Market wrap: The crippling nature of crypto


The collapse of FTX this week, the second-largest crypto exchange, has sent a stark warning to all about the risks in the cryptocurrency space. The collapse also brings to light how far this asset has to go in terms of shedding the label that cryptocurrencies are akin to the Wild West.

A lot has been written about the collapse of FTX and the highly speculative investments they made with client's money that ultimately led to its downfall. Interestingly, a lot of high profile athletes and other well-known people were caught up in the debacle.

There were also companies that got caught in the collapse including Telstra Ventures and Sequoia Capital. Despite recognising the high risk nature of such investments, venture capital companies are often caught in a 'dammed if you do and dammed if you don't' situation, as they appreciate the need to invest in growth areas without leaving their run too late.

the crippling nature of crypto

While Bitcoin is down around 78% in the past 12 months, investors are continuing to hold on to the hope of a return to better days of rampant speculation. Unfortunately, the collapse of FTX had created a huge hole and further increased the uncertainty in this area. It has also raised the question again of whether cryptocurrencies are just one big Ponzi scheme that will leave investors very disappointed.

The lessons to be learnt are those that have been carved in stone for centuries. If you chase big wins, you will eventually have big losses, as history repeats itself. It is important for all investors to remember that you should only invest money in highly speculative markets that you can afford to lose.

The best and worst performing sectors this week

The best performing sectors include Materials and Information Technology, as they are both up more than 1% followed by Consumer Staples, which is just in the green. The worst performing sectors include Communication Services, Utilities and Financials, as all of them are down more than 1% for the week so far.

The best performers in the S&P/ASX top 100 stocks include Fortescue Metals up more than 9% followed by Illuka Resources up more than 7% and the A2 Milk Company up more than 5%. The worst performing stocks include Allkem down more than 10% followed by Pilbara Minerals down more than 8% and Lynas Rare Earths down more than 6.

What's next for the Australian stock market 

While at times the market has shown indecision, over the past six weeks the All Ordinaries Index has been bullish rising more than 11%. More importantly, this week it rose above its last major high of 7386 points from August 16.

As the All Ordinaries Index has trader higher this week than the previous week, it is considered an up week despite the fact that it may close lower than it opened for the week. If this situation remains at the close of trading today, then the short-term fall of at least one week I have been expecting is likely to occur next week.

If the market does start to fall, it will only be short term and last for one or two weeks with support between 7000 and 7200 points likely to stop the fall. The sectors currently showing opportunities include Financials, Materials and Consumer Staples, which should all do well into 2023.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.