The more than one million Australians who have invested in cryptocurrencies have watched in horror at the financial bloodbath their fall in value has caused this week.
Bitcoin, the most famous cryptocurrency, has plunged in value over the last seven months, from its peak of $US61,374 ($88,650) in October, to $US29,870 ($43,150) earlier this week – the first time Bitcoin fell below $US30,000 since July 2021.
Bitcoin has since recovered slightly to just over $US31,000, but that is still an almost 50 per cent drop in a matter of months.
But while crypto prices have nosedived in recent days, meaning huge losses for many investors, leading expert Caroline Bowler said there are better times ahead – and has explained what is going on.
Bitcoin has fallen dramatically in value (pictured) over the last seven months, from $US61,374 ($88,650) in October, to $US29,870 ($43,150) earlier this week
Ms Bowler, the chief executive of BTC Markets, said something similar to ‘a run on the bank’ has happened to cryptocurrencies in the past two days.
It started when the two main tokens of embattled cryptocurrency project Terra went into free fall Wednesday.
TerraUSD, also known as UST, is a so-called ‘stablecoin’ that is meant to maintain a one-to-one peg with the US dollar.
But UST plunged to as low as 26 cents, before later climbing to 68 cents.
Its sister token Luna, which has a floating price, fell to less than 90 cents before recovering slightly to $1.18.
Luna has lost around 96 per cent of its value in the past week, and now has a smaller market value than its stablecoin counterpart.
‘(UST’s) one-to-one pegging has been destabilised in what some in the industry are calling a George Soros-style attack, but that’s just speculation,’ Ms Bowler told Daily Mail Australia.
(Mr Soros, a Hungarian-born American businessman, made around $1.5billion in a month in late 1992 by betting against the UK pound. There is no suggestion he is trying to do anything similar with USTs.)
‘Because that happened, that contagion alongside the volatility we’ve seen in the Nasdaq and global markets, has combined to create what we’re experiencing at the moment.’
Ms Bowler said the crypto fall is both reflective of what’s happening in the global markets more broadly and ‘also tied to the increase in interest rates we’ve seen in the US and all the other major economies’.
BTC Markets chief executive Caroline Bowler (pictured) said something similar to ‘a run on the bank’ has happened to cryptocurrencies
She said the last rally in Bitcoin was directly linked to Covid lockdowns. ‘That pumping of excess money (through stimulus payments) was looking for a place to go and drove up the price.’
Ms Bowler said the huge price movements seen in crypto value is in party due to it being relatively new.
She said one of the advantages to traditional financial markets ‘is they have had enough time to build up liquidity with big institutions and various other players in the market.
‘Because crypto has grown up only in the last 10 years or so, it doesn’t have that same underlying liquidity core, so when a part moves, it moves at a greater clip.’
The value of cryptocurrency Bitcoin has fallen by almost 50 per cent in seven months. Pictured is a person holding a bitcoin token
Ms Bowler completely rejects a headline in UK magazine Spectator this week announcing that ‘crypto is dead’.
‘Basically people have been saying that crypto is on its uppers for the guts of 10 years, but it’s still here,’ she said.
Ms Bowler said ‘the number of holders of cryptocurrency is similar to (the number of people using) the internet in 1997’ and that it will continue to grow in a similar way.
The Australian crypto market is worth about $2billion, with the average investment about $20,000.
WHAT ARE CRYPTOCURRENCIES?
A cryptocurrency is a digital currency that can be used for transactions online.
It is the internet’s version of money – unique pieces of digital property that can be transferred from one person to another.
All crytocurrencies use ‘blockchain’ and one can only be made and shared using specific agreed-upon rules. For each cryptocurrency the rules are slightly different.
Bitcoins are lines of computer code that are digitally signed each time they travel from one owner to the next. Physical coins used as an illustration
People can buy bitcoins through exchanges such as Coinbase and Bitfinex.
Bitcoin was the first cryptocurrency, created in 2009.
Other currencies such as Litecoin and Dogecoin do the same thing but have slightly different levels of inflation and rules surrounding transactions.
Currently around 270,000 transactions are taking place every 24 hours.
These currencies don’t exist as physical or digital objects. They are just a collective agreement with other people on the network that your currency was legitimately ‘mined’.
Blockchain is the record of changes in ownership of in a currency which is broadcast through the network and maintained by computers around the world.
The network works by harnessing individuals’ greed for the collective good.
A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every bitcoin transaction.
As long as miners keep the blockchain secure, counterfeiting shouldn’t be an issue.
However, because cryptocurrencies allow people to trade money without a third party getting involved, they have become popular with libertarians as well as technophiles, speculators — and criminals.