Bitcoin greed warning

There is a lot of greed in the cryptocurrency markets with many first-time investors who do not understand the technology behind it.

This is according to Luno Africa’s general manager Marius Reitz, who was speaking to BizNews Power Hour about the recent Bitcoin price swings.

The Bitcoin price had a particularly volatile period in April. It hit a record high of more than $64,000 on 14 April but plummeted to below $50,000 a week later.

Reitz said even with its drop to below $50,000, Bitcoin was still up 72% for the year to date.

“People often forget that. We’ve been in extreme greed territory for quite a long period now,” he said.

The recent correction is well within the bounds of the typical volatility that investors have become used to in the Bitcoin market.

“If we look back to 2017 – during the previous bull run – we saw several 20% to 30% drawdowns over the course of that year,” Reitz said.

Marius Reitz
Luno Africa GM Marius Reitz

The COVID-19 pandemic, financial crisis, and fiat currency fluctuations have created a perfect storm for cryptocurrencies.

“We see this not only in the price of Bitcoin, but we see new retail investors buying Bitcoin as an inflation hedge,” he said.

“Some gold investors are now also taking up small positions in crypto. It’s not a case of Bitcoin replacing gold, but I think over time we’ll see that flip and a new distribution channel will be created.”

The uptake of cryptocurrencies is also fueled by companies like Paypal and Venmo entering the market.

“There’s still a strong demand. We’ve seen better distribution, easier, and safer access to Bitcoin. We still have lots of momentum,” Reitz said.

The rapid rise of Bitcoin – from under $4,000 in 2019 to over $60,000 in 2021 – has created tremendous interest in cryptocurrencies.

Bitcoin price chart
Bitcoin price chart

With Bitcoin making headlines, many first-time investors see it as a quick and easy way to make money.

As a result, there is a lot of greed in the cryptocurrency market.

“Many first-time investors – people who have never bought shares or any other investments – are entering the crypto space and putting in money,” he said.

This is particularly true in emerging markets like South Africa where Reitz noted they are seeing a lot of first-time investors.

There are many speculators which Reitz said can be classified as “the greed side”.

“We see people buying a set amount of Bitcoin on a monthly basis on payday… and then more sophisticated buyers as well,” he said.

“It’s certainly a mixture of greed – people wanting to make a quick buck in the short run, and they burn their fingers – and investors taking small positions in cryptocurrency,” he said.

Reitz said the greed cycle is driven by the fear of missing out.

“It’s people hearing about crypto over the radio, reading about it in the news – but they don’t understand the technology behind it. They don’t understand the risks involved,” he said.

“Because cryptocurrency is fairly easy to access people started buying it through word of mouth and didn’t understand the risk.”

Reitz’s advice to first-time investors is simple – don’t invest money in Bitcoin that you can’t afford to lose.

Now read: Bitcoin is facing a make-or-break moment

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Bitcoin greed warning