Crypto bubble drew in 44pc of beginner investors

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

‘Limited protections’

The findings, based on fieldwork by the corporate regulator mid-last year and a survey of 1053 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,” Mr Longo said.

“ASIC is also concerned that there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted.”

However, he noted the research reflected a “particular point in time” when the price of bitcoin hit a record of $US68,000 in November, taking the broader crypto market to a market capitalisation above $US2 trillion ($2.8 trillion).

The market then fell spectacularly to $US927 billion in June this year, as crypto assets were hit by the broader sell-off in risky and technology-adjacent investments amid rapidly rising interest rates. Several crypto-specific incidents, especially the near-collapse of algorithmic stablecoin TerraUSD, further weighed on sentiment.

It is understood the regulator has detected a decline in overall crypto asset ownership and trading volumes, given the shift in economic conditions and cases of high-profile and widespread losses.

‘Dust has settled’

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

However, while it has diminished from last year, broader retail trading activity is still higher than pre-pandemic levels. Crypto assets and projects are likely to be beneficiaries of the still-buoyant sentiment.

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

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

“The dust has settled a bit for crypto and a lot of the risks have been priced in,” Mr Annan told The Australian Financial Review.

“As risk premia becomes available we’ll see even more pick up,” he added, meaning the return of conditions deemed conducive to a bull market.

Mr Annan acknowledged that many crypto investors had lost money following the highs of last year and that the correction had “put a pause on a lot of folks”, weakening demand over recent months.

He claimed that was an upside of launching its bitcoin ETF in May, on the same trading day that news of the terra incident was becoming known 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 of less than $1 million in total since, while Cosmos’ ethereum ETF (listed two weeks later) has just $290,000 invested.

But over recent weeks, flows are accelerating in “drips and drabs”, he said. He anticipated that those now entering the market may have a more sophisticated understanding of the complex technology underlying the assets than some investors who piled in during the pandemic rally.

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

The Albanese government has hinted that it wants to enhance consumer protections for customers of local cryptocurrency exchanges but is said to release a plan or draft regulations.