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 US$23,000 he invested in several digital tokens is worth about US$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,” he said last week. “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 enormous gains they experienced last winter. The value of all outstanding digital tokens has fallen by about US$600 billion, or 75 per cent, 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. 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 in the middle of the day last week. An employee, Yu Ji-Hoon, said, “The prices of the digital tokens have fallen so much that people seem to feel upset.”
Kim Hyon-jeong, a 45-year-old teacher and mother of one who lives on the outskirts of Seoul, said she put about 100 million won, or US$90,000, into cryptocurrencies last fall. She drew on savings, an insurance policy and a US$25,000 loan. Her investments are now down about 90 per cent.
“I thought that cryptocurrencies would be the one and only breakthrough for ordinary hardworking people like us,” 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 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.