Love it or loathe it, crypto investing is growing up. And just like our own awkward puberty, it comes with experimenting, excitement and heartbreak along the way. So much heartbreak. 💔 The crash of crypto currencies TerraUSD and sister currency Luna this month wiped out US$60 billion in valuation. And spoiled the mood of other crypto currencies, like Bitcoin and Ethereum. That’s a lot to take, even for hardened crypto bros and babes. Are they in their rooms blasting Coldplay and Adele on repeat? It might be part of growing up, but it’s a painful lesson for those who lost money.
Share investors have problems too. Trillions of dollars have been wiped from company valuations in the more mature equity markets. But while shares in companies can be valued based on ‘fundamental’ factors like how much free cash flow or profit they make, most crypto currencies rely heavily on the sentiment of the people buying and selling them.
Sentiment is driven by emotion and can be as quick to change as a hormonal teenager. That uncertainty makes it hard to know how far crypto currencies could fall or when the moody blues might pass. The turbulence has been a double whammy for listed companies that have added crypto into the mix. Companies like Tesla (TSLA), Block (SQ) and MicroStrategy (MSTR) have significant investments in Bitcoin and have seen their shares fall far harder than the wider NASDAQ index.
Of course, Mum and Dad are watching on with a disapproving scowl. 👩🦱👨🦳 European Central Bank president Christine Lagarde blasted crypto as ‘worth nothing, it is based on nothing’, while investing great Charlie Munger called Bitcoin ‘stupid, evil’. Thanks Dad. We’ll be in our room while we wait for crypto’s awkward phase to settle down.