The crypto bubble attracted 44 pc of novice investors

New investors (those who started since March 2020) and those who have invested for five years or less were twice as likely to own crypto assets as investors with more than five years of experience.

“Limited Protection”

The findings, based on fieldwork by the corporate regulator in the middle of last year and a survey of 1,053 pandemic-era investors by consultancy SEC Newgate in November, drew the ire of ASIC chairman Joe Longo.

“We are concerned about the number of people surveyed who reported investing in unregulated, volatile crypto-asset products,” Longo said.

“ASIC is also concerned that there is limited protection for investments in cryptoassets, as they have become increasingly mainstream and are heavily advertised and promoted.”

However, he noted that the research reflected a “special moment” when the price of bitcoin hit a record $68,000 in November, taking the broader crypto market to a market capitalization above $2 trillion ($2.8 trillion).

The market then fell spectacularly to $927 billion in June this year, as crypto assets were hit by the broader sell-off in risky and tech-adjacent investments amid rapidly rising interest rates. Several crypto-specific events, notably the near-collapse of algorithmic stablecoin TerraUSD, further weighed on sentiment.

It is understood that the regulator has detected a decline in overall ownership and trading volume of crypto-assets, given the change in economic conditions and cases of high-profile and widespread losses.

‘Dust has settled’

Aggrieved investors in the US have sought redress for losses via class-action lawsuits, while local crypto influencer Fred Schebesta, founder of comparison site Finder, admitted he had lost around $20,000 in the terra incident after denying it in May.

But while it has slowed from last year, broader retail activity is still higher than pre-pandemic levels. Crypto assets and projects are likely to benefit from the continued strong sentiment.

Cosmos Asset Management CEO Dan Annan, whose firm listed Australia’s first exchange-traded cryptocurrency fund in May, said enthusiasm for crypto investing is once again on the rise.

Although he hesitated to call the bottom of the market, Annan, a former executive at BlackRock and BetaShares, said the recent performance of bitcoin and ethereum indicated that the so-called crypto winter may be thawing.

“The dust has settled a bit for crypto and a lot of the risk has been priced in,” Annan said Australian Financial Review.

“As risk premiums become available, we will see even more pick up,” he added, meaning conditions considered conducive to a bull market will return.

Annan acknowledged that many crypto investors had lost money after the highs last year, and that the correction had “put a lot of people on pause,” dampening demand in recent months.

He claimed there was an upside to launching his bitcoin ETF in May, the same trading day that news of the terra incident broke in Australia. Listing when prices are low gives unitholders the opportunity to “make money rather than lose money,” he said.

The fund has attracted investor flows totaling less than $1 million since then, while Cosmos’ ethereum ETF (listed two weeks later) has only invested $290,000.

But in recent weeks the flows have accelerated in “drip and dreary”, he said. He predicted that those entering the market now may have a more sophisticated understanding of the complex technology underlying the assets than some investors who piled in during the pandemic.

“What we’ve seen in crypto is that people are making a lot of speculative trades and chasing returns without really understanding the fundamentals,” Annan said. “When people chase returns without thinking about valuation and portfolios, they will get hurt.”

The Albanian government has hinted that it wants to improve consumer protection for customers of local cryptocurrency exchanges, but is said to be releasing a plan or draft regulations.