Small players lose confidence in crypto after liquidation

Isah, a recently unemployed administrative employee, swore she would never invest in crypto again.

“I can not believe I fell into crypto,” she told Reuters by phone. “I’m just not trying to get depressed. Crypto took my money, fine. It should not take my head off.”

The crypto market, notorious for its wild price fluctuations, crashed last week as investors withdrew their money from more risky assets due to concerns over rising inflation and rising prices.

Bitcoin, the world’s largest cryptocurrency, fell as low as $ 25,401 on Thursday, the lowest level since December 2020. It hit a record high of $ 69,000 in November.

Smaller tokens were also affected, with Ether, the second largest token, falling more than 15% to its lowest level since June. Luna – a digital currency widely publicized on social media and backed by institutional crypto investors – has lost almost all of its value.

Small traders like Isah have flocked to cryptocurrencies in hopes of quick returns despite warnings from regulators that these new assets could be high-risk.

Platforms like Robinhood, which has 23 million customers across a range of assets, have helped increase retail investment, including in cryptocurrencies. About a quarter of Robinhood’s transaction-based revenue came from cryptocurrencies in the first quarter of this year, Robinhood said in its latest income statement.

The total number of users of cryptocurrency platforms has exploded. Binance, the world’s largest cryptocurrency exchange, had about 118 million customers last month, up from 43.4 million in the first quarter last year.

But after last week’s turmoil, online forums were flooded with tales of doom, with retail investors expressing their anxiety over their losses.

“I’m 49, big mortgage, 3 kids, etc. My retirement party is on ice for the foreseeable future!”, Wrote one user with the handle Boring-Fun-3646 on Reddit.

Another user with the handle AdventurousAdagio830 wrote on Reddit: “it does not seem right that I lost $ 180,000.”

DEAD SPIRAL

A symbol of cryptocurrency risks was collapsed last week by terraUSD, a stablecoin designed to maintain constant value via a complex algorithm involving luna.

When the coins came under heavy selling pressure, the system collapsed. TerraUSD – designed to hold a value of $ 1 – traded around 9 cents on Tuesday, while luna dived close to zero, according to data from CoinGecko.

Tejan Shrivastava, a 31-year-old graphic designer from Mumbai who has been investing in cryptocurrencies since last year, saw his $ 250 investment wiped out by the collapse of Luna.

“He was stuck in a death spiral. All the money was gone in 15 minutes,” he told Reuters.

“I do not even know if I will invest in crypto in the future. I have a crypto portfolio, but I plan to liquidate it when it goes into balance.”

Luna’s decline wiped out most of its market value, which was over $ 40 billion as late as early April, according to data from CoinGecko.

The frustration of online investors has even spread to the real world.

Last week, Soul Police said they were looking for a suspect after an unidentified person rang the doorbell of terraUSD founder Do Kwon’s apartment and fled the scene.

Police would investigate whether the suspect had invested in cryptocurrency, a Soul police officer told Reuters.

AN UNIQUE REGULATION

In its 13-year history, the cryptocurrency industry has been marked by dizzying ups and downs and sudden free falls. In November, for example, bitcoin crashed by a fifth in just under two weeks after hitting a record high of $ 69,000. Six months earlier, he had plunged by almost 40% in just nine days.

Yet the recent cryptocurrency crash – which pushed the sector’s total value to $ 1.2 trillion, less than half of what it was last November – has led to the luna crash, which on May 1 was the eighth cryptocurrency measured by market value.

Cryptocurrencies are unevenly regulated around the world, where traders of bitcoin and the amount of smaller tokens are generally not protected against price falls.

However, it is difficult to measure the extent of retail investors’ pain from the cryptocurrency dive and the impact on future appetite given the opaque nature of the market.

In the UK, more than 4% of adults – or around 2.3 million people – own cryptocurrencies, according to data released last year by the UK Financial Watchdog.

The British watchdog said that the understanding of cryptocurrencies had fallen compared to the previous year, “suggesting that some cryptocurrency users may not fully understand what they are buying.”

Still, some small investors keep the faith.

Eloisa Marchesoni, who is based near Tulum in Mexico and who invests with a crypto syndicate, said she will not give up.

“I’m looking to buy the bottom – we’re all waiting for bitcoin to fall by $ 22,000, which is not too likely, but not ‘not at all likely’.”

Marchesoni also hedges its crypto bets with physical assets – “cars because you can rent them, watches, real estate.”

Bitcoin hovered around $ 30,000 on Tuesday, after losing more than 20% since the beginning of the month.

Regulators remain on guard. The British government said last month that it would regulate stack coins.

The US Securities and Exchange Commission is sharpening its position. SEC President Gary Gensler said this week that cryptocurrency investors need more protection.

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