It’s time for young people to wake up from their dream of getting rich in the “cryptocurrency circle”

[Global Times special correspondents in India and the United States Hu Bofeng Lin Ri Global Times reporter Zhao Jueyun Ji Dong Renzhong] Editor's note: "The days of holding cryptocurrencies are not easy." This may be the voice of many young people in the "currency circle". In the past six months, a new wave of speculation has been set off around the world. The cryptocurrency market represented by Bitcoin has skyrocketed all the way and frequently appeared on the hot search list of social media at home and abroad. Faced with the pressure of employment, home purchase, marriage and other pressures, some young people rushed into this volatile and unregulated speculative market with the mentality of "getting rich overnight". According to Vox News Network in the United States, the popularity of cryptocurrency is not only a financial and technological phenomenon, but also a cultural and Internet phenomenon. Behind it is the mentality of contemporary young people who like to follow all popular things and the obsession with getting rich quickly. This irrational investment behavior has led to frequent cryptocurrency frauds. Some illegal gangs use social media to publish false information and hype low-priced "altcoins", which can be called the cryptocurrency version of "The Wolf of Wall Street".

Is cryptocurrency accelerating into the mainstream?

More than a decade has passed since Bitcoin was born in 2009, and the cryptocurrency market has attracted more and more attention from investors in recent years. At the beginning of this year, the price of cryptocurrencies suddenly soared due to multiple factors such as the COVID-19 pandemic and the economic downturn. By mid-April, the price of Bitcoin hit new highs one after another, and the prices of other altcoins (also known as "meme coins", referring to cryptocurrencies other than Bitcoin) also rose. Since then, as many governments have announced stricter regulation of cryptocurrencies, the price of Bitcoin has fallen all the way and has now almost halved. According to the British Daily Telegraph, this is a heavy blow to young investors, the most enthusiastic supporters of cryptocurrencies. But this cannot change the investment concept of young people, that is, cryptocurrencies are accelerating into the mainstream.

Moneycontrol, a large Indian financial portal, said that young Indians are definitely the "backbone" of the cryptocurrency craze sweeping the world. Citing industry statistics, the website said that most of India's 15 million investors are young people, with a total of 150 billion rupees (about 13.1 billion yuan) worth of cryptocurrency assets. WazirX, India's largest cryptocurrency trading platform, found that from February to April this year, newly registered investment customers over the age of 45 increased by 337% compared with the previous quarter, but investors under the age of 30 are still the largest user group of the platform. WazirX CEO Nishal Shetty said that there are more than 7 million cryptocurrency holders in India, holding more than $1 billion in cryptocurrency assets. Companies that provide cryptocurrency transactions, such as PayPal and Mastercard, said that the favor of young Indian investors for cryptocurrencies may be due to the millennials' dependence on the Internet. "They learn about cryptocurrency investment knowledge through platforms such as Twitter and YouTube, and lobby their elders to join the investment trend with them."

In South Korea, cryptocurrencies are also popular among young investors. According to the "Virtual Property Transaction Management Plan" released by the South Korean government on May 28, based on statistics from the four major cryptocurrency exchanges in South Korea, the number of cryptocurrency investors in the country is 5.81 million, with an average investment of about 4 million won per person. A survey conducted by Saramin, a South Korean employment portal, on 1,855 office workers found that 40.4% of the respondents invested in cryptocurrencies. From the perspective of age structure, people aged 30-40 accounted for nearly 50%. Another South Korean job search portal, "Part-time Paradise", conducted a survey on 1,750 college students, and the results showed that 52.9% of the respondents had a positive attitude towards the cryptocurrency investment boom. Among them, high yields are the main reason for college students to affirm the cryptocurrency craze. Some people also believe that the entry barriers such as the amount and method of cryptocurrency investment are low, and some even believe that this is the last chance to break the "class hierarchy."

Young Americans have similar ideas. According to the latest market report data released by Gemini, the world's first digital currency exchange to obtain a legal operating license, in 2021, the proportion of the U.S. population holding cryptocurrencies was about 28%, and about 63% of people expressed interest in cryptocurrencies. The exchange's survey of 3,000 people (aged 18-65) in November last year showed that people holding cryptocurrencies were widely distributed among men (74%), whites (71%), and young people under 45 (77%). According to a report by market research firm Markets and Markets, the market size of cryptocurrencies in the United States is expected to grow from $1.6 billion in 2021 to $2.2 billion in 2026.

According to the US magazine MEL, the number of altcoins has grown exponentially since 2009, and according to estimates by the Bitcoin website, there are currently about 5,098 altcoins in circulation. Similar to penny stocks, altcoins are very cheap, but their prices fluctuate drastically, giving investors the opportunity to get rich quickly, and more than 25,000 "coin circle" tycoons have benefited from this "gambling". According to data from the BitInfoCharts website, on paper, the continuous rise of Bitcoin is creating millionaires at a fairly fast rate. As of now, there are 75,000 accounts around the world holding Bitcoin worth at least $1 million, and 6,184 accounts holding Bitcoin worth more than $10 million.

However, Richard Flynn, the UK managing director of Charles Schwab Financial Group, is concerned that the booming digital assets indicate that more young people are speculating rather than investing. "Investors should understand that cryptocurrencies are as susceptible to supply and demand as other assets, and that cryptocurrencies are not backed by a fixed value." Flynn stressed that "cryptocurrencies are not ordinary commodities, let alone legal tender, and are not suitable for traditional investment portfolios."

Am I the next one to get rich?

"It's more like an informed gamble," 29-year-old cryptocurrency enthusiast Sam described cryptocurrency to the Financial Times. Sam said that rising house prices and stock prices have made it extremely expensive for young people to buy assets, and cryptocurrency is the only way for young people like him to make a lot of money. In addition, the knowledge of cryptocurrency is easier to obtain from the Internet, which is one of the reasons why Sam believes he is more suitable for investing in Bitcoin. The Financial Times said that in the traditional financial field, young investors have little chance of making money, but cryptocurrency offers the possibility of winning. In addition, although regulators have criticized the surge in cryptocurrency-related content on social media platforms, this is the investment information that young people who lack formal financial education are conveying.

Chen, who only came into contact with Bitcoin in 2020, said in an interview with the Global Times that he invested in Bitcoin because he had seen news of Bitcoin prices hitting new highs for a while. "In a year, the price of Bitcoin has risen from $10,000 to $60,000. How could I miss such an opportunity to make money?" Chen said. Although he did not understand blockchain and other technologies, he believed that the price of Bitcoin would still fluctuate and rise. Chen also linked his investment in Bitcoin with his upcoming graduation and work. "My seniors only make more than 10,000 yuan a month. I will probably graduate next year with about the same salary. If there is no support from my family, how can I buy a house in a first-tier city with this salary?" Chen said that whether it is funds or stocks, he feels that they are just "icing on the cake". Only Bitcoin can make him "turn over" and live the life he wants.

Chen Qizhang, associate professor at Sydney University Business School, said that the current interest in cryptocurrencies is driven by online hype, rising prices and the "fear of missing out". He said: "There are many young investors' accounts on social platforms showing off their wealth, showing off their brand new cars or apartments, and they claim to have become rich by investing in Bitcoin. When people see this, they may think that I am the next one."

In comparison, Mr. Cheng, who majored in computer science and works in Beijing, is more rational. Mr. Cheng has been investing in Bitcoin for nearly 7 years. He told the Global Times that he still holds nearly 200,000 yuan worth of Bitcoin and Ethereum. As he has been tracking cryptocurrencies for a long time, Mr. Cheng has regarded it as one of the most important means of investment. "If I rely solely on my salary, I will have to work for another ten years to buy a house in Beijing, but buying Bitcoin may only take two years. No other investment method is as fast as it," said Mr. Cheng, but he did not "all in" and still kept some money in the bank to prevent himself from getting into trouble due to the fluctuations in the cryptocurrency market. Mr. Cheng admitted that he knew there was a bubble in the cryptocurrency market, but he believed that he would not be a "leek."

Chen Bo, director of the Digital Finance Research Center of the Central University of Finance and Economics, told the Global Times that the sudden outbreak of the COVID-19 pandemic has had a significant impact on young people around the world, including China. "Everyone has found that income expectations are declining, which can be seen from the relatively sluggish consumption data in various countries," Chen Bo said. In the eyes of some young people, cryptocurrencies such as Bitcoin are innovative, and huge fluctuations can achieve "getting rich overnight", which drives more people to join the ranks of investing in cryptocurrencies. However, according to Chen Bo, some young people have used leverage to invest in Bitcoin, but have recently suffered huge losses. He believes that many young investors have a relatively heavy speculative mentality, and even have a "gambling" mentality, especially those born after 1995 and 2000. For them, Internet companies are taking on more and more traditional industry characteristics, which makes them wonder what path they should take to achieve a change in wealth status and class improvement.

South Korea's "Global Economic News" website also stated that the weak job market, sluggish overall economic growth, the uneasiness caused by rising prices, the anxiety of repaying loans, and the sense of loss caused by the government's increase in part-time jobs for the elderly to meet the employment number are the deeper realistic factors that cause young people to be keen on venture capital.

Is it cool to invest in something that's trending on the internet?

In addition to economic reasons, "meme investment" is another reason for the popularity of cryptocurrencies. Vox News Network said that young people who grew up in the Internet age invested a lot of money in a certain token or stock, not because these investment objects have unique value, but because they think investing in popular things on the Internet is cool and interesting, and cryptocurrencies are a typical example.

Sam Bankman-Fried, the founder of digital asset derivatives trading platform FTX and a billionaire in the cryptocurrency field, said that in the current financial environment, the valuation of any meme asset can exceed $20 billion. Although this seems a bit ridiculous, at the beginning of this year, retail investors on the WallStreetBets section of the Reddit forum in the United States once quickly raised the share price of GameStop, a US listed company, by 2,300%. Well-known Wall Street hedge funds suffered huge losses and exited the market, which made global investors excited. Vox News believes that retail investors who bought GameStop stocks largely regarded "GameStop" as a product with memes, rather than a high-quality enterprise.

Chen Bo believes that on foreign social platforms, many "big Vs", including Tesla CEO Musk, have advocated cryptocurrency investment, which has also attracted many young people who "live on social networks". However, China has relatively strong control over related speeches, and with the tightening of relevant policies, the proportion of Chinese cryptocurrency investors in global investors is declining. Chen Bo emphasized that young people should not be encouraged to invest in cryptocurrency because it is essentially risky, not valuable, and lacks a pricing model for the financial industry. "There is no upper or lower limit to the volatility of cryptocurrency, no rules to follow, and no mature investment strategy."

According to the South Korean magazine Asia Economy, since the price of cryptocurrencies fluctuates significantly and can be traded anytime and anywhere 24 hours a day, negative problems similar to "gambling addiction" and "gambling addiction" will arise in real life, which requires society and individuals to be particularly vigilant. A South Korean college student told the media that since investing in cryptocurrencies in February this year, "it is difficult to really fall asleep, and the market has been lingering in my mind. In more serious cases, I will set a smart watch alarm to remind me in real time." During this period, he experienced the impact of the currency price rising 6 times in two weeks and falling below the starting point in two weeks. In three months, he lost most of the 25 million won investment. In the end, the South Korean college student found a consulting office and began to treat the problem of "trading addiction". Another South Korean investor in his 30s was much luckier. Last year, he invested 20 million won in the token market, and it rose to 1 billion won at most. In mid-April this year, the cryptocurrency market suffered a sharp shock. Although he hurriedly cashed in, he also earned a full 500 million won and finally successfully purchased a wedding house.

As more young Indians start investing in cryptocurrencies, reports of fraud are on the rise, according to Bloomberg. From fake giveaways to fake initial coin offerings to identity theft, scammers are using a variety of tactics to defraud new cryptocurrency investors. The police officer in charge of cybercrime in Bangalore, India, told Bloomberg that most victims of cryptocurrency fraud are under the age of 45. Most of the cases they handle are criminals who promise investors high returns through social media, disappear without a trace after getting the money, and leave investors with a pile of worthless altcoins. In the United States, cryptocurrency fraud has also risen. The Federal Trade Commission reported that from October 2020 to May 2021, there were 7,000 cryptocurrency-related frauds, and investors lost more than $80 million, more than 10 times year-on-year and 100 times more than in 2019.

South Korea's Dong-A Ilbo reported that the cryptocurrency market is in chaos. Currently, both China and the United States have begun to strengthen cryptocurrency regulation, which has indirectly led to the bursting of bubbles and drastic market fluctuations. In this case, investors should keep in mind the principle of "investing at your own risk", and the government should also formulate a minimum management plan to prevent illegal activities such as market manipulation and fraud.