Crashing crypto prices spooked some new investors. Others are doubling down

Crashing crypto prices spooked some new investors. Others are doubling down

London (CNN Business) Grant McGurn is really glad he jumped on a FaceTime call with his dad.

The 27-year-old office managerin Madison, Wisconsin, had put all of his investments into cryptocurrencies, including bitcoin, ethereum and dogecoin, a jokecoinwhose rapid ascent he considered entertaining if “ridiculous.” That alarmed his father, an experienced investor.

“He knew I had all my money in there and he was just like, ‘I’ve seen this before with the dot-com bubble crash, and I don’t want to see you lose thousands of dollars,’ " McGurn told CNN Business.

I don’t want to panic out of something I just ventured into.”

He heeded the warning and sold his crypto holdings in the middle of last month, just as a massive rout was taking hold . Many digital coins ultimately lost almost half their value, or more.

“I was lucky,” McGurn said. “I don’t think I’m the norm at all.”

McGurn is part of a legion of investors who are new to cryptocurrencies. Drawn in by the huge gains that started in late 2020 or excitement around dogecoin, they entered the market looking to make some quick money or to avoid missing out on the next big thing.

Now, on the heels of their first major sell-off, some are swearing off crypto investing for good, while others are determined to hold on, confident in its promise.

“I don’t want to panic out of something I just ventured into,” said Akshaya Parthasarathy, a 24-year-old living in Chennai, India.

New money rushes in

Tesla TSLA Mastercard MA BNY Mellon BK After a lackluster few years, bitcoin took off last December, quickly notching a string of record highs as risky investments soared following the US election. The mania accelerated whenannounced that it would begin accepting bitcoin payments for its cars. Other top companies, includingand, the oldest US bank, said they were expanding into crypto , signaling growing mainstream acceptance.

GameStop GME Amateur investors took notice — including many who were hunting for the next internet obsession after dabbling inin late January. In the first three months of the year, 9.5 million people traded cryptocurrencies on the Robinhood app popular among young investors, up from 1.7 million the previous quarter. Crypto platform Coinbase reported 6.1 million active retail users in the first quarter, more than double the last three months of 2020.

The mood only got more frenzied from there. Dogecoin, a cryptocurrency inspired by an internet meme featuring a shiba inu dog, began skyrocketing in April, ultimately hitting an all-time high of nearly 74 cents last month. That attracted even more speculative investors, some of whom placed additional bets on spinoffs that have no practical use and are known in the crypto community as “shitcoins.”

After reading success stories online or hearing them from friends, new traders “didn’t want to miss out,” said Lisa Kramer, a professor of finance at the University of Toronto who studies investor behavior.

Then came the crash. The market lived up to its volatile reputation, imploding after Tesla CEO Elon Musk, whose cheerleading fed the rise in dogecoin, tweeted that Tesla will stop accepting bitcoin payments due to concerns about the environmental impact of mining them. The resultant sell-off ultimately wiped more than $410 billion off the market value of bitcoin and nearly $25 billion off dogecoin.

But some crypto fans remain devout. In fact, small investors in bitcoin — defined as those holding between $37 and $37,000 — increased their holdings from nearly 4.8% to more than 5% of total supply during the recent sell-off, “suggesting increased interest as prices [declined],” according to data from researcher Glassnode.

On internet message board Reddit, the faithful have been encouraging each other to “buy the dip” so they can lock in future gains. Some have been rewarded; dogecoin, which during the recent sell-off fell as low as $0.22, rose back above $0.40 this week after Coinbase announced the launch of trading for users of its Pro service, though its price remains highly unstable.

According to Kramer, there’s a term in academia that can help explain this phenomenon: the “disposition effect.” Research shows that investors feel pain associated with portfolio losses more acutely than gains, and tend to fixate on the price at which they bought an asset. That often serves as a roadblock to offloading poor investments.

“This tendency to hold on to the poorly performing securities can end up continuing to cost the investor,” Kramer said. “Investors often make decisions based on gut instinct, but that can really lead them astray.”

‘Never again’

Many crypto investors say they’re still involved because they believe in the technology. Parthasarathy, who recently left her job to pursue a master’s in data science, used to be a crypto skeptic, but was intrigued by all the action surrounding dogecoin and started reading up online.

She ended up investing a small amount in ethereum, as well as hedera hashgraph and polygon, two tokens popular on Reddit’s main cryptocurrency forum. Before long, she was checking the WazirX app used to trade crypto in India “almost every five minutes.”

And though Parthasarathy admits the past few weeks have been gut-wrenching, she plans to stay invested.

“I’m seeing it as a long term thing, and I’m going to keep putting more money into it,” she said, adding that she only invested what she’d be willing to lose.

Rebecca Robinson, a 28-year-old student in San Diego who works part-time as a line cook, lost a few hundred dollars after Musk sent the market into a tailspin. She’s still putting 10% of her paychecks into crypto, including ethereum and the smaller coins cardano and algorand.

“People treat the coins like they’re sports teams,” she said. “If you have a lot of people who [say], ‘Yeah we believe in this coin!’ they’re not going to sell when it drops, and that’s cool.”

But she’s no longer relying on margin trading, which allows investors to borrow funds so they can make even bigger bets.

“Never again,” Robinson said. “It’s too scary.”

McGurn, who started trading crypto in late 2020, is also thinking about investing differently following the market’s recent collapse, even though he narrowly got out before losing money.

“It was kind of a wake-up call for me,” he said. “It’s good to have a little bit in speculative investments, but I can’t risk my life on this.”

Apple AAPL Amazon AMZN McGurn said he’s now planning to park his money inorstock, which he sees as “more solid” choices — though he did repurchase one ethereum coin.

“It’s just stupid,” he said. “I’m never going to have as much invested in crypto again.”

In search of a new crypto deity – TechCrunch

Hello friends, and welcome back to Week in Review!

Last week, I wrote about tech taking on Disney. This week, I’m talking about the search for a new crypto messiah.

If you’re reading this on the TechCrunch site, you can get this in your inbox from the newsletter page, and follow my tweets @lucasmtny.

The Big Thing

Elon has worn out his welcome among the crypto illuminati, and the acolytes of Bitcoin are searching out a new emperor god king.

This weekend, thousands of crypto acolytes and investors have descended on a Bitcoin-themed conference in Miami, a very real, very heavily-produced conference sporting crypto celebrities and actual celebrities all on a mission to make waves.

Even though I am not at the conference in person (panels from its main stage were live-streamed online), I have plenty of invites in my email for afterparties featuring celebrities, open bars and endless conversations on the perils of fiat. The cryptocurrency community has never been larger or richer thanks to its most fervent bull run yet, and despite a pretty noteworthy correction in the past few weeks, people believe the best is yet to come.

Despite having so much, what they still seem to be lacking is a patron saint.

For the longest bout, that was SpaceX and Tesla CEO Elon Musk who bolstered the currency by pushing Tesla to invest cash on its balance sheet into bitcoin, while also pushing for Tesla to accept bitcoin payments for its vehicles. As I’ve noted in this newsletter in the past, Musk had a tough time reconciling the sheer energy use of bitcoin’s global network with his eco warrior bravado which has seemed to lead to his mild and uneven excommunication (though I’m sure he’s welcome back at any time).

Goods & services are the real economy, any form of money is simply the accounting thereof — Elon Musk (@elonmusk) June 5, 2021

There are plenty of celebrities looking to fill his shoes — a recent endorsement gone wrong by Soulja Boy was one of the more comical instances.

Crypto has been no stranger to grift — of that even the most hardcore crypto grifters can likely agree — and I think there’s been some agreement that the only leader who can truly preach the gospel is someone who is already so rich they don’t even need more money. It’s one reason the community has offered up so much respect for Ethereum founder Vitalik Buterin who truly doesn’t seem to care too much about getting any wealthier — he donated about $1 billion worth of crypto to Covid relief efforts in India. A Musk-like cheerleader serves a different purpose though, and so the community is in search of a Good Billionaire.

The best runner-up at the moment appears to be one Jack Dorsey, and while — like Musk — he is also another double-CEO, he is quite a bit different from him in demeanor and desire for the spotlight. He was, however, a headline speaker at Miami’s Bitcoin conference.

Dorsey gathers the most headlines for his work at Twitter but it’s Square where he is pushing most of his crypto enthusiasm. Users can already use Square’s Cash App to buy Bitcoin. Minutes before going onstage Friday, Dorsey tweeted out a thread detailing that Square was interested in building its own hardware wallet that users could store cryptocurrency like bitcoin on outside of the confines of an exchange.

Square is considering making a hardware wallet for #bitcoin. If we do it, we would build it entirely in the open, from software to hardware design, and in collaboration with the community. We want to kick off this thinking the right way: by sharing some of our guiding principles. — jack (@jack) June 4, 2021

“Bitcoin changes absolutely everything,” Dorsey said onstage. “I don’t think there is anything more important in my lifetime to work on.”

And while the billionaire Dorsey seems like a good choice on paper — he tweets about bitcoin often, but only good tweets. He defends its environmental effects. He shows up to House misinformation hearings with a bitcoin tracker clearly visible in the background. He is also unfortunately the CEO of Twitter, a company that’s desire to reign in its more troublesome users — including one very troublesome user — has caused a rift between him and the crypto community’s very vocal libertarian sect.

Dorsey didn’t make it very far into his speech before a heckler made a scene calling him a hypocrite because of all this with a few others piping in, but like any good potential crypto king would know to do, he just waited quietly for the noise to die down.

Other things

Here are the TechCrunch news stories that especially caught my eye this week:

Facebook’s Trump ban will last at least 2 years

In response to the Facebook Oversight Board’s recommendations that the company offer more specificity around its ban of former President Trump, the company announced Friday that it will be banning Trump from its platforms through January 2023 at least, though the company has basically given itself the ability to extend that deadline if it so desires…

Nigeria suspends Twitter

Nigeria is shutting down access to Twitter inside the country with a government official citing the “use of the platform for activities that are capable of undermining Nigeria’s corporate existence.” Twitter called the shutdown “deeply concerning.”

Stack Overflow gets acquired for $1.8 billion

Stack Overflow, one of the most-visited sites of developers across the technology industry, was acquired by Prosus. The heavy hitter investment firm is best known for owning a huge chunk of Tencent. Stack Overflow’s founders say the site will continue to operate independently under the new management.

Spotify ups its personalization

Music service Spotify launched a dedicated section this week called Only You which aims to capture some of the personalization it has been serving up in its annual Spotify Wrapped review. Highlights of the new feature include blended playlists with friends and mid-year reviews.

Supreme Court limits US hacking law in landmark case

Justices from the conservative and liberal wings joined together in a landmark ruling that put limits on what kind of conduct can be prosecuted under the controversial Computer Fraud and Abuse Act.

This one email explains Apple

Here’s a fun one, the email exchange that birthed the App Store between the late Steve Jobs and SVP of Software Engineering, Bertrand Serlet as annotated by my boss Matthew Panzarino.

Extra things

Some of my favorite reads from our Extra Crunch subscription service this week:

For SaaS startups, differentiation is an iterative process

“The more you know about your target customers’ pain points with current solutions, the easier it will be to stand out. Take every opportunity to learn about the people you are aiming to serve, and which problems they want to solve the most. Analyst reports about specific sectors may be useful, but there is no better source of information than the people who, hopefully, will pay to use your solution..”

3 lessons we learned after raising $6 million from 50 investors

“…being pre-product at the time, we had to lean on our experience and our vision to drive conviction and urgency among investors. Unfortunately, it just wasn’t enough. Investors either felt that our experience was a bad fit for the space we were entering (productivity/scheduling) or that our vision wasn’t compelling enough to merit investment on the terms we wanted.“

The existential cost of decelerated growth

“Just because a technology startup has a hot start, that doesn’t mean it will grow quickly forever. Most will wind up somewhere in the middle — or worse. Put simply, there is a larger number of tech companies that do fine or a little bit worse after they reach scale.”

Again, if you’re reading this on the TechCrunch site, you can get this in your inbox from the newsletter page, and follow my tweets @lucasmtny.

Crypto Asteroid Destroys Banking Dinosaurs

The Economist Satoshi Kambayashi - Bitcoin destroys banking dinosaurs - The Basis Point

This post originally appeared on The Basis Point: Crypto Asteroid Destroys Banking Dinosaurs

The Economist Satoshi Kambayashi - Bitcoin destroys banking dinosaurs - The Basis Point

I’ve had this Economist image on my desk for the past 7 days, and it’s very likely to become my wallpaper this weekend when I finally toss the May 29 issue. I call it Crypto Asteroid Destroys Banking Dinosaurs. Their artwork is always strong and this one speaks to me. Notice the dollar signs in the necks of the dinosaurs.

Of course the piece itself is deeper than that. It’s about whether crypto is a side show or a legit part of finance. It’s mostly focused on Bitcoin, but notes in one critical line that Ethereum has a more compelling use case.

I’m a banking dinosaur who’s only now forming opinions on crypto, which include:

– Only Bet What You Can Lose: For now, it’s better to view crypto as a purely speculative bet than an investment. Treat it like a Vegas trip. If you’re going to spend a few grand on a Vegas weekend and you’re also interested in the markets, maybe skip Vegas and buy the crypto. But treat the buy just like you’d treat the Vegas trip: lost money unless you get lucky.

– Know Your Blockchains: The Bitcoin blockchain and its bitcoin currency is believed by zealots to be a universal replacement for cash. We’re very far from that, so bitcoin’s gold-like scarcity (only 21m coins) and fame fuel arguments for it being an inflation hedge and a good long-hold investment. The Ethereum blockchain has much broader applicability — it’s basically a world computer that developers can build new companies and apps on (sort of like the web was built off the http protocol). As for its ether currency, that’s way more confusing because it doesn’t really have a supply cap. But of course people WAY smarter than me have theses as to why it’s also a great long bet.

– Know What Is/Can Be Build On Your Blockchain: I’ve asked some folks who’ve bought ether to explain what’s being built that they’re interested in, and they’re stumped immediately. Not a knock on them, just evidence there’s a sh!t ton of speculators out there. I recently bought my first crypto called Hash that’s the currency for the Provenance blockchain, which intended to modernize mortgage and consumer lending — among many other use cases. I’ll explain more in another post, but for now, I’ll say I bought it partly because of the (albeit large 100b) fixed coin supply, and mostly because I feel like I understand the potential of this blockchain and what’s being built on it. That’s my thesis more so than the price of the associated currency.

Story continues

– Buy In Slowly: And sure enough, I know nothing about the currency. I bought in the first few days Hash went live, and it’s halved since then. I thought the recent rout in major cryptocurrencies would result in more investment in this new coin, but not enough people know about this one yet. Also I should have bought in slowly so I could bid more shares on the way down, but instead I just took all the money I planned to bet and bet it all at once. Stupid. But whatever — it was 15 cents a share. And I don’t plan to sell anytime soon. Because my thesis also believes that the Provenance blockchain play is just getting started.

Does my first foray into crypto investing — I mean betting — make me a dinosaur that got destroyed by the crypto asteroid in a different way? More on that next time.

For now, enjoy this image. And links below on the piece/artist it came from.

Reference:

– Boundary between crypto and fiat money is becoming more permeable

– The artist that did this illustration is named Satoshi – seriously

DO YOU LIKE MONEY? GET MORE AT THE BASIS POINT®

Marketing-led digital banks are totally overrated: MoneyLion CEO Dee Choubey

There are now 701 unicorns (private firms worth $1B+) worth a total $2.25T. Here’s the list.

Banks closed or cut limits on 62 million peoples’ credit cards in first 4 months of 2021