Just as little kids love to collect little trinkets, marbles, stickers and other forms of ‘wealth’, the alt-coins and cryptocurrencies today are weaving the same magic on adults. And just like an eight year old’s wealth, the price of many of these coins requires one to imagine more than actually feel the value.
The real risk however has been borne by many an investors, who have lost hundreds, thousands and in some cases, millions of dollars.
A Canadian investor recently came out with the revelation that he had lost over $70,000 in the QuadrigaCX exchange tragedy. He had sold his bitcoins to pay mortgage a few hours before the exchange went down, and never got to withdraw the fiat money.
The Sensational Quadriga Case
Quadriga made news at the beginning of this year, when its co-founder and CEO Gerald Cotton, was reported dead in India. He had come to Jaipur for his honeymoon, and as per reports succumbed to Crohn’s disease. Cotten was also involved in charity work with an orphanage in India. The bizarre news made headlines in the media, for Cotten is believed to have kept the traders’ crypto in cold storage on his laptop, and only he is supposed to have known the password. The amount of crypto yet to be traced is around $190 million.
As per Cryptovest, Quadriga owes money to 115,000 traders and investors, and some figures run over half a million dollars. It is also believed that the crypto coins had actually been moved out of the main wallets and turned into fiat.
The unlucky Canadian investor said his trading losses in cryptocurrencies run into millions. He probably can afford it, but that’s not always the case.
The ICO Craze
The ICOs have been described in some quarters as the biggest scam in the financial markets. The Forbes magazine runs a disclaimer on its crypto articles to the effect that investors should be prepared to lose all of their money.
What’s true for penny stocks in share market is now true for less-than-a-penny alt coins — small investors and hard earned money are the most to feel the brunt.
An example of a failed ICO comes from the recent closure of a website put up to sell real estate based tokens. The project was to buy real estate from the funds collected, and then earn revenue from rent or sale, which would then be distributed to token holders. The team even promised to buy back tokens to assure returns. The ICO, as per the website data, couldn’t raise beyond four ethers, and the website was soon taken off.
Another instance of crypto trading losses comes from an investor who put in around $90,000 into a “promising” and “real world” crypto project. The team comprised very reputed consultants and Ivy League university dropouts. The investor as of date was left with tokens worth barely $800. That’s a loss of over 99%. Another similar project in the same vertical has had its token value depreciate by 90%.
From vertical to horizontal
Are bots and traders to be blamed for driving project tokens literally to the ground? One can browse several price charts of alt coins, and observe the same pattern — a peak, a pump up in the first week or so, followed by a merciless decline that makes the price line run nearly close and parallel to the horizontal axis.
The crypto mining industry made news recently when BTC was trading at its lows, and miners were being offered free to the investors for the operations had turned unprofitable. Another culprit was the increasing level of difficulty, a technical number that is tracked, which led to an investor losing out after just a few months, when the amount of capacity bought became insufficient to mine and return enough crypto.
It’s common to see tips and guides warn traders of common pitfalls. They usually warn us against falling for hype, not falling for traps on Twitter or Telegram, or not having a strategy before investing. It is hard however to discern the real from the fake, and the grey area — the most risky area — is even harder to decode, after all no one can tell which business idea will eventually succeed.
When Moon, When Lambo?
Most crypto projects begin by outlining the industry challenges — and the usual culprits pointed out are the centralized system, the middlemen, the capitalist inequalities, and so on. The goals have now become well known — remove the imperfections, the inefficiencies, the middlemen, the big institutions, and deliver value straight into the hands of the unbanked, the innocent and the suffering. There are also those in third world countries who survive on less than a dollar a day.
Does Blockchain really create a decentralized economy?
To end with a bit of speculation, how does it really matter how payments are made, when the actual products and services, their terms and conditions, are controlled by a company and its team, and can be modified at any time? Some projects do incorporate voting and committees that are open to token holders, but obviously only a few large investors will possibly have any influence.