising method, Mr Kongkiat said, noting that issuers need to have a long-term responsibility under these circumstances.
ICOs and cryptocurrencies are popular among investors due to search-for-yield behaviour amid low US interest rates and all-time highs across global stock exchanges, he said.
The value of cryptocurrencies has risen because of their scarcity and speculative demand, he said, but traders could be dissatisfied with the high price fluctuations of these digital currencies and seek other investment assets when the US interest rate picks up further.
Another pertinent issue is that financial regulators might be concerned that ICOs will create uncontrollable money supplies, while analysts also have doubts about the fundamental value for each type of ICO, since valuation methods may differ, Mr Kongkiat said.
"Musical chairs is being played at this time and people are walking around chairs," he said. "But when the music stops, investors who do not have any chairs to sit on will become losers [on their ICO investments]."
Meanwhile, investment in global equities remains attractive this year, but investors are recommended to invest under a selective theme, Mr Kongkiat said.
"Price-to-earnings ratio in global stock markets has reached a historic high," he said. "Global stock exchanges have also broken their all-time record highs, except for Japan."
Mr Kongkiat said investors must "do their homework" well to invest in stocks with good fundamentals.
He gave the example of the recent US stock market correction, with Apple's and Facebook's share prices suddenly falling but the share price of Amazon climbing on the strength of news reports that Amazon, Berkshire Hathaway and JP Morgan Chase would form an independent healthcare company to serve employees in the US.
