“I Saw Money Melting,” Investor Says After Crypto Loss

  • In just one month, Gustavo saw his 1000% profits disappear and suffered a loss of 66% of what was initially invested in NFT games. It could be worse, given that today the assets are worthless
  • 2022 is marked by risk aversion, which is why cryptocurrencies are being penalized in the market. The main cryptocurrency, Bitcoin, lost 45% of its value in the year
  • As it is a consolidating asset class, based on technologies that are still proving themselves and whose greatest potential for generating wealth lies in the future, crypto-assets are, in fact, more volatile than traditional ones.

When lawyer Gustavo Campos, 24, decided to invest 20% of his equity in NFT games in September last year, the money quickly multiplied. Investing in non-fungible tokens from games like Crypto Planes, Monster Grand Prix and BombCrypto, which rewarded players in cryptocurrencies, he soon watched the amount invested grow 1000%.

“A friend found out about this. We started talking about and watched a live on one streaming that talks about cryptos. In our minds, it was still just the beginning, there was a lot to come”, says the lawyer about the decision to enter the digital assets market.

However, if the bullish movement was accelerated, the fall was even faster. In just one month, Gustavo saw his profits disappear and suffered a loss of 66% of what was initially invested. It could be worse, given that today the assets are worthless.

In a year marked by risk aversion, cryptocurrencies are being heavily penalized. The main cryptocurrency, Bitcoin, lost 45% of its value in 2022. Ethereum, on the other hand, devalued by 58%. In the month of May, only one of the top 40 cryptocurrencies performed positively.

“For NFT games the crypto winter was even worse. It is an asset with even more risk, as there is a lot of fraud in the middle”, laments the young man.

Hashdex’s portfolio manager, João Marco Cunha, explains that, as it is an asset class still under consolidation, based on technologies that are proving themselves and whose greatest potential for generating wealth lies in the future, crypto-assets are, in fact, more volatile than the traditional ones.

According to Cunha, they are sensitive both to external factors, such as shocks to investors’ risk aversion, and to internal issues, such as hacking of protocols or exchanges – crypto-asset trading platforms. “Because of this, crypto asset prices, as a rule, fluctuate more than traditional assets,” she says.

The director of Investments at QR Asset Management, Alexandre Ludolf, understands that the history of crypto-assets – and their volatility – recalls the beginning of the gold market in the 70s in the United States. For him, as the asset class solidifies, volatility should decrease.

So, in order to protect the patrimony and not be held hostage to such oscillations, the vast majority of specialists consulted by the E-Investor indicates that people invest from 1% to 10% of their capital in this asset class. For those who are starting to expose themselves to cryptos, the indication is that it is even less, between 1% to 5%.

“You have to invest only what you can afford to lose. Of course, the possible gains are multiple, but it is an extremely volatile market, says Uniera’s investment director, Caio Villa.

Felipe Medeiros, cryptocurrency analyst and partner at Quantzed Criptos, a technology and financial education company for investors, indicates that those who already invest in other asset classes should start with cryptocurrencies such as bitcoin and ethereum, while studying the rest of the market and understanding whether the volatility is in line with your risk profile.

For those who do not invest, the ideal, according to him, is to contribute little by little. “This way, it will make an adequate average price and also adapt to volatility without major scares”, says Medeiros.

However, it is necessary to understand that crypto-assets are only recommended for investors with long investment horizons, of years, points out João Marco Cunha, from Hashdex.

Before investing, study the asset

Marketing analyst Fernando Bevilacqua, 23, understood late last year that investing in Crypto Planes would be a good idea. In the case of cryptocurrency linked to the game, after acquiring a token it was possible to play races daily. Depending on the result, the player was rewarded with cryptocurrencies.

However, it took a short time for the coins to lose all their value. “When I entered the currency was worth US$ 3.50 to the dollar, a month later it was worth nothing. I saw the money melting. It turned to dust”, says Bevilacqua. “It’s almost a pyramid scheme. If people stop logging in, you stop having money to run the game. The game needed to have people joining to have money running”, she laments.

The investment was made together with his brother and they knew the risk involved, but they did not imagine that everything would happen so quickly. Today, he believes the game was, at heart, a pyramid scheme.

According to Felipe Medeiros of Quantzed Cryptos, the marketing analyst theory is correct. He claims that most of the nearly 20,000 existing cryptocurrencies are scams, which seek to deceive with different discourses.

“Because it is not yet a regulated environment, these scams are facilitated and end up hitting the investor, who is driven by the promise of great returns in a short period of time”, says Medeiros.

According to him, in the wake of the game Axie Infinity, several generic versions of the game, including the one from Crypto Planes, were “fever” in 2021. With high returns, they soon flooded the market, but time proved that they were all just pyramid schemes. that enriched the creators and defrauded many investors.

Therefore, experts recommend that investors study the theses before investing. According to Felipe Vella, equity analyst at Ativa Investimentos, these are the theses that will make the assets manage to overcome the moment of risk aversion.

“Some crypto assets will die this crypto winter. It is now that we are going to see which ones have real demand, which solve some problem. They don’t exist just for people to speculate and make money”, evaluates Vella.

I bought crypto assets and I’m at a loss, should I sell?

These are the fundamentals cited by Vella that should guide the investor who has already invested in crypto assets and is now suffering a bitter loss.

According to Alexandre Ludolf, Investment Director at QR Asset Management, for those who are in need of liquidity and see high losses in the portfolio, it is very easy to say that the right thing is not to sell and hold for the future. But, according to him, it is necessary to get rid of projects that do not have solid foundations in the long term.

João Marco Cunha, from Hashdex, adds that past investment decisions should not interfere with the current portfolio. In other words, regardless of having lost with the recent fall, the investor must seek the appropriate allocation to his risk profile. This could mean selling, holding, or even buying more.

But despite recent declines, experts also understand that the asset class must recover from the tumble. Felipe Medeiros says that it is a consensus among the largest financial institutions in the world, large investors and governments that crypto-assets are here to stay.

He states that, as it is linked to technology, the crypto market should only recover when there is an improvement in the macroeconomic scenario, more specifically in inflation in the United States. Such a situation in the US economy forces a rise in the yield curve, which is bad for technology assets.

“We understand the importance of going through the winters naturally and positioning ourselves for the next upswing cycle. Despite the depressed prices, we see a strength in the ecosystem, with a lot of quality stuff being built”, says Ludolf, from QR Asset Management.