Bitcoin: Expert’s warning over crypto crash, investors will get ‘wrecked’

David Gerard, author of Attack of the 50 Foot Blockchain, told Nine’s 60 Minutes on Sunday he was concerned about the lack of regulation in the industry, where celebrity endorsements from the likes of NBA star LeBron James had created a market full of manipulation, scammers and crooks.

“Everyone loves the siren call of a number going up and they think, here’s my chance,” he said.

“[But] we have to think about the real victims, the mums and dads, the grannies who think their retirement should go into crypto. There’s a real human cost here and that’s the ordinary people who get scammed. You can’t get rich for free. You’d think that was obvious, but people keep hoping there’s a way out and that they’ll get ahead, but it’s always a false hope. Some people do great but more people get absolutely wrecked.”

He warned much of the crypto industry had turned into a dangerous cult.

“The majority of volume, the way the market works, the way pricing is set, it all happens in a completely, literally unregulated environment,” he said.

“This crash has really brought it home to people that actually, the music’s going to stop sometime. The people who bought in just the last six months, they’re basically going to be stuck with magic beans and they’re trying to work out how to offload them. A lot of them are just going to have to take the hit and it’s not going to be nice.”

The cryptocurrency market suffered one of its biggest crashes on record last month after the complete collapse of two of the most popular and supposedly “stable” coins, terra and its sister token luna.

It sent the price of bitcoin plummeting to below $US27,000, dragging down the entire market and wiping out hundreds of billions of dollars in value overnight.

In one day alone, more than $400 billion was wiped off the market.

Bitcoin is currently trading at just under $US30,000, having lost more than half of its value since peaking at over $US67,000 last November.

Some analysts have predicted it could fall as low as $US8000, shedding 70 per cent of its current value.

‘Ponzi scheme’

The extraordinary meltdown led some experts to declare that the crypto bubble has finally popped.

“As a result of sharply higher inflation and interest rates, the great unregulated cryptocurrency Ponzi scheme has finally started to unravel,” Coolabah Capital founder and Australian Financial Review contributing editor Christopher Joye wrote last month.

Joye said it “beggars belief” that these financial products had been pushed on “naive consumers” with little regulatory protection in place, saying the SEC in the US, the FCA in the UK and ASIC in Australia had been “missing in action”.

“The key drivers of the crypto craze were interest rates on conventional cash (e.g., bank deposits) going to zero during the pandemic, while at the same time governments poured trillions of dollars of cash into households’ savings accounts in an effort to stimulate greater spending, investment and speculation,” he wrote.

“Animal spirits were certainly liberated, as all asset classes soared to record highs. As these forces now reverse as interest rates skyrocket (making cash look suddenly appealing) and governments withdraw their stimulus measures, cryptocurrencies have proven to have little value beyond the ‘hopium’ that investors can convince others to impute a higher price to them.”

Some experts have argued that smaller “altcoins” could lose up to 90 per cent of their value, while billionaire investors heaped scorn in the wake of the crash.

Warren Buffett, a long-time crypto critic, again slammed bitcoin as “worthless”, while Bill Gates said in an online Q&A that he only liked “investing in things that have valuable output”.

“The value of companies is based on how they make great products,” he wrote in a Reddit Ask Me Anything thread.

“The value of crypto is just what some other person decides someone else will pay for it so not adding to society like other investments.”

But some crypto diehards insist they are in it for the long haul.

Russian-born crypto entrepreneur Sergei Sergienko told 60 Minutes he had lost about $600 million in the crash.

“On paper, yes,” he said.

“Put it this way — there was a week in February where I was a billionaire on paper. [My portfolio is now] a third of what it was or something like that.”

He added, “It’s a bitch, but you know I do believe with the whole of my heart that we’re still at the very start of the journey.”

‘Crypto winter’

Last week, US regulators announced they were suing the Gemini Trust cryptocurrency exchange, which is run by Cameron and Tyler Winklevoss, for giving misleading answers in 2017 about a bitcoin project.

The Commodity Futures Trading Commission lawsuit filed in federal court in New York accuses Gemini of not being upfront about how easy it would be to manipulate a bitcoin futures project proposed at the time, the agency said in a statement.

The futures contract launched at the end of 2017 and stopped trading two years later, according to blog posts from Gemini and a partner company.

Making false or misleading statements to the commission undermines its work to protect market participants, prevent price manipulation, and promote fair competition, acting director of enforcement Gretchen Lowe said in the statement.

“This enforcement action sends a strong message that the Commission will act to safeguard the integrity of the market oversight process,” Ms Lowe said.

The US agency is seeking financial penalties, the surrender of any ill-gotten gains, and an injunction forbidding Gemini from such behaviour in the future, it said.

Gemini defended its record when asked about the suit.

“We have an eight year track-record of asking for permission, not forgiveness, and always doing the right thing,” it told AFP, adding.

“We look forward to definitively proving this in court.”

Cameron and Tyler Winklevoss, twin Harvard classmates of Mark Zuckerberg, who sued him over claims he stole the idea for Facebook from them, started and run New York-based Gemini.

The brothers told Gemini employees on Thursday that about 10 per cent of them were being laid off as staff is trimmed to endure a “crypto winter” likely to persist for a while, according to a copy of the email posted online by the company.

“The crypto revolution is well underway and its impact will continue to be profound, but its trajectory has been anything but gradual or predictable,” the brothers said.

The industry is in a “contraction phase that is settling into a period of stasis — what our industry refers to as ‘crypto winter’” compounded by macroeconomic and geopolitical turmoil, they added.

— with AFP