Dangers of the crypto bubble

For the second time in as many months, an Australian based crypto exchange, MyCryptoWallet, collapsed last week, leaving 20,000 investors stranded and most likely losing everything. BlockChainGlobal went under in October owing $23 million.

Almost totally unregulated, investors use these exchanges to trade cryptocurrencies and usually leave their investment with the exchange for safekeeping. The alternative is to keep it yourself on a hard drive or some other form of technology that either can fail, be lost or forgotten.

The overall value of cryptocurrencies now has surpassed $US3 trillion.

That doesn't include the nefarious world of NFTs, non-fungible tokens, on anything from art to imaginary real estate and livestock. You can even put your imaginary paddocks up to agist imaginary horses for decent returns!

If the whole thing unravels, the losses will be anything but imaginary.
Little wonder central banks and governments are jittery and belatedly trying to rein the whole phenomenon in. More than 20 countries, including China, have banned bitcoin and many others, including Australia, are looking to impose regulations.

In the event of a serious collapse in the value of these markets, there could be severe real-world economic consequences. But, given they freewheel outside the system, there is no safety mechanism or potential for a bailout.

With the spectre of rising interest rates sending a cold shiver through high-risk asset markets, a shake-out in these overhyped, overvalued and overweight markets looks almost certain.

And the repercussions could be far more serious than anyone anticipates.