Terra trauma: Investors lick their wounds amid cryptocurrency implosion

YOUNG, with no steady stream of income, and buying into the popularity of the crypto - Berkley Lee started her foray into cryptocurrency investments when she turned 18 in January this year.

With a diet of crypto news from YouTube videos, Instagram pages and Twitter, she learnt about the virtual currency space all by herself. Her main motivation - to amass enough capital to fund her dream of starting her own restaurant.

“I invest in both regular stocks and crypto. My mom told me to start investing since young,” Lee said. “Crypto is a gamble, but it’s a calculated gamble. There are things you can do to prevent your downfall. It’s not stable enough to put your life savings, but there’s a lot of potential.”

Lee dropped out of junior college last year to pursue a diploma in culinary school, which starts in end-May. She currently runs her own home-based baking business called Louisboy’s bakery. The business, which reaches customers through WhatsApp and Instagram, saw profits of about S$1,000 in January owing to Chinese New Year sales but average S$200 a month up till now.

Investing some S$1,000 in crypto and S$2,000 in traditional stocks so far, Lee used her business profits and savings to invest in crypto and in traditional stocks like Vanguard S&P 500 ETF and Meta’s stock.

Armed with hope, Lee converted about S$500 of Ethereum (ETH) she had in the US-based Gemini exchange for Luna when it was free-falling last week. Buying Luna when it fell to about US$1.50, she thought the coin would pick up again due to its popularity, even though the crypto had fallen by more than 90 per cent at that point.

“It was a pretty significant loss for me,” Lee said. “I didn’t think it (Luna) would hit zero. I didn’t even cut my loss because I had already spent some fees to convert my ETH already, I didn’t want to pay more to sell Luna and thought it would bounce back up. This was a bad decision in hindsight,” she lamented.

The largest algorithmic stablecoin in cryptocurrency, TerraUSD, also known as UST, and its affiliated cryptocurrency Luna, went into a death spiral last week. Coming as the darkest moment in crypto’s history so far, Singaporean investors have had to endure losses ranging from a few hundred dollars to more than a five-digit amount for some.

Crypto enthusiast Terence Ho, 31, started his crypto journey 10 years ago by mining ETH and Bitcoin (BTC) from 2012 to 2016. At his peak, he rented an industrial warehouse in Yishun to set up mining rigs and made “considerable profits”.

Ho’s interest in computers and gaming meant that cryptocurrency was in his “cross-hairs” - and he went right into it, like most others, in pursuit of wealth creation.

He has since withdrawn some of his profits to invest in starting his own businesses, and now calls himself “a predator of staking”.

Staking is the process of locking up crypto holdings in order to obtain rewards or earn interest. It was a strong pull factor behind the rise of Terra and resulted in many across the world losing their life savings as a result.

Ho stakes cryptocurrencies like ETH and Cake. Using stablecoins as a means to store his crypto assets while he trades, he thankfully stored most of it in the Tether stablecoin. However, owing to some investments in Luna, he saw the low end of a 5-digit loss.

“It looks like a coordinated, well-planned attack on Luna,” Ho said. “In my opinion, all virtual currencies are subject to fluctuation and people should not assume price will remain constant. The concept of stablecoins should not exist in virtual currencies.”

Stablecoin, as its name suggests, is ideally supposed to stick to a fixed price peg, which for common tokens like Tether or USDT, and USD Coin or USDC, is tagged to the US dollar.

Anchor Protocol, a lending and borrowing protocol built on the Terra blockchain, offers an annual percentage yield (APY) of between 17 and 20 per cent. Other than that, cryptocurrency exchanges also offered various yields for staking UST or Luna in recent months. Up till last week, local crypto exchange Coinhako was offering an APY of up to 15 per cent for staking UST on its “Earn” function for 28 days.

“I would rather stake my money in crypto than put it in the bank - where I only get peanuts,” said part-time taxi driver Jagat Singh (not his real name), who staked about US$12,000 for an APY of 7.99 per cent on Gemini since the start of the year.

Singh, who is 66, is one of the early adopters of crypto. He bought some 40 ETH coins back in 2017 when it was less than S$500 a coin. Singh primarily gets his crypto news from weissrating.com and the Coin Bureau channel on YouTube, among others. He also recalls attending a few seminars that taught people how to invest in cryptocurrencies.

Singh sold some of his ETH coins in November last year and got some S$242,000 in cash. After his UST investment, he also spent about S$5,000 of it in other alternative coins (Altcoins). He had planned to put the rest into Anchor Protocol, but never got around to doing it as he was still in the learning process.

“God saved me,” said Singh. “The lesson here is to diversify your portfolio and not put all your eggs in one basket.”

The protocol looks like a marketing gimmick to bring in more users, which could eventually over the years, reduce the yield, said Yash (not his real name). “The whole space is pretty unregulated, you might just lose your collateral or staking amounts if you don't know what you are doing,” he added.

The 31-year-old, who works in the marketing industry, saw losses in UST and Luna in the 5-digit range. He has been investing in crypto since 2017 and says he is “a strong believer in decentralised finance (De-Fi)“.

“This is a new experimental space and I’ve only invested money I can afford to lose,” he added.

Owner of Joo Bar, 8 Korean BBQ, and Stickies bar and avid Bitcoin investor Jamie Lim calls the Terra Luna project a scam. “Innocent people were hoping for astronomical gains on small amounts of money - that’s how they got burnt.”

Lim focuses all of his crypto investments in Bitcoin. “Most of the projects in cryptocurrency are scams in my opinion. I always tell people to invest their spare cash in Bitcoin and nothing else.”

Yet, Bitcoin has fallen below US$40,000 this week, levels last seen in 2020, and other coins and tokens are following suit. Pummelled by inflationary fears, investors are pulling out from volatile assets in recent weeks, stoking worries of a bear market to come.

Lee said she will be doing more research to buy cryptocurrency backed by credible projects rather than for popularity’s sake.

“I read a book called The Intelligent Investor before creating a brokerage account to invest in traditional stocks. I similarly need to do proper research in crypto before investing further and not buy just because of the hype around it,” she said.

Yash said: “Blockchain technology and cryptocurrencies have tremendous potential in many aspects of our lives and I will continue to search for new and exciting spaces to invest in.”

As for Singh, he will be looking out for credible in-person or online courses that teach the different cryptocurrencies, and won’t be investing in something he doesn’t understand.

“If something is too good to be true, it probably is. So never again will I fall for something like Anchor Protocol which was offering too-good-to-be-true returns. It’s much better to do research, give some time for the space to mature before putting your money in,” he added.