Last week, the cryptocurrency market lost $320 billion in 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, which are supposed to be protected from volatility, caused the cryptocurrency market to fall by around 30 %.
But New Zealand crypto exchanges say they have seen an increase in local investors buying into the volatile market.
Financial experts are wondering if a 30% collapse in value doesn’t change the behavior of cryptocurrency investors, right?
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Cryptocurrencies, such as bitcoin or ethereum, are lines of code designed to function like digital currency.
A stablecoin is a type of cryptocurrency in which the value is tied to another currency or financial instrument, with the aim of avoiding the volatility of a larger crypto market.
But last week, the value of two major stablecoins plunged. Terra, a stablecoin believed to match the value of the US dollar, was trading at 0.13 US cents (0.2c NZ) last week. Another stablecoin, luna, crashed, trading just a fraction of a cent.
After two supposedly stable cryptocurrencies fell so drastically in value, panic in the broader crypto market triggered widespread pullbacks.
By the end of the week, the entire crypto market had lost US$400 billion (NZ$634 billion) in value.
How are New Zealand investors reacting?
Easy Crypto Managing Director Janine Grainger said New Zealand investors responded by buying more crypto.
May is already the highest trading volume month for Easy Crypto this year.
Between 90 and 95% of trades are buys from people, but the value remains even between buys and sells, meaning some investors sell in large amounts, while most buy in smaller amounts, Grainger said.
But Grainger grew concerned when she noticed investors buying tether and luna as their values plummeted.
To stop this behavior, she made the decision to remove the tether and luna parts from the rig.
“While we don’t know people’s motivations for investing in crypto, if something drops significantly and people buy, they are expected to ‘buy the dip’.
“Right now, we have to make sure we’re not selling our customers something that we’re not able to deliver.”
Experts say investor behavior is troubling
Simplicity CEO Sam Stubbs says relying on a crypto exchange to self-regulate is like asking the fox to tend the chicken coop.
“When the exchanges are worried, then you have a serious problem, because their motivation has been to get people to exchange as many of these things as possible,” he says.
Stubbs says he is not surprised to see New Zealand investors continuing to invest in the digital asset as the value declines, as it reinforces his belief that investing in cryptocurrency is a game.
“When a player loses, he often doubles up. This is exactly the behavior we see here.
Financial adviser and cryptocurrency expert Darcy Ungaro also says the behavior is troubling.
It’s worrying to see a “buy the dip” philosophy applied to cryptocurrencies, as most coins can become completely worthless in the blink of an eye, he says.
“A lot of crypto-assets outside of bitcoin will either succeed or fail. They usually do nothing in between. This is why you never want to buy the drop in most of these coins. If the price goes down, it’s probably on the way to failure,” says Ungaro.
The crash is a positive thing for the cryptocurrency industry as a whole, he says.
“This is going to shake up a lot of people who are here for the wrong reasons. We will see less money allocated to “meme stocks” and capital will flow to the top performers, which will strengthen the market.
“It’s just a shame that some people who got sucked in for quick cash got nailed.”
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Kiwi Investors Are Going Through A Crypto Crash, But Is It A Good Thing? – Tech Tribune France
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