Cryptocurrency bust provides hard lessons

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.

Eight months later, the $23,000 he invested in several digital tokens is worth about $4,000 and he is clearheaded about what happened.

“I got too caught up in the fear of missing out and trying to make a quick buck,” Roberts said. “The losses have pretty much left me financially ruined.”

Roberts, 28, has a lot of company. After the latest round of big price drops, many cryptocurrencies have given back all of the gains they experienced last winter. The value of all outstanding digital tokens has fallen by about $600 billion, or 75 percent, since the peak in January, according to data from the website coinmarketcap.com.

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 very 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 now 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 fall and winter than in all of the preceding nine or so years. Coinbase, the largest cryptocurrency brokerage in the United States, 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 last 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.

In the United States, Charles Herman, a 29-year-old small business owner in Charleston, South Carolina, became obsessed with virtual currencies in September. He said he now 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 promises that virtual currency fanatics made for the technology.

“I guess I thought we were ‘sticking it to the man’ when I got on board,” Herman said. “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.

Bitcoin has generally held on better with investors. It is down about 70 percent from all-time highs, rather than the 90 percent losses that lesser-known digital tokens have suffered. But it, too, has struggled to win much use beyond speculative investments.

“We also saw that bitcoin isn’t ready for mass adoption and dayto-day use,” Herman said.