Revenue is the money a company earns from selling goods or services.
For example, if you sell a 100-won pen, 100 won is recorded as revenue. However, if you spent 90 won on raw materials, labor costs, distribution costs, etc., the actual money left over is 10 won.
This 10 won is the profit.
In a normal situation, profit can never exceed revenue. In industries with relatively low costs, such as games or software, profits can exceed several tens of percent, but most manufacturing industries are around 10 percent.
Even that is the case for large corporations, and many small and medium-sized enterprises have less than 5 percent.
I was dumbfounded and asked, “How can profit be greater than revenue?”
Senior Sang-yeop replied, “That’s the strange thing about this market.”
Just as securities firms receive commissions from stock trading, cryptocurrency exchanges also receive commissions.
Although it varies from one securities firm to another, stock trading costs are about 0.4 percent. However, VanSum’s is 1 percent.
Looking at this alone, it seems like a 2.5 times difference, but there’s a trap hidden here. Of the stock trading costs, 0.3 percent is tax paid to the government, and the securities firm’s commission is less than 0.1 percent.
On the other hand, since there are no taxes on cryptocurrency transactions, the transaction costs are entirely the exchange’s profit. In reality, cryptocurrency investors are paying more than 10 times the commission compared to stocks.
It’s virtually extortion, but there weren’t any significant complaints. The reason is that the price of coins kept skyrocketing.
If you could make a fortune just by buying, what did it matter how much the commission was?
“They don’t receive the commission in cash, but take it from the coins being traded.”
For example, if 1 BNT is traded, the exchange takes 0.01 BNT.
Most of the exchange’s operating costs are labor and server maintenance. With low costs, the operating profit margin is over 50 percent even in normal situations. However, cryptocurrency prices have surged recently.
They received 10,000 won worth of coins as commission, but when they closed the books, it was worth 20,000 won. So, even after deducting various expenses, the profit exceeded the revenue.
After hearing this, Taek-gyu said, “This is a truly insane market.”
***
Having hit $10,000, Bantcoin surpassed $15,000 in just a few days, and now there were even predictions that it would exceed $20,000.
It was no exaggeration to say that the cryptocurrency market had been gripped by madness since the end of last year. Because of this, there were many opinions that the bubble would burst, but instead, the market size had more than doubled.
Governments, financial institutions, and financial companies in various countries were busy preparing countermeasures.
We also gathered in one place to hold a countermeasure meeting. I, Taek-gyu, Hyunjoo noona, Ellie, Senior Sang-yeop, and Henry attended the meeting.
Hyunjoo noona said while smoking, “I’m glad I listened to you and invested even 30 billion won late. It’s up more than fivefold now.”
Taek-gyu nodded. “See? I told you to listen to Jin-hoo.”
Money flows wherever there is profit to be made. However, even hedge funds were cautious or negative about cryptocurrencies because the investment risk was too high.
Ellie said, “You know what Warren Buffett said recently? That cryptocurrencies are like rat poison and will inevitably meet their end. And that he would gladly invest in a 5-year put option on Bantcoin.”
It’s not just cryptocurrencies; Warren Buffett doesn’t particularly like investing in commodities.
Stocks pay dividends, bonds accrue interest, and real estate generates rental income. But if you buy 1 ounce of gold, it’s still 1 ounce after a year.
You can only hope that its value will increase due to inflation or supply and demand factors. In other words, you can only make a profit if someone buys it at a higher price. The same goes for cryptocurrencies.
I nodded. “It does seem like a bubble is forming.”
Taek-gyu chimed in, “I think so too.”
Although there are several financial experts gathered here, the first person to encounter cryptocurrencies and make a significant profit from them was none other than Taek-gyu.
Hyunjoo noona said, “Fortunately, the scale is small for a bubble.”
“That’s true.”
The biggest bubble in human history was, of course, the global financial crisis of 2008. The crisis, which began with the collapse of the US housing market, quickly spread around the world, causing enormous damage.
The second largest was the Japanese asset price bubble that occurred in 1991. At the peak of the bubble, there was talk of being able to buy the United States by selling Tokyo. However, the bubble burst in an instant, and Japan entered a period of long-term stagnation for 20 years.
There is one major difference between the bubbles that have occurred so far and the cryptocurrency bubble. That is whether it is integrated with the existing system.
The worst-case scenario is when the government steps in and fuels the bubble.
In early 18th-century France, a financier (or con artist?) named John Law appeared. He established the Banque Générale with the government’s permission, and the French government only accepted banknotes issued by the Banque Générale as taxes.
Later, John Law established the Mississippi Company and continued to increase the amount of currency in circulation by exchanging shares for government bonds.
However, the Mississippi Company was essentially a paper company that did not generate profits, and the rapid increase in the money supply caused massive inflation.
Eventually, the bubble burst, and the French financial system was completely shattered.
If the government had stepped in and accepted taxes in Bantcoin like back then, it might have exceeded $100,000.
Existing bubbles occurred within the established system, while cryptocurrencies are the opposite.
Governments are unlikely to welcome cryptocurrencies, which aim for decentralization and de-governmentization. Thanks to this, a bubble that could shake the financial system has not occurred.
I asked, “How much higher do you think it will go from here?”
Hyunjoo noona replied, “There’s even talk of it going up another 30 times.”
“Why?”
“Because the market capitalization of gold is $6 trillion, so Bantcoin should be around that much too.”
Currently, Bantcoin’s market cap is about 3-4 percent of gold’s market cap. Therefore, the logic is that it needs to go up another 30 times to replace gold.
Thinking about it rationally, the premise that Bantcoin will replace gold is wrong, but investors who have invested in cryptocurrencies seem to believe this. With the current surge, it somehow seems possible.
Bubbles thrive on dreams, after all.
Senior Sang-yeop said, “The investment frenzy is a global phenomenon, but it’s particularly severe in Korea.”
Korea has had higher cryptocurrency prices than other countries for some time, which is called the “Kimchi Premium.” However, until recently, it was around 5-10 percent, but now it has risen to 30 percent.
Because prices are not linked between exchanges, price differences even between exchanges within Korea have occurred quite frequently. It’s only a 1 or 2 percent difference, though.
Theoretically, this means you can buy Bantcoin on a US exchange and immediately sell it on a Korean exchange to make a 30 percent profit.
Of course, actually doing so requires a complicated process such as opening a US account and international money transfers, and costs are involved, so it’s not easy.
Taek-gyu blinked and said, “Conversely, doesn’t that mean you lose 30 percent if you buy on a Korean exchange and sell on a US exchange?”
Surprisingly, he hit the nail on the head.
If the prices of the same goods differ, the basic principle of arbitrage trading is to sell the expensive one and buy the cheap one.
However, the situation in Korea is the opposite. Even though the same coin is 30 percent more expensive, the buying spree shows no signs of stopping.
Ellie said, “Something like that actually happened recently.”
Some Japanese individuals brought Bantcoin bought from Japanese exchanges, where the price was relatively low, into Korea and sold it on Korean exchanges. Then, with the proceeds of 10 billion won, they bought gold bars and returned to Japan.
In conclusion, Bantcoin flowed into Korea, and gold flowed out. To be able to exchange digital gold for physical gold… is this 21st-century alchemy?
In a bubble, trading volume increases as prices rise. For prices to continue rising, investment funds must constantly flow in from the outside. Fortunately or unfortunately, individuals came in with large sums of money.
People who had been watching prices skyrocket were jumping in before it went even higher. There was even a sense of urgency, as if they wouldn’t be able to buy it if they didn’t buy now.
Why it’s going up or what its actual value is doesn’t matter. The price is just going up, so buying follows, and as buying follows, the price goes up.
Taek-gyu said, “At this point, it’s no different from gambling.”
Whether it’s gambling or investing, the one with more capital has the advantage.
The big players in the cryptocurrency market are called whales. In the case of Bantcoin, about 1,000 whales hold 40 percent of the total coins (we are also one of those whales).
Since a small number of forces can control the market, it’s a game that individuals can’t win from the start.
Of course, some will make a lot of money, but that’s a tiny minority. Most will lose the money they invested.
As the cryptocurrency market continued to grow and the number of investors increased, governments in various countries also pondered how to respond.
The United States regulated cryptocurrencies as commodities and even allowed futures trading on the Chicago Mercantile Exchange. Japan also licensed exchanges, established regulatory bodies, and brought them into the system by collecting taxes.
While most countries were in the mood to allow trading, China implemented a complete shutdown. All exchanges were ordered to cease operations, and the operation of mining farms was also prohibited. Due to strong government regulations, small exchanges closed down, and large exchanges moved to Hong Kong or Singapore.
So, what about Korea?
They did nothing.
There are several reasons for this, but the biggest reason is the lame duck status of the current administration. The current government is virtually in a state of suspended animation. While existing tasks are being processed as usual, they haven’t been able to address new issues.
Ultimately, some action can be expected after the change of government. But it will be too late by then.
“I checked before coming, and the value of the coins K Company currently holds is $13 billion.”
We were all surprised by Senior Sang-yeop’s words.
We knew it had gone up, but we didn’t know it was this much!
“Wasn’t it $2.5 billion last time?”
K Company’s investment was $1 billion. Senior Sang-yeop was in charge of cryptocurrency investments, and the investments were made in three forms.
First, they additionally purchased shares of VanSum, increasing their stake to 85 percent. Second, they bought Bantcoin, Ethereum, and newly issued altcoins on overseas exchanges. Lastly, they directly set up mining farms overseas.
Tens of thousands of computers are endlessly lined up in the mining farms. I only saw it in pictures, but it was quite a spectacle.
Just as miners extract gold from mines, computers extract coins from the digital world. It’s literally mining. Competition between companies has reduced the amount of mining itself, but profits continue to increase due to price increases.
These coins are assets that are not recorded on the books. If they were to be cashed out, the value of K Company would have to be reassessed.
Henry said, “Even with the valuation, it would be difficult to get even half of that if we actually sold it.”
Senior Sang-yeop agreed. “At least some of the Bantcoin and Ethereum could be absorbed by the market, but the altcoins with small market caps would plummet as soon as a large sell-off occurred.”
No matter how large it has become, the cryptocurrency market cap is not comparable to the stock or bond markets. If K Company were to dispose of its coins, the entire market would falter.
Hyunjoo noona put out her cigarette and said, “The only chance a whale has to escape the pond is when it rains heavily.”
If a large whale tries to escape the pond on a sunny day, the water level drops rapidly, which is dangerous. So, they have to escape when it’s raining heavily and the water level rises.
There’s no disagreement that the current situation is a bubble. The important thing is the timing of the exit.
At that moment, something flashed before my eyes.
-Cryptocurrency Bubble Bursts-
When I came to my senses, everyone’s attention was on me.
“What are you thinking?”
I spoke calmly, as if nothing had happened.
“Let’s start selling now.”
