Hi Quartz members,
For people with crypto money, it has been a difficult two weeks. Losses exceeded $ 400 billion. The liquidation, as you have probably heard, was triggered by the epic failure of the stablecoin Terra and its cryptocurrency Luna, whose investments are only $ 60 billion.
Cryptography veterans are taking it all in stride. As they explore the carnage, some even see signs of optimism. It is reassuring, they say, that the whole system will not break, given the magnitude of the Earth / Moon debacle, although there may still be more consequences to come. And for now, there are few signs of a spill in the non-cryptographic world.
For the staunchest supporters of cryptocurrencies, this is just the latest twist in the natural cycle of the rise and fall of the cryptocurrency ecosystem. They will be rebuilt and the market is sure to recover.
If history is a guide, they are right. After past accidents, the industry has become stronger and bolder. And every time, the group of people attracted by the boom – and burned by the bust – gets bigger.
Among the latest batch of investors to buy after the last cryptocurrency winter, in 2018, are pension funds, large hedge funds, cities and the National Treasury of El Salvador. Last month, Fidelity, which manages more than $ 20 million in 401K, said it would start venturing into bitcoins. At this rate, the crypto industry may one day require its own government bailout to prevent the financial system from collapsing.
Cryptocurrency sponsors may be allergic to government intervention, arguing that the prospect of saving itself transfers the risk of gung-ho investors to the taxpayer. But they’re also operating a safety net: legions of new recruits erasing losses from old ones every time cryptography is on the way.
The problem with Earth
If something is supposed to be protected from the volatility of cryptography, it is stable currencies. They’re like poker chips in a casino – when they work, they’re a safe money store that you can use to trade easily without interacting with the fiat currency. Tether, the largest, has been around since 2014.
Stable currencies are linked to a government-backed currency such as the US dollar or a commodity such as gold. But while most stable currencies have traditional financial assets (cash, Treasury bills, commercial paper) to guarantee customers their liquidity, others do not.
This leads us to algorithmically stable currencies, which rely on computer code to maintain their value. TerraUSD (UST) is one of these currencies, which maintains its $ 1 fixation through a symbiotic supply and demand relationship with the LUNA cryptocurrency.
But now UST and LUNA look more like a house of cards than a responsible, much less stable, store of cash. After someone sold a lot of UST a few weeks ago, there was a massive sale, which caused the MOON about $ 0 (compared to $ 116 in early April) and sent UST, which is supposed to always be 1 $, at $ 0.17. (Financial organizations Citadel Securities and Blackrock have denied rumors that they played a role in the collapse of UST).
The Earthquake sent shockwaves through the crypto industry, sent bitcoins to a 16-month low, and shattered confidence in algorithmically stable currencies. If investors can’t trust stable currencies, what can they trust?
A regular asset?
Cryptocurrency evangelizers have sold bitcoins, the flagship cryptocurrency, as a hedge against inflation and declines in the value of traditional assets. That is not working. Like regular stocks, bitcoin prices have been falling since November, when the US Fed began to push back its bond purchases.
This can be explained in part by the influx of institutional money into digital assets. These are not the kind of investors who buy the dive. When they sell technology stocks, the crypto also comes out.
But Jeff Dorman, investment director at digital asset management company ARCA, believes this link is only temporary. “I wrote about [digital assets’] “These correlations are often spurious and change rapidly.”
While bitcoin may continue to rise and fall with the stock market, it believes other tokens will eventually break, fulfilling its promise as alternatives. We’ll see.
It is cryptic really like the internet of the late nineties?
Some investors and economists watching the cryptocurrency collapse are sharing a saying that can reassure hodlers: we’ve been around this … block.
The outbreak of the first dot-com bubble in the early 2000s was also an extinction event, according to the argument. Instead, it has become a kind of post-exaggeration reboot, recently suggested by Kevin Depew, chief economist at RSM consulting firm. on Twitter. In 2000, “as all the actions of the Internet collapsed, many disappeared permanently, we really clung on and figured out how to use the Internet,” he writes. The predictions about what web technology would do for us seemed crazy, he adds, but “ultimately, they seem pretty obvious in retrospect … which leads us to cryptography today.”
Billionaire Mark Cuban made a similar comparison this month, tweeting that cryptography is going through a “quiet” just like the Internet. Like the initial web, cryptography is now riddled with strings that “copy” others, bypassing NFTs and DeFi-style, he says, when what cryptography needs is “smart contract applications that replace SAAS applications.” “.
Not everyone feels so prepared to identify the killer cryptographic applications of tomorrow, which would be key to navigating the crisis. Bloomberg columnist Lionel Laurent writes that “the technology adoption narrative requires the ability to differentiate between Google and Pets.coms cryptocurrencies, and determine whether Bitcoin is vulnerable to disruption by public or private sector rivals.”
Developing such divination skills could take years.
Coming soon: Regulations. The U.S. federal government has been threatening to regulate digital assets for some time, but the collapse of Earth / Moon is likely to accelerate its timing. The rules of Stablecoin, that the US. UU. you’ve been researching, they’ll probably come first. Meanwhile, the European Commission is considering restricting stable currencies.
Institutional investors take a break … “They were sitting by the pool, with their feet in the water, ready to jump,” says Dorman of ARCA. “Now maybe they’ve stepped back a bit and are back on the sunbeds.” They will eventually dive, he adds, though it’s unclear if it will be in months or years.
… And also the VCs. Venture capital, a major contributor to cryptographic foam, is likely to decline. Reports of crumbling start-up deals and ghost founders are starting to appear.
The cryptographic crowd is preparing for another cryptographic winter. Coinbase has already delayed hiring and recently said customers would lose access to their cryptographic assets if the exchange went bankrupt. Robinhood, which has become increasingly dependent on cryptography, said it is laying off 9% of its staff.
What do you think of the long-term prospects of crypto?
It will bounce
From here it will continue to fall
It’s too early to tell
In last week’s survey on smart cities, 36% of respondents said they were more excited about sensors than anything else. Your utopian city is driven by data and we are here for it.
Have a great weekend,
—Ana Campoy, Deputy Editor of Economics and Finance.
—Scott Nover, emerging industry reporter (less stable than TerraUSD)
-Lila MacLellan, senior reporter (wait to get the “Crypto Boy” chorus out of your head)
—Nate DiCamillo, economic journalist (begging the masses not to invest more in crypto than they can lose)
One 🎙️ Thing
It’s open season to make fun of crypto bros and their HODL mindset, and this TikTok breakout song does it right.
The video summarizes the latest in cryptography, from the NFT OpenSea marketplace to the Metamask ether portfolio. “So ether a pick your wallet or me,” he says. “Well I hope they give you on the web3”