Is crypto really just another ‘bubble’?
Crypto was big until late 2022 when the markets crashed spectacularly and crypto winter set in. Traders crowing about their profits went silent, almost overnight.
The price of Bitcoin slowly recovered through 2023 and then soared after United States regulators approved the formation of crypto exchange traded funds [ETFs].
The world’s largest fund managers, such as BlackRock, immediately began buying vast quantities of the digital currency, driving the price through the roof.
I turned on 1News around the beginning of March to see an article in prime time about Bitcoin hitting record highs.
“Gulp” was a polite translation of my words.
Making the TV news meant that first-time investors with FOMO (fear of missing out) are about to pile in.
Bitcoin, the most popular gauge of the markets, rose by 160 per cent from October last year to the final week in March and a new get-richquick cohort was emerging.
“By the time everyone knows the story, it is usually past its use-by date, and the smart money is already getting out; cutting and running,” I’d just read in my colleague Liam Dann’s new book, BBQ Economics.
Whether it was 1929, 1987, 2008 — the same story repeats.
Days after the TV1 news item, someone started telling me about all the money his son had made in crypto and how he seemed to be very good at it.
I raised an eyebrow because even a monkey throwing darts at a chart would have made a profit on Bitcoin over the past year.
When the market gets “frothy” and FOMO abounds, that’s when crypto investor and lawyer James Cochrane takes a breather.
Cochrane, a partner in Web3 & Digital Assets at law firm Lane Neave, knows that when crypto fever hits the mainstream media, it’s only time before the next crash comes.
That is inevitably followed by a stream of new clients coming through the door with very sad stories to tell from the bloodbath.
Brand new traders often think they have the midas touch, until they’ve been through a crypto winter. Cochrane himself, lost 95 per cent on paper of his first small crypto investment two cycles ago, when the market tanked.
His investment eventually regained the losses and emerged in profit. He had learned a valuable lesson, however.
One of Cochrane’s strategies is that he doesn’t buy the fancy stuff. “I tend to focus on the large caps and the top 10 coins. I experiment with a handful of other projects, but only what I’m prepared to lose.”
Any regular allocation for crypto should come after paying the mortgage, investing in KiwiSaver, and then some traditional shares and/or funds, he says.
I can’t write this without mentioning there are arguments that crypto is like a huge Ponzi scheme.
William Quinn, a senior lecturer at Queen’s University Belfast says there are arguments that crypto is a stupider bubble than any previous bubble, or that it’s a smarter Ponzi than any previous Ponzis.