Last week, the cryptocurrency market lost $ 320 billion in value in a single day.
A loss of confidence in two stablecoins, a form of cryptocurrency linked to real assets such as cash or bonds, which are supposed to be protected against volatility, caused the cryptocurrency market to fall by around 30%.
But New Zealand’s crypto exchanges say they have seen an increase in local investors buying into the volatile market.
Financial experts are wondering if a collapse of 30% in value does not change the behavior of investors in cryptocurrency, right?
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Cryptocurrencies, such as bitcoin or ethereum, are lines of code designed to act as digital currency.
A stablecoin is a form of cryptocurrency where the value is linked to another currency or financial instrument, with the aim of avoiding the volatility of a larger cryptocurrency market.
But last week, the value of two large stack coins dropped. Terra, a stablecoin believed to match the value of the US dollar, traded at 0.13 US cents (0.2c NZ) last week. Another stablecoin, luna, crashed and traded only a fraction of a cent.
After two supposedly stable cryptocurrencies fell so drastically in value, panic in the broader cryptocurrency market triggered widespread withdrawals.
By the end of the week, the entire crypto market had lost US $ 400 billion (NZ $ 634 billion) in value.
How do New Zealand investors react?
Easy Crypto CEO Janine Grainger said New Zealand investors responded by buying more crypto.
May is already the highest trading volume for Easy Crypto this year.
Between 90 and 95% of trades are buy from people, but the value remains steady between buy and sell, meaning some investors sell in large quantities, while most buy in small quantities, Grainger said.
But Grainger became concerned when she noticed that investors were buying tether and luna as their values fell.
To stop this behavior, she made the decision to remove the tether and luna parts from the rig.
“Although we do not know people’s motivations for investing in crypto, it is expected that if something falls sharply and people buy, they ‘buy diving’.
“Right now, we need to make sure we are not selling our customers something that we are not able to deliver.”
Experts say investor behavior is worrying
Simplicity CEO Sam Stubbs says relying on a cryptocurrency exchange for self-regulation is like asking the fox to look after the chicken coop.
“When the exchanges are worried, 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 continue to invest in the digital asset as value declines as it reinforces his belief that investing in cryptocurrency is a game.
“When a player loses, he often doubles. That’s exactly the behavior we see here.
Financial adviser and cryptocurrency expert Darcy Ungaro also says the behavior is worrying.
It is worrying to see a “buy the dip” philosophy applied to cryptocurrencies, as most coins can become completely worthless in an instant, he says.
“Many cryptocurrencies outside of bitcoin will either succeed or fail. They usually do nothing in between. This is why you never want to buy the fall in most of these coins. If the price falls, it is probably on the verge of failure. , ”Says Ungaro.
The crash is a positive thing for the cryptocurrency industry as a whole, he says.
‘It will 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 best, which will strengthen the market.
“It’s just a shame that some people who were sucked in for quick cash were nailed.”