The recent plunge in the value of cryptocurrencies has once again cemented their reputation as the wild west of the financial industry. The market cap of all crypto assets has fallen by more than $2 trillion, or about 50%, since peaking last November.
Cryptocurrencies were once held by a small group of investors fascinated by the potential of new currencies that use encryption to provide a high level of security and blockchain technology to keep a decentralized record of transactions. Over time, rising prices have attracted more and more people looking for windfalls. Australians have been keen to join the craze. Over the past three years, more than 800,000 Australians have traded in the crypto market, according to the Tax Office.
While most investors are aware that cryptocurrencies have suffered from wild swings in the past, the prospect of huge gains if you sell at the right time has added to their popularity. Cryptocurrencies are also starting to go mainstream. In November, Commonwealth Bank became the first of the Big Four to announce that it would establish a pilot program to allow its customers to trade up to 10 cryptocurrencies, including bitcoin, through its app, citing a surge in demand from younger customers.
But in recent months, with the rise of two cryptocurrencies, Luna and TerraUSD, doubts about digital currencies have grown. Founded by a South Korean entrepreneur, they have attracted financial backing from respected financiers who believe the unique software algorithm will provide them with stability that other cryptocurrencies lack. It turned out to be just a foggy view, as prices for both tumbled this month before triggering a broader crash in the crypto market.
In Australia, while various regulators oversee different aspects of crypto, there is no overarching policy to regulate them.Late last year, the federal government announced a crackdown on the industry Discussion paper published Outline its views on reform and solicit public feedback. Essentially, what is being proposed is a new regulatory framework that would provide stricter guidelines and standards for those Australian companies that provide access to and store crypto assets.
It’s getting late. In December, Melbourne-based cryptocurrency exchange MyCryptoWallet collapsed after a flurry of user complaints and allegations of lost funds. It was later revealed that it owed nearly $4 million to customers who had funds invested in the exchange. Around the same time, administrators were tracking down another Melbourne-based company, Blockchain Global Limited, which collapsed after it owed creditors $21 million, while cryptocurrency traders were seeking more millions of dollars in investment losses.
The failures point to risks for investors, as Australian exchanges are currently only required to register with the financial crime watchdog AUSTRAC for anti-money laundering purposes.Commonwealth Bank after recent market turmoil The pilot project has ended, Its chief executive, Matt Comyn, said he would hold off until the federal government introduced further regulation. This is a smart move.
The reality is that, despite the hype, cryptocurrencies are rarely used for any meaningful economic transactions. They appear to be a long way from being a stable long-term investment to rely on.American economist Paul Krugman I recently asked a question, “Is it really just a bubble inflated by FOMO, afraid of missing out?” According to the latest crash in the crypto markets, the answer seems to be yes.