So far, NFTs have been widely used to present ownership of unique items such as music, videos, photos, paintings and other works of art. That is why many celebrities are involved in this business.
By
A Prasetyantoko
·5 minutes read
Kompas
The phenomenon of crypto money that has been rife lately is not in line with the conditions in the cryptocurrency market.
A number of cryptocurrency (crypto) based investment products have recently emerged that involve many celebrities. The value of one of the tokens released by a celebrity, for example, fell sharply after the Commodity Futures Trade Regulatory Agency (Bappebti) banned its circulation, but then it rose sharply after the agency clarified its move. Celebrities play a key role in making the product popular with the public.
In addition to crypto tokens, the digital asset that has gained a popularity is the non-fungible token (NFT), a proof of ownership of goods traded with crypto assets. So far, NFTs have been widely used to present ownership of unique items such as music, videos, photos, paintings and other works of art. That is why many celebrities are involved in this business.
According to DappRadar, NFT sales reached a total of US$10.7 billion, or about Rp 152 trillion worldwide, in the third quarter of 2021. In fact, in the first quarter, the value was only about $1.2 billion, or Rp 17 trillion. In 2022, its value is predicted to continue to increase drastically.
However, recently, this technology has been used to package high-yield investments through member recruitment (multi-level marketing).
Crypto assets are also used in investing in foreign exchange trading robots. Actually, the use of technology with algorithms in financial advisory services (robo-advisors) is nothing new at all. However, recently, this technology has been used to package high-yield investments through member recruitment (multi-level marketing).
In 2021, Bappebti blocked at least 336 website domains that offered forex trading robots. The investment products were issued by at least nine business entities under the pretext that they were part of forex trading and investments converted in crypto assets.
Supriyanto
Illustration: The dynamics of crypto assets
There is another type of investment called binary options or online trading, in which traders predict the ups and downs of an asset's price over a certain period of time. One of these sites is called Binomo, which is popularized by influencers.
The pandemic and technological advances have accelerated investment product innovation. As a result, there are a lot of fraudulent investment practices, through money games and gambling. In the future, investment through games (gamification) is predicted to continue to grow rapidly. Therefore, a
regulatory framework must be prepared in order to strike a balance between innovation, consumer protection and economic stability.
Ponzi scheme
Not all crypto-based investments use a Ponzi scheme. Likewise, not all technology adoption in investment is detrimental to consumers. However, the adoption of technology and the massive amount of crypto assets have also driven the rise of Ponzi schemes.
In economic studies, the term Ponzi was first used by Hyman Minsky (1919-1996), an economist of Belarusian descent who was a professor of economics at Washington University in St. Louis. Human behavior will naturally evolve from being very careful (hedging), starting to speculate (speculative) and then being reckless to criminal (Ponzi). The term Ponzi was named after Charles Ponzi (1882-1949), an Italian immigrant who developed various illicit businesses in the United States and Canada.
In January 1920, Ponzi founded a financial company called the Securities Exchange Company by introducing a very lucrative investment scheme. Starting from 18 investors, this business grew rapidly and when it collapsed in 1920, its total investment had reached $20 million or the equivalent of $196 million in 2020. For comparison, a similar practice conducted by Bernard Madoff in 2008 caused a financial loss of only $18 million. You can imagine the magnitude of the problems that Charles Ponzi caused at that time.
Since this incident, fraudulent investment products have been referred to as Ponzi schemes. A collapse such as the one caused by Ponzi occurs when the liabilities are systemically greater than the assets. Crises never happen instantly, but through the evolution of the behavior of an economic agent from being cautious to being reckless.
Minsky was an economist who first related the financial condition (cash flow) of economic agents to macroeconomic fluctuations (business cycle)
In a safe situation (boom), economic agents tend to be speculative and if the situation continues and there is no tightening of regulations, speculative behavior turns into Ponzi, marked by a drastic depreciation of asset values, while the value of debt increases. This moment is often referred to as the "Minsky Moment" or the explosion of the financial crisis. Minsky was an economist who first related the financial condition (cash flow) of economic agents to macroeconomic fluctuations (business cycle).
Why does it have to do with crypto assets? Crypto assets are assets whose valuation is supported by technology and during a pandemic their adoption is so intensive. Due to the change in the behavior of people who are increasingly dependent on technology due to restrictions on physical mobility, crypto assets are finding momentum to grow. The problem is that the crypto assets are part of a decentralized finance (DeFi) system so that no authority can reach them, including the monetary authority. That is why crypto assets are very vulnerable to fraudulent investment practices with Ponzi schemes.
ADITYA DIVERANTA
A view of the Mark AI crypto asset robot trading site which has been deactivated as of October 17, 2021. Photo taken on Monday (22/11/2021).
The Trade Ministry estimated that crypto transactions in Indonesia reached Rp 859 trillion in 2021, with 11.2 million customers and daily transaction of Rp 2.7 trillion. Given the huge potential, the Trade Ministry is currently preparing the establishment of a crypto exchange. On the one hand, the crypto exchange can increase supervision, but on the other hand it will accelerate growth. With the increasing value of investment in crypto assets, it is possible that the dynamics will affect the stability of the financial sector.
If so, the management of crypto assets should be under the coordination of the Financial System Stability Committee (KSSK), which includes the Finance Ministry, Bank Indonesia, the Financial Services Authority (OJK), and the Indonesian Deposit Insurance Corporation (LPS). Furthermore, the existence of crypto assets should be part of the plan to issue the Financial Sector Omnibus Law.
Don't wait for crypto assets to grow and investor behavior to tend to become Ponzi. If it is too late, crypto assets can trigger a "Minsky Moment" or a systemic crisis.
Kompas/Heru Sri Kumoro
A Prasetyantoko
A Prasetyantoko,Rector of Atma Jaya Catholic University of Indonesia.
This article was translated by Hendarsyah Tarmizi.
