“I was in shock and had no idea how to explain to my dad that I’d just lost RM24,000 in less than 24 hours,” said a cryptocurrency trader who wanted to be known only as Tommy.
Tommy, who is also a student, had taken the entirety of the remaining money from his National Higher Education Fund Corp (PTPTN) loan, along with his personal savings, to invest in cryptocurrencies.
When the market took a big hit earlier this year, he saw that money vanish into thin air before his very eyes.
By his estimate, he had lost over RM40,000 in total, having traded for himself and on behalf of family members.
With the global economic downturn, such stories have become the norm, with countless anecdotes about crypto scams, people losing their life savings, and hackers stealing assets worth billions.
Which raises the question – how common are such incidents among Malaysian investors?
Ryan Kan, administrator of Bitcoin Malaysia #1, a Facebook group with over 130,000 members, shared that individual retail investors suffered due to the big dip in the crypto market.
“I know a handful of first-time investors within my own circle of friends.
“They took bank loans at high-interest rates because they heard that crypto was going to go up this year – to the moon, they said – and without even doing their own research.
“They easily lost 80% of their loans, with some even having to declare bankruptcy and mortgage their properties to stay afloat,” he said.
Kan went on to say that some had fallen for schemes promising up to 100 times their investment, becoming victims of “rug pull” – a term used in the crypto space to describe a fraud where the developer abandons a project and runs away with investors’ funds, leaving them with worthless tokens.
While this paints a picture of cryptocurrency investing as a dangerous Wild West, Vimal Selvamany, co-founder of CryptoBilis and another admin of the Bitcoin Malaysia #1 group, said that’s not the whole picture.
“This kind of thing mainly happens overseas, because as far as the local ecosystem is concerned, we have a list of cryptocurrency exchanges regulated by the Malaysian government,” he explained.
The regulated exchanges do not offer features like leveraged trading, where investors use borrowed funds from the exchange to make larger trades, or futures, where traders buy a contract to essentially “bet” on the future price of a token.
Should a trade go awry in the above situations, an investor would suffer from “liquidation”, or a total loss of their assets, said Vimal.
“For Malaysian investors, incidents of liquidation are rare, as it’s largely due to investors choosing to use platforms not regulated and endorsed by the government.
“This is because services like these are only available through international exchanges that operate outside of the regulations outlined by the government,” he shared.
Some of these exchanges are on the Investor Alert List compiled by the Securities Commission Malaysia, including Binance and Huobi – two of the largest platforms in the world for cryptocurrency trading – for operating without authorisation from the Securities Commission.
The decision to move to foreign exchanges was one of the reasons for Tommy’s investing downfall.
“The local cryptocurrency exchange I was on did not have many options for cryptocurrency tokens, so I moved to Binance, which did.
“That was how I eventually ended up trading in leveraged futures and lost my money,” Tommy said.
The financial impact is only one side of the story for investors like Tommy – hit hard by the downturn, many investors were also affected in terms of mental health.
Inside investors’ minds
According to Dr Annie Lai Chooi Seong, the associate dean and principal lecturer in the Department of Social Science at Tunku Abdul Rahman University College, a huge investment loss could have a significant effect on investors’ mental health.
“At times like this, the investor may feel stressed or crushed after continuous losses and wrong investment decisions. He or she may feel demotivated, easily frustrated, and pressured, with some even experiencing suicidal tendencies.
“Some even experience panic attacks when highly stressed or feelings of anxiety when they become unsure and no longer confident about their own trading decisions.
“This psychological strain may go so far as to affect their general physical health – making them skip meals, as well as causing sleep disorders, high blood pressure, muscle pain, and even heart or gastrointestinal issues.”
Kah Mun Au, assistant professor at the University of Nottingham Malaysia’s faculty of social science, explained that investors may experience emotions such as anger, sadness, regret, and frustration in such situations, which may disrupt their cognitive processes and affect their subsequent trades.
“Investors with a high level of regret over a poor decision may end up making further misjudgements, causing more damage to their portfolio.
“These investors dwell on the negative emotions, hoping and wishing they could alter their past mistakes,” she said.
Lai further elaborated that a constant concern over the financial situation could also strain relationships.
If these investors continue to trade while being under psychological strain, this may impair their mental state and ability to make sound trading decisions.
“They may feel that the choices made by other investors overrule their own, affecting their trading decisions and results.
“An investor may also remain at the status quo, doing nothing and staying on with their current investment,” she said.
According to Vimal, a common term used in the crypto community is “HODL”, a misspelling of “hold”, to describe investors who refuse to sell their investment regardless of the current market condition.
In the case of Tommy, he kept trading larger and larger amounts, spurred on by successful trades, describing his motivation as greed – at one point, he was profiting by over RM200,000.
“I started thinking about the potential profits, and lost sight of the possible losses when it went badly,” he recounted, “it was like I had become a compulsive gambler, and I kept taking on risks, which was how I lost all my money.”
Au says that it is common for investors to enter trades based on emotions or feelings instead of their knowledge of fundamentals.
“As humans, we make mistakes, are emotionally influenced, and are not always rational, especially when dealing with money matters, including those with solid fundamentals.
“It is therefore natural for investors to respond emotionally to financial market events and trade on the existing state of mind.
“How investors perceive information would produce an emotional response that affects their behaviour, and hence, their action,” she explained.
For emotionally-driven investors, Au believes that they are at more risk, adding, “Emotions are a part of the human neural system that speeds up our risky decisions.”
“During market volatility, each investor goes through different emotional states.
“They may have unique thoughts about the financial market events which cause them to be optimistic or pessimistic. These thoughts are the key elements of investors’ behaviour and emotions,” she said.
Investors experiencing emotions like sadness, guilt, regret and frustration over a losing position may irrationally cling to their trade or investment in hopes that the price will reverse.
Au further emphasised that being able to let go of undesirable emotions is essential to investment decision-making.
Lai shared similar thoughts on the topic of emotionally-driven investors and the risks they are putting themselves into.
“Those who become emotionally driven have a tendency towards herding behaviour, where they follow the decisions made by the majority, deciding that the choices made by the larger group are better than those made by themselves.
“This is more evident in a bull-market (a condition where prices in a financial market are rising or expected to rise) where the collective sentiment is positive.
“This can cause an investor to ignore information or negative feedback that contradicts the decision of the majority they are following,” she explained.
Rise of ‘finfluencers’
Social media financial influencers, or so-called “finfluencers” also had a part to play in drawing Malaysian investors away from the regulated local exchanges.
Lai shared that their social media platform of choice is YouTube, where they post videos giving advice on an array of financial topics.
Untrained with investment knowledge and skills, first-time investors would naturally be convinced by these finfluencers, who portray themselves as experienced professional financial analysts and traders by giving daily market updates.
“They are in fact known as ‘noise traders’, a term used to describe market participants who make investment decisions without the use of finance fundamentals,” Lai said.
However, in cases where the finfluencers are truly knowledgeable, trustworthy, and reliable, Lai says their videos could benefit less experienced investors.
Au shared similar thoughts on the role of finfluencers.
“They provide a certain degree of insight into the financial market and products.
“These finfluencers share their experience and educate their followers in an exciting way, which makes it easy to understand and captivating at the same time.
“But, they may oversimplify concepts to make a point or make their videos or comments short and catchy to drive up views,” Au explained.
Also, some followers may blindly follow and buy what the influencers purchase, especially when the products are far too complicated and beyond their capabilities to understand.
Meanwhile, Vimal warned about celebrities being used to endorse projects.
“Investors can generally learn to spot the reliable ones based on their past track record, especially since those who are not reliable will get called out by others involved in the industry.
“But there are cases where celebrities known for other things start endorsing a project, this is when investors need to be wary, as being an expert in one area does not make them an expert in another,” he said.
Au said that it is the responsibility of investors to make sure they have sufficient financial knowledge and perform their due diligence before investing.
“Early financial education helps investors build better financial plans and be mentally ready for the worst,” she added.
She clarified that investors will struggle if they invest beyond their ability to withstand a financial loss, adding that there are agencies such as the Credit Counselling and Debt Management Agency (AKPK), which provides mental support and financial guidance to the public.
“Proper financial education could help investors better handle their finances and trade within their means,” she added.
For Kan, he believes that it’s all about the process of learning and experiencing.
“Always do your own research before deciding to enter a project, never ever trust or accept everything that someone tells you about crypto without triple checking with your own research to be sure,” he stressed.
Vimal says: “Just five years back, a lot of investors went in blind, and most of them just threw money randomly.
“But with the growth of the industry, we’ve seen a lot of news and research-based content become available since then. There are enough resources out there for people to do their research,” said Vimal.
He added that, for the most part, investors understand the risks involved, and that there are social media communities where they can learn from others.
“Whenever we have people that post about certain news topics or projects, other members of the community will also share their opinions on whether it’s good or bad, or even if they think it’s a scam.
“There will also be physical gatherings on varying topics, from basics to advanced, where newbies can get to meet legitimate people in the industry who can provide guidance, advice, and so on,” he concluded.
Those suffering from mental health issues can reach out to: Mental Health Psychosocial Support Service (03-2935 9935 or 014-322 3392); Talian Kasih (15999 or WhatsApp 019-261 5999); Jakim’s Family, Social and Community care centre (WhatsApp 0111-959 8214); and Befrienders Kuala Lumpur (03-7627 2929 or visit www.befrienders.org.my/centre-in-malaysia for a full list of numbers and operating hours).