Scandals in the blockchain industry hurting Bitcoin as its value resurges

Bitcoin is now up 160 per cent over the past 12 months and shows no signs of slowing down, but not everyone is jumping back on board.

Bitcoin is now up 160 per cent over the past 12 months and shows no signs of slowing down, but not everyone is jumping back on the crypto train.

The digital currency was trading at $67,229 on Wednesday, a 17 per cent increase over the past month and the highest price since May, 2022.

However, Bitcoin trading volumes show the digital currency is only being traded at a fraction of what it was in the years before.

From October-November, its trading volume has only been at around 600,000, compared to a high of 1.61 million from October-November, 2022.

Bitcoin was developed in 2008 as the first decentralised cryptocurrency, authored by a man under the pseudonym of Satoshi Nakamoto. Picture: Ozan Kose/AFP

Caroline Bowler, CEO of Australian exchange BTC Markets, said that a large part of this hesitance could be attributed to “significant market events” that have garnered a negative reputation for crypto trading.

Controversy after controversy has seriously affected the cryptocurrency market. The crash of the Terra (LUNA) cryptocurrency, the bankruptcy of crypto exchange FTX, and Binance having to pay over $1 billion in legal fees have all contributed to a hesitancy to reinvest.

“The aftermath of FTX’s collapse has made traders cautious, and U.S. regulators’ scrutiny of centralised crypto platforms adds to the subdued atmosphere,” Ms Bowler said.

Both FTX and Binance were designed as centralised exchanges for the crypto market – a market that prides itself on its freedom and lack of regulation, which some argue led to their recent scandals.

“Macroeconomic uncertainty persists, heightened by political turmoil in the US, potentially dampening broader market participation,” Ms Bowler added.

Sam Bankman-Fried, founder of FTX, was found guilty of fraud on November 3, over a claim he had stolen $US8 billion ($12.5 billion) from the users of his exchange. Picture: Angela Weiss/AFP

Shane Oliver, head of investment strategy and chief economist at AMP, said this suggested to investors that cryptocurrency was “not necessarily a scam, but it’s [being] used by scammers”.

He also said that part of the appeal of crypto for lower-level investors was that bitcoin was considered as “easy money”, particularly amid low interest rates during the start of the Covid-19 pandemic.

In 2020, bitcoin trading was at a high until a surge in interest rates. That’s when the “easy money was withdrawn”, according to Mr Oliver.

“Bitcoin was seen as the ultimate hedge against high inflation that proved to be false,” Mr Oliver said. “So a lot of people [were] fundamentally burnt. “

However, Mr Oliver doesn’t believe that there is anything “inherently wrong” with the crypto market, noting that white collar crime is not exclusive to the blockchain.

Former Binance CEO Changpeng Zhao pleaded guilty to money laundering and resigned as CEO of the exchange, and is ordered to pay $US50 million ($76 million) in fines. Picture: David Ryder/Getty Images/AFP

Mr Oliver also said he believed there are similarities between crypto trading and typical financial patterns in business today.

“It’s just a magnified version of what’s going on in equity markets,” he said. “There is, I think, long-term potential for cryptocurrencies.

“I don’t think we’re going back to a situation where there’ll be so many people sitting around at home with nothing to do and then trading, like there was in the pandemic. But then you still can’t rule out Bitcoin making a new high. It’s surprised many since the time it was invented.”

But for those who have yet to try trading on the blockchain, Mr Oliver shared a warning.

“If you don’t understand it, don’t invest,” he said. “There is no free lunch, and past returns are not a good guide to the future.”