A growing number of New Zealanders are showing interest in cryptocurrencies like Bitcoin. Photo / Wang Zheng/VCG via Getty Images.
It has made some people millionaires while others have lost money or been unable to get their hands on a fortune, just because they forgot their password.
Criminals are said to use it to launder their gains, while major investment managers are eyeing up its future potential to make money.
Cryptocurrency is as divisive as it is volatile, yet New Zealanders' interest in it appears to be on the rise.
Last month a survey by the Financial Services Council found one in five New Zealanders had already tried investing in crypto or planned to.
Ross Carter-Brown, chief executive of Bitprime - a New Zealand cryptocurrency platform - reckons that is probably on the high side. "I think it is an overestimate. I would say it might be 6 or 7 per cent of New Zealanders that have owned cryptocurrency now or in the past."
Even at 6 per cent, that is about 300,000 New Zealanders.
This is a ripping yarn. A UK dad is drawn into the world of cryptocurrency speculation. It all starts well ... (@thetimes via #HeraldPremium) https://t.co/SzUpo1Wrxn
— Chris Keall (@ChrisKeall) June 27, 2021
Carter-Brown's platform has about 30,000 customers and about three times that number subscribe to its content. It has seen about $80 million to $100m worth of trades so far this year.
"The cryptocurrency markets are very cyclical both in terms of trade volumes and the number of users," says Carter-Brown. "It has slowed down a bit now but we had a really big increase in users in the first three months of this year.
"We saw more new customers in January than we did for the whole of 2020."
Interest in cryptocurrencies tends to coincide with price rises. Bitcoin, the first and best-known of the cryptocurrencies, had been trading around US$10,000 for much of 2020 before starting a rapid rise at the end of October.
It hit US$40,519 on January 9 before dropping back to about US$30,000 by the end of January. By April 16 it had hit another high - US$63,346 - but as of mid-day Friday had nearly halved to US$33,476.
In March KiwiSaver provider NZ Funds began investing in cryptocurrency, and in the same month, investment bank Morgan Stanley published a research report arguing that the "threshold is being reached" for cryptocurrency to become an investable asset class.
But many professional investors remain unconvinced.
Mike Taylor, chief executive of fund manager and KiwiSaver provider PIE Funds, likens it to gambling. "I think it is a Ponzi scheme that relies on the bigger fool theory to work. Theoretically a cryptocurrency could work if there were only two that were available and they were backed by a certain government.
"But there is now something like 6000 cryptos. There is no barrier to entry, anyone can launch one."
Taylor says in some ways a cryptocurrency is not much different to points or dollars that you accumulate with an airline or by using credit card. "But at least in that case you can readily exchange it."
He argues it is a completely unregulated market. "In fact, countries around the world are clamping down on cryptos."
He points to popular crypto exchange Binance, which was this week banned from operating in the UK.
"A lot of it comes down to trying to stop financial fraud because criminals are using crypto because you don't have to do any AML [anti-money laundering checks]."
But Carter-Brown argues there is a lot of misunderstanding of cryptocurrencies because they are still relatively new. "In the early days when it was kind of this dark web, internet money, that kind of stereotype, that has still stuck around, even though the industry is very different to what it was then."
Carter-Brown says a common misunderstanding is that the industry is unregulated.
"That is a half-truth. We are probably the most heavily regulated market in New Zealand in terms of anti-money laundering legislation."
New Zealand trading platform operators are monitored by the Department of Internal Affairs and must ask people who sign up to use their services who they are and where their money has come from.
"There is a misconception that it's not taxable - it very much is taxable and Inland Revenue do very much enforce that and keep across the industry as a whole.
"Probably around 40-45 per cent of our labour costs are purely on compliance and we also have a lot of automated tools around that as well. We certainly couldn't operate without meeting all those requirements."
But there is less regulation when it comes to financial markets law.
Cryptocurrency trading platforms do not have to be licensed by the New Zealand investment regulator the Financial Markets Authority, but must be registered on the government's Financial Service Providers Register.
Part of that registration requires them to be a member of a dispute resolution scheme, meaning that if a customer has a complaint that can't be resolved by the company, the individual can go to a free independent complaint service.
Anyone who wants to undertake an initial coin offering in New Zealand must go through a similar process as an initial public offer for a sharemarket float.
But when it comes to trading cryptocurrencies, that is classed as a secondary market and like trading in real currencies there is very little oversight by the investment regulator.
Investors have been burnt in the past by platforms which have been targeted by hackers stealing currency stored on the site.
In 2019, Christchurch-based cryptocurrency exchange Cryptopia had $30m in crypto stolen by hackers. That highlighted the fact that crypto deposits are not guaranteed, unlike most traditional currencies.
Two weeks ago a South African cryptocurrency exchange told investors it was having technical issues. Now it appears US$3.5b in crypto has disappeared - as have the two young brothers who ran the exchange.
Chris Walsh, founder of Kiwi investment research portal MoneyHub and a former equity analyst at Merrill Lynch in London, says cryptocurrency is very polarising.
"You mention crypto to people and they say I can't talk about that, I am going to be here for an hour. And then for others their eyes light up.
"There are long-term holders of it - people that have been in it five, 10 years in New Zealand who are actively still buying even though the markets are bearish. But then there are also people who have bought, say, Dogecoin for 70c and now it is down at 20c and are like 'what has happened? How did this go wrong?'"
Walsh says that to him, a legitimate investment is something that is scarce, offers cash returns and is profitable, even if some investments are based on future profits.
Bitcoin started off as a smart contract - a way to do business online through direct payments in a decentralised way.
"Now it seems to be a store of value, almost a vanity investment. Years ago it was 1c, 10c, $300 and then it was up to $75,000. Is it legitimate? No one can answer that because it is not regulated."
But Alex Sims, associate professor in the Department of Commercial Law at the University of Auckland Business School, who has carried out research on blockchain - the technology behind cryptocurrencies - says they are increasingly being seen as a legitimate investment.
"Internationally hedge funds and big banks are treating Bitcoin as another asset. Also, I personally would rather people invested in Bitcoin than residential property, as investing in residential property has proved disastrous for New Zealand as a whole."
Sims says there are some people who are speculating or gambling on cryptocurrencies, but there are others who are investing because they believe in them, in blockchain in general, or are using them for payment or to access services.
"There are a wide range of reasons why people acquire cryptocurrencies and it depends on the person/institution that is acquiring them."
The FSC report identifies the type of people who are buying and selling cryptocurrency in New Zealand: mainly young males.
Carter-Brown says its customers range from 18 to 92 years in age, and 60-70 per cent would be male. "I would say they are largely middle-aged if you look at dollar value. But if you look at number of people then it skews to younger."
He says younger males potentially have a higher risk appetite than females. "But at the same time, they are also the biggest causes of fatal road accidents as well so there is pros and cons to that. Our female customers tend to be more restricted to professionals - investors, accountants - whereas the male demographic, it's much broader, everything from university students to retirees."
He says there are a range of motivations for people to buy and sell cryptocurrencies. "For us it is mostly the potential for investment returns. In this low interest rate market, people are looking for other ways to get a return on their investment."
He has even seen a recent shift in property investors selling part of their portfolio and shifting a portion of that into crypto.
Binu Paul, specialist lead in financial technology for the Financial Markets Authority, says whether something is a legitimate investment or gambling depends on the intent of the individual when they buy in.
"If someone has gone in knowing I am going to invest in Bitcoin for x, y z reason because I know something most people don't, then I would not call it speculating. But then for someone to throw some money at it and see what sticks, I would call that speculation. It is hard to make a broad statement. It is the decision driver that makes the difference."
Paul says those who are thinking of investing should make sure they use a New Zealand domiciled trading platform.
"Unfortunately, part of the challenge for a lot of retail investors is really coming to grips with who they are dealing with because it is all online. There will be platforms that don't say if they are domiciled in NZ or not."
Consumers can check if a company is registered in New Zealand on the Financial Service Providers Register www.fspr.govt.nz.
He also urges people to avoid engaging with those who try selling cryptocurrency via cold calling.
"A lot of these are scams which often revolve not so much around taking your money; it could also be around stealing your personal data. It's just not about losing money; it's about losing your identity as well."
And he cautions against getting caught up in the influence of celebrities like Elon Musk, or friends and family.
The FMA's advice in general is that cryptocurrencies are high-risk and it is buyer beware. "Don't invest money you are not prepared to lose."
The Reserve Bank will this week deliver a new set of forecasts for where rates are headed.