Buyer Beware Because Cryptocurrency Markets Are Diving

The recent crash in the value of cryptocurrencies has, once again, cemented its reputation as the financial sector’s wild west. The market capitalization of all crypto assets has fallen by more than $2 trillion since it peaked last November, down nearly 50 percent.

Crypto was previously owned by a small group of investors who were fascinated by the possibilities of a new currency that uses cryptography to provide a high level of security and a blockchain technology that maintains a decentralized record of transactions. Over time, higher prices attracted larger numbers in search of unexpected financial gains. The Australians were eager to join the rush. Over the past three years, according to the Tax Office, more than 800,000 Australians have made transactions in the crypto markets.

Bitcoin has fallen more than 50 percent since October. credit:GT

While most investors are aware that cryptocurrencies have experienced extreme volatility in the past, the promise of massive gains if sold at the right time has only increased their popularity. Crypto is also starting to go mainstream. In November last year, the Commonwealth Bank became the first of the Big Four to announce that it would establish a pilot program to allow its customers to trade in up to 10 cryptocurrencies – including bitcoin – through its app, citing increased demand from young people. clients.

But skepticism about digital currencies has been growing in recent months with the rise, in particular, of two cryptocurrencies called Luna and TerraUSD. It was started by a South Korean businessman, and they attracted financial support from reputable financiers, who bought into the promise that unique software algorithms would provide them with the stability that other cryptocurrencies lacked. It proved to be smoke and mirrors, as the price of both collapsed this month, which then led to a broader crash in the cryptocurrency markets.

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In Australia, while different regulators oversee different aspects of crypto, there is no overarching policy regulating them. Late last year, the federal government announced it wanted to crack down on the sector and released a discussion paper outlining its views on reform and soliciting public opinions. Essentially, what is being proposed is a new regulatory framework that would provide stricter guidelines and standards for those Australian companies that provide access to and storage of crypto assets.

Not before time. In December last year, Melbourne-based cryptocurrency platform MyCryptoWallet collapsed after a barrage of user complaints and allegations of money loss. It was later revealed that she owed about $4 million to clients who had money invested in the exchange. Around the same time, officials were following another Melbourne-based company, Blockchain Global Limited, which had collapsed due to creditors worth $21 million, as cryptocurrency traders sought to increase their multi-million dollar investment.

These failures are indicative of the risks facing investors, as Australian exchanges are currently only required to register with the financial crime watchdog AUSTRAC for anti-money laundering purposes. After the recent market turmoil, the Commonwealth Bank is ending its pilot programme, with Chief Executive Matt Komen, saying it will be delayed until the federal government introduces more regulation. This is a reasonable step.

The truth is that cryptocurrencies, despite all the hype, are rarely used for any meaningful economic transaction. It appears to be a long way from reaching a reliable point as a stable long-term investment. Chief US Economist Paul Krugman recently asked the question, “Could it really just be a FOMO-inflated bubble, the fear of getting lost?” Based on the recent crash in the crypto markets, the answer appears to be in the affirmative.

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