2021 was an amazing year for crypto traders. The spillover from the previous year saw many digital assets record astronomical growth and more coming up with virtually no use case but the promise of huge returns. Apart from this being a subtle way for unlooking investors to be defrauded of their hard-earned money via rug pulls, it has put a dent on the many cryptocurrencies that looked to improve traditional ways of living by incorporating cryptocurrencies into them. The Australian reserve bank is wary of the economic implications of losing money in a fundamentally-flawed crypto asset. Over a fifth of its citizens have direct exposure to cryptocurrency, and a whopping 5% is believed to have wrong investment choices by investing in fad-driven tokens.
There is a new buzzing investment pattern in the cryptocurrency world that has spilled over to traditional investing. Usually, crypto investment choices mixes fundamental and technical analysis, but what if a token has neither of these as positives but has a strong sentimental analysis?
Sentimental analysis is an old but newly popularized term for when an asset, in this case, a token, has strong backing from many investors with the main aim to pump the token price up. Recently, the prominence of crypto communities has made these patterns of investing in meme coins popular.
Before we explain the cause of Australia’s reserve bank’s skepticism, let us see some returns in these so-called meme coins. A $1000 investment in Dogecoin, a dog-themed cryptocurrency, would have returned $124,000 if the investor withdrew during its all-time high of $0.69. Fuelled by Elon Musk claiming to own the token and publicly pledging allegiance to the project, it wasn’t long before other projects offering nothing, but false hopes began appearing. Shiba Inu was another popular token that picked up steam when the dogecoin mania reduced. A $1,000 investment in Shiba at the start of 2021 would be worth $7 million now. Many more meme coins like floki, dogezilla, dogelon, kishu inu, safemoon, et al. also began offering hopes on doing nothing.
Australia and cryptocurrency
Most governments of the world have not made their stance on cryptocurrencies known. The disruption it is causing in the traditional governance with the blockchain’s immutability and transparency is not one many would accept. However, still, apart from China, North Korea, and a few other countries, the world’s stance on cryptocurrencies is vague. Australia is one of these many countries with no defined stance on cryptocurrencies. The government claimed it is working on a regulatory measure for crypto tokens for its local investors but admitted most of the crypto space is working in uncharted territories, making their efforts difficult. There is a positive atmosphere, though, as the government is open to decentralized autonomous organizations which run based on smart contracts and communities and have little possibility of rug pulls. Their financial service minister has been vocal about her acceptance of cryptocurrencies by berating the government for not accepting them for local retail investors. Jane Hume, who is in charge of the ministry, likened cryptocurrencies to iPhones, saying there was pessimism about the scalability of iPhones in its early days, and warned of a backward trajectory of the crypto Australia space is the government is not proactive about it.
A few days later, the commonwealth bank, one of the biggest Australian banks, announced it is currently working on a plan for its customers to trade cryptocurrencies. This is despite the general knowledge of cryptocurrency price fluctuations, rug pulls, the environmental concerns of proof-of-work networks, and the aging idea that crypto is mainly used by money launderers. It will start by offering bitcoin trading, Ethereum, and eight other cryptocurrencies. Still, it expectedly has announced it would not list meme coins, or any parody token on its app (which is where trading would occur) irrespective of its market cap, taking a direct dig at Dogecoin and Shiba Inu. Although the commonwealth bank’s offer does not include peer-to-peer exchanges, Australian investors would be able to convert digital tokens to fiat currency. Jane Hume discussed to an Australian financial review in the early days of November that the cryptocurrency world is relatively new and has shown to be too far from being a fad. Citing how stablecoins like tether, USDC, and binance coin have the same value as the US dollar, the Reserve Bank of Australia’s head of payments policy, tony Richard, talked about how the Australian government could position itself well by offering government-backed tokens, including crypto tax breaks for investors, and encouraging both foreign exchanges like Binance, Redot.com, and Coinbase and home-based exchanges.
What to expect
The crypto world doesn’t know what to do with meme coins, and this has kept the possibility of rug pulls alive. Of the many problems facing cryptocurrencies, this seems to be the most prominent if we exclude DeFi scams. Having 5% of the Australian population investing in Dogecoin is not a figure you want to make light of, and that is without considering the people invested in other meme coins. The reserves bank of Australia is right in warning its citizens. The current crypto market news favors those speculative assets because of their constant endorsements from celebrities and prominent figures, and investors can be left holding dirt tokens. It is an already established fact that meme coins are not in the interest of Australian citizens; the only issue is that the regulatory measures the government will take to affect the overexposure to these coins might affect other coins with valuable use cases. Indeed, in its various financial capacities, the Australian government is left in a dilemma of not being left out of the crypto revolution and being economically affected by fad currencies ravaging the world.
Senator Andrew Bragg, who is very interested in cryptocurrencies, has spoken up to the Reserve Bank of Australia on reevaluating the importance of cryptocurrencies to the Australian economy.