cryptocurrency

Kiwi investors ride through crypto crash, but is that a good thing? – Stuff


Last week the cryptocurrency market lost $320 billion of value in a single day.

A loss of confidence in two stablecoins, a type of cryptocurrency linked to real world assets such as cash or bonds, meant to be protected from volatility, caused the cryptocurrency market to fall about 30%.

But New Zealand crypto exchanges say they have seen an increase in local investors buying into the volatile market.

Financial experts wonder if a 30% crash in value does not alter the behaviour of cryptocurrency investors, will anything?

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What happened?

Cryptocurrencies, such as bitcoin or ethereum, are lines of code designed to function as digital currency.

A stablecoin is a type of cryptocurrency in which the value is tied to another currency or financial instrument, in an attempt to avoid the volatility of broader crypto market.

But last week the value of two important stablecoins dived. Terra, a stablecoin supposedly matched to the value of the United States dollar was trading at US0.13 cents (NZ0.2c) last week. Another stablecoin, luna, crashed, trading at only a fraction of a cent.

Stablecoins are a type of cryptocurrency designed to avoid volatility. But last week the crash of two stablecoins shook investor confidence in the entire cryptocurrency market.

AP

Stablecoins are a type of cryptocurrency designed to avoid volatility. But last week the crash of two stablecoins shook investor confidence in the entire cryptocurrency market.

After the value of two supposedly stable cryptocurrencies fell so drastically, panic in the wider crypto market sparked widespread withdrawals.

By the end of the week the entire crypto market lost US$400b (NZ$634b)​ in value.

How are New Zealand investors reacting?

Easy Crypto chief executive Janine Grainger​ says New Zealand investors reacted by buying more crypto.

May is already the highest trading volume month for Easy Crypto this year.

Between 90 and 95% of trades are people buying, but value remains even between buys and sells, which means certain investors are selling off in large quantities, while most are buying smaller amounts, Grainger​ said.

But Grainger​ became concerned when she noticed investors buying tether and luna as they plummeted in value.

Easy Crypto chief executive, Janine Grainger says she became concerned as investors began buying stablecoins tether and luna as they plummeted in value.

Supplied

Easy Crypto chief executive, Janine Grainger says she became concerned as investors began buying stablecoins tether and luna as they plummeted in value.

To stop this behaviour she made the decision to remove the tether and luna coins from the platform.

“While we don’t know people’s motivations for investing in crypto, if something is dropping in value significantly and people are buying, there is an expectation that they are ‘buying the dip’.

“Right now we need to make sure we are not selling our customers something we are not able to deliver on.”

Experts say investor behaviour troubling

Simplicity managing director Sam Stubbs​ says relying on a crypto exchange to self regulate is like asking the fox to look after the hen-house.

“When the exchanges are worried, then you have a serious problem, because their incentive has been to get people to trade as many of these things as possible,” he ​ says.

Stubbs​ says he is not surprised to see New Zealand investors continue to invest in the digital asset as the value drops, because it reinforces his belief cryptocurrency investment is gambling.

Sam Stubbs managing director of Kiwisaver fund Simplicity says relying on a crypto exchange to self regulate is like asking the fox to look after the hen-house.

Chris McKeen/Stuff

Sam Stubbs managing director of Kiwisaver fund Simplicity says relying on a crypto exchange to self regulate is like asking the fox to look after the hen-house.

“When a gambler is losing, they will often double down. That is exactly the behaviour we are seeing here.”

Financial adviser and cryptocurrency expert Darcy Ungaro​ also says the behaviour is troubling.

It is worrying to see a ‘buy the dip’ philosophy applied to cryptocurrencies, because most coins can become completely worthless at the drop of a hat, he says.

Financial adviser Darcy Ungaro says the crash is a positive thing in the long run, because it will shake out investors who are investing for the wrong reasons.

Supplied

Financial adviser Darcy Ungaro says the crash is a positive thing in the long run, because it will shake out investors who are investing for the wrong reasons.

“A lot of crypto-assets outside of bitcoin are either going to make it, or fail. They usually don’t do anything in between. That is why you never want to buy the dip on most of these coins. If the price goes down, it is probably on its way to failure,” Ungaro​ says.

The crash is a positive thing for the cryptocurrency industry overall, he says.

“This is going to shake out a lot of people who are in this for the wrong reasons. We will see less money allocated to ‘meme-stocks’, and capital will flow towards strong performers, which will strengthen the market.

“It’s just unfortunate that some people who were suckered in for a quick buck will have got nailed.”



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