Reality bytes as cryptocurrency speculators feel the pinch

SAN FRANCISCO: Pete Roberts of Nottingham, England, was one of the many risk-takers who threw their savings into cryptocurrencies when prices were going through the roof last winter.

Now, eight months later, the $23 000 he invested in several digital tokens is worth $4 000.

“I got too caught up trying to make a quick buck,” he said.

“The losses have pretty much left me financially ruined.”

Roberts, 28, has company. After the latest round of big price drops, many cryptocurrencies have given back all of the enormous gains they experienced last year. The value of all outstanding digital tokens has fallen by about $600 billion, or 75%, since the peak in January.

The virtual currency markets have been through booms and busts before, and recovered to boom again. But this bust could have a more lasting impact on the technology’s adoption because of the sheer number of ordinary people who invested in digital tokens over the last year and who are likely to associate cryptocurrencies with financial ruin for a long time.

“What the average Joe hears is how friends lost fortunes,” said Alex Kruger, a former banker who has been trading in the cryptocurrency markets for some time. “Irrational exuberance leads to financial overhang and slows progress.”

It is hard to know how many cryptocurrency investors are in the red, with holdings worth less than the money they put in. Many who have lost money in recent months had gotten into the markets before the big run-up last year and their holdings are still worth more than their initial investments.

But by many metrics, more people put money into virtual currencies last autumn and winter than in all of the preceding nine or so years. Coinbase, the largest cryptocurrency brokerage in the US, doubled its number of customers between October and March. The startup Square began allowing the users of its mobile app, Square Cash, to buy bitcoin in November.

Almost all of the new customers on Coinbase and Square would be in the red if they bought cryptocurrencies at almost any point over the last nine months and held on to them.

The damage is likely to be particularly bad in places like South Korea and Japan, where there was minimal cryptocurrency activity before last year, and where ordinary investors with little expertise jumped in with abandon.

In South Korea, the biggest exchanges opened storefronts to make investment easier for people who did not feel comfortable doing it online. The offices of one big exchange, Coinone, had just one customer walk in during a two-hour period last week. An employee, Yu Ji-hoon, said: “The prices have fallen so much that people feel upset.”

Kim Hyon-jeong, a 45-year-old teacher and mother of one who lives on the outskirts of Seoul, said she put 100 million won, or $90 000, into cryptocurrencies last fall. She drew on savings, an insurance policy and a $25 000 loan. Her investments are now down about 90%.

“I thought cryptocurrencies would be the one and only breakthrough for ordinary hardworking people,” she said. “I thought my family and I could escape hardship and live more comfortably but it turned out to be the other way around.”

In the US, Charles Herman, a 29-year-old small business owner in Charleston, South Carolina, became obsessed with virtual currencies in September. He felt that he had wasted 10 months of his life trying to play the markets. While he is essentially back to the $4 000 he put in, he has soured on the revolutionary promises that virtual currency fanatics made and has resumed investing in real estate. “I thought we were ‘sticking it to the man’ when I got on board. But I think ‘the man’ had already caught on and had an exit strategy.”

Much of the anger that investors feel is toward the smaller virtual currencies, or alt coins, that entrepreneurs sold in so-called initial coin offerings. These coins were supposed to serve as payment mechanisms for new software the entrepreneurs were building. But almost none of these companies have delivered the software they promised, leaving the tokens useless, except as speculative assets. Several coins have been exposed as outright scams.

Roberts, the British investor who has seen most of his

$23 000 vanish, is holding onto his coins in case they turn around. But for now he has stopped trading and is looking for another job.

“I’m living off the little savings I have left still in my bank account,” Roberts said. “I’ve made a mistake and now I’m going to have to unfortunately pay the cost for the next few years.” – New York Times