Buyer Beware As Crypto Markets Plunge

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The recent crash in the value of cryptocurrencies has, once again, bolstered their reputation as the Wild West of the financial industry. The market capitalization of all crypto assets has fallen by more than $2 trillion since peaking last November, a decline of around 50%.

The crypto was once owned by a small coterie of investors seduced by the potential of the new currency that uses cryptography to provide a high level of security and blockchain technology that maintains a decentralized record of transactions. Over time, rising prices have attracted more people looking for a financial windfall. Australians were keen to join the rush. Over the past three years, according to the tax office, more than 800,000 Australians have transacted on crypto markets.

Bitcoin has fallen more than 50% since October. Credit:Getty

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While most investors would be aware that cryptocurrencies have suffered wild swings in the past, the promise of huge gains if you sell at the right time has added to their popularity. Crypto had also started to go mainstream. In November last year, Commonwealth Bank became the first of the big four banks to announce that it would establish a pilot program to allow its customers to exchange up to 10 cryptocurrencies – including bitcoin – via its application, citing an increase in demand from younger people. clients.

But doubts about digital currencies have started to grow in recent months with the rise, in particular, of two cryptos called Luna and TerraUSD. Started by a South Korean entrepreneur, they attracted financial backing from respected financiers, who signed on to the promise that unique software algorithms would provide them with the stability that other cryptos lacked. It turned out to be smoke and mirrors, as the price of both crashed this month, which then triggered a broader crash in the crypto markets.

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In Australia, while various regulators oversee different aspects of crypto, there is no overarching policy that regulates 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 asking for public feedback. Essentially, what is being proposed is a new regulatory framework that would provide stricter guidelines and standards for Australian businesses that provide access to and store crypto assets.

It’s not before time. In December last year, Melbourne-based cryptocurrency exchange MyCryptoWallet collapsed after a deluge of user complaints and allegations of missing funds. It was later revealed that he owed almost $4 million to clients who had invested funds in the exchange. Around the same time, administrators were suing another Melbourne-based company, Blockchain Global Limited, which collapsed before its creditors $21 million, while crypto traders seek millions more in lost investments .

These failures are indicative of the risks investors face, as Australian stock exchanges are currently only required to register with financial crime watchdog AUSTRAC for anti-money laundering purposes only. After the latest market turmoil, Commonwealth Bank ended its pilot program, with chief executive Matt Comyn saying he would wait until the federal government introduced new regulations. It’s a sensible decision.

The reality is that cryptocurrencies, despite all the hype, are rarely used in any meaningful economic transaction. They seem far from having reached a point where they can be considered a stable long-term investment. The eminent American economist Paul Krugman recently posed the question: “Can this really just be a bubble inflated by FOMO, the fear of missing out? Based on the latest crash in the crypto markets, it would seem that the answer is yes.

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Buyer Beware As Crypto Markets Plunge


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