Staggering losses from Crypto


The cryptocurrency market’s massive crashed over the past few months as a wave of crackdown measures in China continues to rattle investor sentiment, pushing losses to more than £1 trillion since a market peak on May 12, the day billionaire Elon Musk announced on Twitter that Tesla would no longer invest in or sell bitcoin due to its hefty environmental cost. 

Bitcoin crashed over 50% whilst other alternative coins plunged much more, from all-time highs on May 12 to an eye watering losses of up to 70% in just 2 months.

Key facts

  • The market value of the world’s cryptocurrencies plunged over £1 trillion from May 12 to August 1
  • The market, which peaked at nearly £2.2 trillion, plummeted more than 50% in just 2 months as bitcoin, ether, dogecoin and cardano plunged 50%, 62%, 75% and 50% respectively
  • Analysts are pinning recent losses to investor fears over strengthening crypto-regulation in China, where authorities pledged to “crack down on bitcoin mining and trading behaviour” in an effort to “resolutely” control financial risks. The stark warning came days after the nation’s financial regulators issued a notice that helped spark the mid May plunge, telling banks and payments institutions that conducting any business with cryptocurrencies was prohibited and subject to penalisation.

In response to the recent warnings from Chinese regulators, cryptocurrency exchange Huboi told CoinDesk Sunday that it has halted its miner-hosting services in mainland China. It’s unclear how much that could impact mining. The company, which is one of the world’s largest crypto-exchanges by volume, also said it would stop providing certain investment products to new users in a slew of other countries “due to recent dynamic changes in the market” and “in order to protect the interests of investors.”

Quote

“Crypto has been a casualty of the changing tide in and out of speculation. High-flying assets have increasingly fallen out of favour with inflation worries, and they’re starting to weigh on the market,” Lule Demmissie, the president of Ally Invest, said. “Sure, Elon Musk’s tweets on bitcoin added fuel to the fire, but bitcoin has looked like the classic case of a crowded trade that turned and crypto holders rushed to the exits whilst amateurs got slaughtered”.

Then there’s Cathie Wood

Despite the crash, Ark Investment CEO Cathie Wood says she still believes bitcoin prices will rise to $500,000 (a staggering 15 times from the current price), insisting that volatility in the crypto market is to be expected. “We go through soul searching times like this and scrape the models, and yes our conviction is just as high,” she told Bloomberg TV, before warning: “You never know how low is low when a market gets very emotional.”

Crypto scams are putting the financially disadvantaged at greater risk

Celebrity influencers are being used to promote crypto-currency and currency trading schemes which turn out to be scams, the City watchdog has warned.

These celebrities often have a large following on social media – an opportunity seized on by con-artists to cast a wide net for potential victims. Bogus online trading platforms promise supersized returns but fraudsters may disappear with the invested funds.

Stark warning

The Financial Conduct Authority (FCA), the City watchdog, said that celebrity endorsements and images of luxury items such as expensive watches and cars on social media posts were often used to promote schemes.

These then linked to professional-looking websites where consumers were persuaded to invest.

However, it said that those tempted should remember not every investment opportunity is genuine. Criminals could use the names of well-known brands or individuals to make their scams appear legitimate.

Laura Suter, from regulated investment platform AJ Bell, said: “If your friend recommends something to you, don’t assume that they have done all the research for you. You can check on the regulator’s register to see if the company is legitimate.”

Reports of either foreign currency or crypto-currency fraud more than tripled last year to 1,834 cases. The typical amount lost by each victim was £14,600.

Action Fraud director Pauline Smith said: “These figures are startling and provide a stark warning that people need to be wary of fake investments on online trading platforms. It is vital that people carry out the necessary checks to ensure that an investment they are considering is legitimate.”

Celeb’s and their losses

YouTube influencer KSI made £7 million than lost it all: https://www.nme.com/news/music/ksi-made-7million-cryptocurrency-then-lost-all-2996649

Tesla & Elon Musk’s investment into Bitcoin is expected cost $700 million in losses: https://observer.com/2021/05/tesla-elon-musk-loss-million-bitcoin-cryptocurrency-collapse/

Background

Regulatory concerns have rocked the growing crypto market before. Despite rising more than 10-fold in 2017, the combined value of the world’s cryptocurrencies crashed more than 80% within months after countries like South Korea started cracking down on then-booming initial coin offerings, which minted new tokens and fuelled an investor mania not unlike the recent surge in relatively unknown altcoins. It wasn’t until the pandemic that inflationary concerns and heightened institutional adoption lifted the market to new highs again late last year. The market is still up about 50% from its early 2018 peak, but what’s to come is still very uncertain. Some experts believe the market’s matured enough to recoup its losses, but others are warning that there’s still room for a steeper correction.

Take heed of my advise

I personally know of people who have invested heavily into Crypto’s out of peer pressure and fear of missing out, the sad thing is that these are not wealthy individuals. The best advise I can give is “You don’t get something for nothing – don’t forget”.

 

Nazrul Hoque – 1 August 2021