Cryptocurrency: Investment or high-tech scam?

• Published date: 03 July 2021
• Publication title: Weekend Herald

Criminals are said to use it to launder their gains, while major investment managers are eyeing up its future potential to make money.

Cryptocurrency is as divisive as it is volatile, yet New Zealanders’ interest in it appears to be on the rise.

Last month a survey by the Financial Services Council found one in five New Zealanders had already tried investing in crypto or planned to.

Ross Carter-Brown, chief executive of Bitprime — a New Zealand cryptocurrency platform — reckons that is probably on the high side.

“I would say it might be 6 or 7 per cent of New Zealanders that have owned cryptocurrency now or in the past.” Even at 6 per cent, that is about 300,000 New Zealanders.

Carter-Brown’s platform has about 30,000 customers and about three times that number subscribe to its content. It has seen about $80 million to $100m of trades so far this year.

“The cryptocurrency markets are very cyclical both in terms of trade volumes and the number of users,” says Carter-Brown. “It has slowed down a bit now but we had a really big increase in users in the first three months of this year.

“We saw more new customers in January than we did for the whole of 2020.”

Interest in cryptocurrencies tends to coincide with price rises. Bitcoin, the first and best-known of such currencies, had been trading around US$10,000 for much of 2020 before starting a rapid rise at the end of October.

It hit US$40,519 on January 9 before dropping back to about US$30,000 by the end of January. By April 16 it had hit another high — US$63,346 — but as of 4pm yesterday was at US$33,241.34.

In March KiwiSaver provider NZ Funds began investing in cryptocurrency. The same month, investment bank Morgan Stanley published a research report arguing that the “threshold is being reached” for cryptocurrency to become an investable asset class.

But many professional investors remain unconvinced. “I think it is a Ponzi scheme that relies on the bigger fool theory to work,” says Mike Taylor, chief executive of fund manager and KiwiSaver provider PIE Funds.

Theoretically a cryptocurrency could work, he says, if only two were available and they were government-backed. “But there is now something like 6000 cryptos. There is no barrier to entry, anyone can launch one.”

Taylor argues that it is a completely unregulated market. “In fact, countries around the world are clamping down on cryptos.” He points to popular crypto exchange Binance, which was this week banned from operating in Britain.

“A lot of it...