[TOP STORY] Are crypto investors buying, scared, or holding?

Luno GM for Africa Marius Reitz reports that new customers still buy these ‘risk’ assets for the first time on a daily basis – although at a much slower rate than previously.

SIMON BROWN: I’m chatting with Marius Reitz, GM for Africa at Luno. Marius, I appreciate the time today. Let’s kick off and get a sense of what your clients are doing in crypto. Bitcoin – we’ll use Bitcoin, obviously there are other coins – but around that US$20 000 level, down from $60 000. Truthfully, pretty much everything you could put money into this year is down. But your clients – what are you seeing? Are people buying? Are they scared? Are they holding? What’s your sense?

MARIUS REITZ: Hello, Simon. Yes. I think obviously we’re in a massive market bounce across the global economy, and the crypto industry is part of this, crypto being a risk asset. I think investors look to liquidate these risky assets first during times of uncertainty. So we’ve seen the Bitcoin price drop 56% in the second quarter of this year, so it’s been the worst quarter for Bitcoin since 2011. Markets: we’ve seen these cycles flow out. In 2017 we were in the ICO [initial coin offering] cycle. [In] 2020 [we saw] the rise of DeFi [decentralised finance] and a bunch of new Altcoins. And in 2022, we are seeing – towards the end of [2021] we saw an inflated Bitcoin price due to cheap and free money, and things had to pull back.

Despite that we are still seeing new customers buying crypto for the first time on a daily basis, although at a much slower rate than previously. I think the price volatility is also giving traders some nice opportunities [for] day traders to take profit. We’re seeing long-term investors buy in the dip, and I think that’s why we’re seeing the market move slightly sideways. I’m not sure if it’s a case of a dead-cat bounce, but we’ve seen a slight a slight improvement in the prices. I’m sure it’s only temporary at this point.

And then obviously [there were] a lot of short-term sort of speculators banning selling initially, and that’s why we saw the big drop early in May.

SIMON BROWN: I take your point. What, 15 June, about the middle of June. It has been kind of trading around that $20 000 level, blips above, blips below and the like.

One of the other things that’s happened during this shakeout is a couple of cryptos and a couple of exchanges having all sorts of issues – liquidity issues, peg issues and the like. My sense is if you were directly involved obviously a bad thing. But for an industry perhaps it shines some spotlights, and it means people will do a stronger due diligence, make sure they know whom they’re engaging with, and maybe in time we’ll look back at it and say, yes, it was nasty, but it perhaps brought a better level of respect to the industry.

MARIUS REITZ: For sure. I think the market will shake out a lot of altcoins that add no value, that have no specific use case, that solved no problem. And it’ll also shake out companies with very little regard and capability for protecting customer information, protecting customer funds, and I think we saw a couple of incidents over the last couple of weeks that caused further uncertainty over and above just the global background certainty around interest rates, around the war, etc.

So yes, I think one of the outcomes of this will for sure be greater regulatory scrutiny over the coming year, and I think that’s absolutely necessary.

Because we’ve seen companies offering unrealistic yields on certain products and investors – mainly retail investors without the ability to conduct proper due diligence themselves because, simply put, they don’t know how to do it.

So I think it’s a very difficult situation but the market will shake out all of these bad actors over the coming months.

SIMON BROWN: You talk about that ‘too good to be true’ [factor]. You’ve got that interest product, and in fact my Bitcoin sits there and I get the email on the first of every month telling me I’ve earned some interest. But that rate – I can’t remember – was something around 4%. It’s not a get-rich-quick by any stretch. It just earns me a little bit as I leave it there.

MARIUS REITZ: Simon, I think that the point is [that] any yield product is risky. There are always counterparty risks. This differs between platforms. So at Luno we offer a very simple savings wallet with an, as you said, between 2% and 4% yield. We only have one counterparty and that’s Genesis. Genesis is the largest OTC institutional player in crypto, with a very, very strong balance sheet. So deposits in a Luno savings account are safe.

Genesis also indicated that the exposure that they had to some third-party loss successfully. And I think the key here from Luno’s perspective, but also from a retail investor’s perspective, is to only work with reputable third-party lenders, and to ensure that the product is as safe as possible for your customers.

SIMON BROWN: And the point you made right up front is to remember that crypto generally, Bitcoin less so, altcoins more so – these are risk assets. We need to be cognisant of that fact.

MARIUS REITZ: Absolutely. If you view cryptocurrency as a good store of value, I think in the short run it’s very difficult with the price volatility. But in the long run, if we look at just the cycles that we’ve gone through in the price streams … if we look back to March 2020, at the outbreak of the Covid pandemic, the Bitcoin price pulled back significantly and it reached a low of $5 000 dollars.

Now it’s just over two years later and we are sitting on a ‘low’ of $20 000. So I think people often forget to zoom out and view the bigger picture. But, for sure in the short run we will see price volatility.

I think the market might even drop a bit lower, and we’ll be in sort of sideways or lower territory for the next six months, maybe even a year, and I think it’ll all depend on the Federal Reserve and the interest-rate decisions towards the end of this year.

SIMON BROWN: We’ll leave it there. Marius Reitz, GM for Africa at Luno. Marius, I always appreciate the insight.

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Pyramid schemes tend to collapse when they run out of canon fodder (aka suckers)

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