RMIT experts available for comment on trading volumes and cryptocurrency during the pandemic

RMIT experts available for comment on trading volumes and cryptocurrency during the pandemic

Experts from RMIT University are available to talk to media about the impact of COVID-19 on trading volumes and the cryptocurrency price surge.

Home traders drive up volumes during lockdown

Angel Zhong (0433 810 413 or angel.zhong@rmit.edu.au)

Topics: trading volume, retail investors stock market, risk and return, gambling in stock markets

“Trading volumes peaked at one of the highest levels yet both internationally and in Australia during lockdowns imposed in response to COVID-19.

“During the lockdown imposed by many countries, people working from home, and particularly those in the younger age group with some savings, had ample time to participate in the stock market.

“Data shows there was a 50% spike in home trading volumes, globally, and a 66% jump in Australia out of 37 developed and developed countries during the first COVID wave, for the period 23 January to 15 May 2020.

“The daily turnover was greater in countries with a higher GDP such as the US and Australia. In Australia, prior to COVID-19 the average daily turnover was 0.27%, in stark comparison with the daily turnover of 0.44% during COVID-19.

“It’s likely that investors resorted to the share market for a range of reasons including to secure a bargain, from a fear of missing out and to participate in get rich quick schemes.

 

Home trading

“We saw this occur with the emerging ‘Robinhood traders’ phenomena in the US, with young inexperienced retail investors entering the share market to cash in on get rich quick schemes during the pandemic.

“The closure of casinos and other gambling venues due to the pandemic is another factor associated with the increase in trading volumes in stocks, as people trading from home sought a substitute for gambling.

“The surge in trading volume was highest in countries with a greater level of trust in the society, lower avoidance of uncertainty, and in countries with a higher degree of individualism or overconfidence.

“Overall, investors in countries with stronger economic development initiated more trades, implying that wealthier nations are diverting their savings to the share market during the outbreak.”

Angel Zhong is a Senior Lecturer in Finance in the School of Economics, Finance and Marketing at RMIT, and her research focuses on investment and investor behaviour in share markets around the world. Her work also focuses on behavioural biases of both individual and institutional investors in share markets.

Cryptocurrency price surge

Professor Jason Potts (0401 651 142 or Jason.potts@rmit.edu.au)

Topics: bitcoin, blockchain, digital currencies, innovation, economics

“Blockchain is the third generation of the internet. It's a technology that enables digital scarcity, which means the ability to create money, contracts, property, identity and other economic fundamentals natively on the internet.

“Cryptocurrency prices have surged over the past month or so. Bitcoin (BTC) is trading at almost A$16,000, up from about A$7000 in March 2020 (but about the same as this time last year). ETH, the coin of the Ethereum blockchain, is over A$500, up from about A$200 in March, and up about 30% since mid-July.

“What's behind this? The global economic collapse (gold prices are also up) is surely driving BTC, a store of value against the massive growth in public spending and debt due to COVID-19. But it is decentralised finance (DeFI) that's driving Ethereum prices up.

“DeFi is the latest major use case of blockchain technology. DeFi is peer-to-peer finance in a decentralised framework (i.e. built upon a blockchain) that allows users to circumvent traditional financial institutions. In essence, it is a series of projects and protocols that are rebuilding financial markets for tokenised assets (decentralised exchanges, stablecoins, lending, futures markets, liquidity providers) on blockchain. Much of this activity is happening on the Ethereum blockchain, which is driving up the price of ETH.

“This is very new. Much of the DeFi space only launched this year. It's giving rise to what is called 'yield farming' - which enables people to put their existing cryptoassets to work in the financial system. (Previously, the only way you could benefit from owning a cryptocurrency as an investment was if the price went up. Now with DeFi you can earn interest or engage in arbitrage trade to provide liquidity. Just like in the real, or old, financial system.

“However, this is a very new and risky endeavour. It's completely unregulated. There are serious concerns about the security of the code. Some are probably scams or Ponzi schemes. And at the moment it is for advanced users only - you need a strong background in both finance and crypto to even understand what is going on. 

“Yet this is also probably the future. The early financial markets that emerged hundreds of years ago were also pretty wild and full of crazy innovation, but they laid the foundation for modern financial services. Interest in DeFi - which is the beginnings of a new global digital financial system - is driving this current cryptocurrency price surge.”

Professor Jason Potts is the Director of the Blockchain Innovation Hub at RMIT University and his research focuses on the economics of innovation and new technologies.

***

For media enquiries, please contact RMIT Communications: 0439 704 077 or news@rmit.edu.au

19 August 2020

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19 August 2020

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