Bitcoin, Terra, Luna, Australia: Crypto bloodbath for Aussie investors
The more than one million Australians who have invested in cryptocurrencies have watched in horror as the financial bloodbath their fall in value has caused this week.
Bitcoin, the most famous cryptocurrency, has plunged in value over the past seven months, falling from its high of US$61,374 ($88,650) in October to US$29,870 ($43,150) earlier this week – the first time Bitcoin has fallen below US$30,000 since July 2021.
Bitcoin has since recovered slightly to just over $31,000, but that’s still down nearly 50% in a few months.
But as crypto prices have plunged in recent days, meaning huge losses for many investors, leading expert Caroline Bowler says there are better days ahead – and explained what was happening.
Bitcoin’s value has fallen dramatically (pictured) over the past seven months, from US$61,374 ($88,650) in October to US$29,870 ($43,150) earlier this week.
Ms Bowler, managing director of BTC Markets, said something similar to “a run on the bank” had happened with cryptocurrencies over the past two days.
It started when the two major tokens of the embattled Terra cryptocurrency project went into freefall on Wednesday.
TerraUSD, also known as UST, is a so-called “stablecoin” intended to maintain parity with the US dollar.
But the UST dipped as low as 26 cents, before climbing to 68 cents later.
Its sister token Luna, which has a floating price, fell below 90 cents before recovering slightly to $1.18.
Luna has lost around 96% of its value over the past week and now has a lower market value than its stablecoin counterpart.
“The (UST’s) individual anchorage has been destabilized 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 about $1.5 billion in one month in late 1992 betting against the British pound. There is no suggestion that he try doing something similar with USTs.)
“Because it happened, that contagion alongside the volatility we’ve seen in the Nasdaq and global markets, has combined to create what we’re experiencing right now.”
Ms Bowler said the fall in crypto reflects both what is happening in global markets more broadly and “also related to the increase in interest rates that we have seen in the United States and all the other big savings.
BTC Markets Managing Director Caroline Bowler (pictured) says something similar to ‘a run on the bank’ has happened to cryptocurrencies
She said Bitcoin’s latest rally was directly linked to Covid lockdowns. “This pumping of excess money (through stimulus payments) was looking for somewhere to go and driving up the price.”
Ms Bowler said the huge price movements seen in the value of crypto are in question because they are relatively new.
She said one of the advantages of traditional financial markets “is that they have had enough time to build up liquidity with the big institutions and various other market players.”
“Because crypto has only grown in the last 10 or so years, it doesn’t have the same underlying core liquidity, so when a coin moves, it moves at a faster rate.”
The value of the Bitcoin cryptocurrency has fallen almost 50% in seven months. Pictured is a person holding a bitcoin token
Ms Bowler completely dismisses a headline in Britain’s Spectator magazine this week announcing that “crypto is dead.”
“Basically, people say crypto has been on top for 10 years, but it’s still here,” she said.
Ms Bowler said “the number of cryptocurrency holders is similar to (the number of people using) the internet in 1997” and will continue to grow in the same way.
The Australian crypto market is worth around $2 billion, with an average investment of around $20,000.
WHAT ARE CRYPTOCURRENCIES?
A cryptocurrency is a digital currency that can be used for online transactions.
It’s the Internet’s version of money – unique pieces of digital property that can be transferred from person to person.
All cryptocurrencies use “blockchain” and only one can be created and shared using specific agreed rules. For each cryptocurrency, the rules are slightly different.
Bitcoins are lines of computer code that are digitally signed each time they travel from owner to owner. Physical parts used as 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 but have slightly different inflation levels and rules surrounding transactions.
Currently, around 270,000 transactions take place every 24 hours.
These currencies do not exist as physical or digital objects. It is simply a collective agreement with other people on the network that your currency has been legitimately “mined”.
Blockchain is the record of changes in ownership of a currency that is broadcast through the network and managed by computers around the world.
The network works by harnessing the greed of individuals 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 tally of every bitcoin transaction.
As long as miners keep the blockchain secure, counterfeiting shouldn’t be a problem.
However, because cryptocurrencies allow people to exchange money without a third party getting involved, they have become popular with libertarians as well as techies, speculators, and criminals.