Last week, the cryptocurrency market lost $ 320 billion in a single day.
A loss of confidence in two stablecoins, a type of cryptocurrency linked to real-world assets such as money or bonds, intended to protect against volatility, caused the cryptocurrency market to fall by 30%.
But New Zealand’s cryptocurrency exchanges say they have seen an increase in local investors buying into the volatile market.
Financial experts are wondering if a 30% drop in value does not alter the behavior of cryptocurrency investments, something?
* Wall Street: The price of Bitcoin has fallen sharply, its value has halved since November
* The mayor of New York City invests the first salary in cryptocurrency
* The Detail: The strange (and sexist) language of cryptocurrency
Cryptocurrencies, such as bitcoin or ethereum, are lines of code designed to function as digital currency.
A stablecoin is a type of cryptocurrency in which the value is linked to another currency or financial instrument, in an attempt to avoid the volatility of the wider cryptocurrency market.
But last week the value of two major stable currencies fell. Land, a stable currency supposedly equal to the value of the U.S. dollar was trading at 0.13 cents (NZ0.2c) last week. Another stable currency, the moon, fell, trading at only a fraction of a penny.
After the value of two supposedly stable cryptocurrencies fell so sharply, panic in the wider crypto market led to widespread withdrawals.
By the end of the week, the entire cryptocurrency market had lost $ 400 million (New Zealand $ 634 million) in value.
How are New Zealand investors reacting?
Easy Crypto CEO Janine Grainger says New Zealand investors have reacted by buying more crypto.
May is already the month with the highest trading volume for Easy Crypto this year.
Between 90% and 95% of transactions are people who buy, but the value remains even between purchases and sales, which means that certain investors are selling in large quantities, while most are buying smaller quantities, he said. Grainger.
But Grainger was worried when he noticed that investors were buying tether and moon while they were plummeting.
To stop this behavior, he made the decision to remove the binding and moon coins from the platform.
“Although we don’t know the motivations of people to invest in cryptocurrencies, if something is falling in value significantly and people are buying, there is an expectation that they are ‘buying the fall.’
“Right now we have to make sure we don’t sell our customers something we can’t offer.”
Experts say investor behavior is worrisome
Simplicity managing director Sam Stubbs says relying on a cryptocurrency exchange to self-regulate is like asking the fox to take care of the chicken coop.
“When exchanges are concerned, then you have a serious problem, because your incentive has been to get people to negotiate as many of these things as possible,” he says.
Stubbs says he is not surprised to see that New Zealand investors continue to invest in digital assets as value falls, because it reinforces his belief that investing in cryptocurrencies is a gamble.
“When a player is losing, he will often double down. That’s exactly the behavior we’re seeing here.”
Financial advisor and cryptocurrency expert Darcy Ungaro also says the behavior is worrisome.
It’s worrisome to see a “buy the dive” philosophy applied to cryptocurrencies, because most currencies can be completely useless at first glance, he says.
“A lot of cryptocurrencies outside of bitcoin are going to fail or fail. They usually do nothing in between. That’s why they never want to buy the dive in most of these currencies. If the price goes down, it’s probably on the path to failure,” says Ungaro.
The crash is a positive thing for the cryptocurrency industry in general, he says.
“This is going to shake up a lot of people who are into this for the wrong reasons. We will see less money going into ‘meme-stocks’, and capital will flow towards strong results, which will strengthen the market.
“It’s just unfortunate that some people who were absorbed in quick money have been nailed.”