DR.CHENJIAZI ZHONG

Innovation almost always comes first with  alternative investments, even if a type of alternative asset class may sound bizarre to conventional investors. Looking back at the year of 2013, many alternative investments such as bitcoin, yu’ebao (Leftover Treasure), Mobile Browser Keywords, gemstones etc. occupied most news headlines. Investors cannot estimate the true risk of alternative investments comprehensively. In 2014, these investments will continue to catch the eyes of the public.

Alternative Investment #1: Bitcoin

Bitcoin was almost worthless when it was officially introduced in 2009 by Satoshi Nakamoto – one dollar could buy 1,300 bitcoins. Less than five years, bitcoin was up to well above the $1,000 threshold in late November, and further reached $1,238 on December 4, 2013. By then, the total market capitalization of bitcoins had exceeded $10 billion for the first time. Subsequently, authorities of many countries imposed prohibition on the use of bitcoin. As a consequence, the price of bitcoin dropped to around $600.

• There is widespread concern about the volatility of bitcoin. Although volatility has little effect on the ability of bitcoin as a medium of exchange, it is a major point to assess whether bitcoin should function as a currency.
• The bitcoin system has possible impact on currencies. Some Argentinians use bitcoins as an alternative to their official currency; Iranians use bitcoins to evade currency sanctions. There is positive correlation between higher bitcoin usage and financial crisis, because any crisis will lead people to turn to the deregulated, decentralized currency.
• Investors are also cautious about bitcoin’s potential for crime misuse. The true risk of this type of investment is not about the dropping of its value, but the vulnerability to hacking and theft.
• Furthermore, trading on bitcoins also challenge the practice of taxation around the world.

Alternative Investment #2: Yu’ebao

Yu’ebao, the high-yield money market fund launched in June 2013 by Alipay (the online fund platform of Alibaba Group Holdings Ltd), had hit over 43 million users with aggregate deposits of $30.4 by January 2014. At the end of 2013, the fund became the second biggest mutual fund in terms of total assets under management.

Despite its popularity, it is adviced that investors consider the potential risks of Yu’ebao comprehensively:

1)      Money market risk. The income of Yu’ebao is derived from money market – if the money market fund performs poorly, so does Yu’ebao.

2)      Disclosure. Yu’ebao did not disclose to users on the different types of investment risks; it is hard to avoid legal disputes and consequences.

3)      Regulation. From the perspective of regulation, yu’ebao is not legal; it can purchase deposits specified in the agreement, but there are no indications with regards to whether it can purchase the fund. In this sense, it is possible that Yu’ebao is halted at some point.

Alternative Investment #3: Tourmaline

As a passion investment or art collection, tourmaline was one of the hottest investment in the past two years, although tourmaline is classified as a semi-precious stone. Since 2012, the price of high-grade tourmaline has doubled, and its deal flow indicates significant sales growth. The name “tourmaline” is derived from the Singhalese expression “tura mali,” which translates as “stone of mixed colors. Tourmaline is mined chiefly in Africa, Brazil, Kenya, Nigeria, and Sri Lanka.

In the investment process of gemstones, to distinguish fineness is critical. Fortunately, investing in tourmaline is much easier than diamonds or emerald, because the cost range achieved by tourmaline is well-matched with its color. Prices of tourmaline vary due to the differences in range, color, finish, clearness, nature, and setting. Excellent qualities and fine colors are only rarely presented on the market.