Crypto’s Onetime Fans Are Calling It Quits After FTX Collapse
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Crypto’s Onetime Fans Are Calling It Quits After FTX Collapse

Debacle is last straw for many who embraced crypto during pandemic

By GUNJAN BANERJI
Mon, Dec 19, 2022 9:01amGrey Clock 4 min

Buying crypto was so much fun when it was going up. Now, many onetime fans are getting out.

This year has brought crisis after crisis, raising questions about the industry’s long-term prospects. Two major lenders, Voyager Digital and Celsius Network, filed for bankruptcy this summer. The price of bitcoin has plunged some 75% from its peak late last year. For some traders, the recent collapse of the crypto exchange FTX—which is dragging down other firms—was the last straw.

Crypto fund asset managers saw investors withdraw almost $20 billion in November, or nearly 15% of total assets under management, according to the research firm CryptoCompare. That brought the fund managers’ collective AUM to its lowest point in nearly two years. By contrast, many small-time investors continue to stay in the relatively boring stock market, despite losses there as well.

Dennis Drent, a former executive at a pet-insurance company, said he waded into the crypto market last December, when the world felt very different. He was growing anxious that the stock market’s record run would soon sputter and was frustrated by how little his bond investments were generating.

Around that time, he caught an appearance by a bitcoin proponent, Michael Saylor, with Fox News’s Tucker Carlson.

“He had me convinced that you can’t lose,” said Mr. Drent, who lives in Southern California.

A few weeks later, he poured about $25,000 into Grayscale Bitcoin Trust. He even had a nod from his financial adviser, he said.

It didn’t work. Mr. Drent cashed out in May, taking about a 50% loss. By then, crypto prices were falling fast. But so were stocks and bonds, an unusual coupling that reflected broad uncertainty.

Mr. Drent said he should have known to avoid a market that was so lightly regulated and that he didn’t fully understand: “I wasn’t cautious enough.”

Mr. Saylor didn’t respond to a request for comment.

Crypto use exploded over the past few years and so did crypto prices, with bitcoin soaring from roughly $9,000 in early March 2020 to about $68,000 at its peak in November 2021.

Rookie traders stuck at home during pandemic lockdowns downloaded apps that made it easy to buy crypto with a few taps on their phones. Some embraced active trading, darting in and out of different cryptocurrencies. Others thought they were taking a safer route by parking their crypto holdings at companies that offered eye-popping yields in return.

The share of U.S. households that have ever transferred funds into a crypto-related account jumped to 13% as of June 2022, up from 3% before 2020, according to data from the JPMorgan Chase Institute. It estimates that many new investors flocked to crypto for the first time last year, with activity among new users peaking around the time bitcoin prices did in November. Since then, activity has tumbled.

While crypto prices soared, financial-services companies rolled out new products and services to allow everyday investors to add crypto to their nest eggs. Some of that enthusiasm has waned.

“New customer additions have slowed…because the trust of the industry has been damaged,” said Chris Kline, co-founder of Bitcoin IRA, which allows investors to trade crypto through retirement accounts.

Making matters worse, many people followed the herd and bought crypto only when prices rose.

JPMorgan estimates that many investors who transferred money to crypto accounts did so when prices were much higher than they are now. That means many investors are likely sitting on losses.

Of course, plenty of crypto traders say they are holding on or trying to buy the dip in cryptocurrencies. Some are doing so because they believe in crypto as a conduit to change global finance. Others just don’t need the money soon.

Stephen Jones, 28 years old, said he started buying cryptocurrencies when he was in college. Mr. Jones notched some wins but started having doubts over the past year, so he sold out of some positions. Getting married in June pushed him to take another closer look at his finances, he said.

Finally, he decided to cash out his remaining holdings in October. When he saw FTX collapse shortly afterward, he was relieved that he had already dumped his crypto.

FTX “definitely opened my eyes a little bit,” said Mr. Jones, who works in finance and is based in Houston. “I’m not really seeing as much value-added activity as was initially promised.”

Nick Torrico, 26, had about $10,000 in mainly bitcoin, Ethereum and VeChain at Voyager when it filed for bankruptcy in July, and he doesn’t know if he will see all of that money again.

After diving into cryptocurrencies a few years ago, he has pulled back on some of his trading, especially in smaller coins.

Mr. Torrico said he is glad that he has diversified his holdings and didn’t pour all of his money into crypto. He is holding more in cash in his investment account. He has made some stock trades with borrowed money and could face margin calls if shares of some of his companies fall farther.

Still, Mr. Torrico, who works in finance, said he remains optimistic about blockchain technology and expects more regulation of crypto, which he thinks will help the industry. He still holds bitcoin and ether, the two biggest cryptocurrencies, and plans to keep buying regularly.

“A lot of bad actors have been exposed,” Mr. Torrico said. “My biggest lesson is to be patient and not try to make fast money.”

—David Benoit contributed to this article.



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How much income is required to service a mortgage? It depends on where you live

New research suggests spending 40 percent of household income on loan repayments is the new normal

By Bronwyn Allen
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Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

 

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Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

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