The Crypto Crash Was Inevitable And Necessary For The Idealists To Come Of Age


“Rashbehari, Hazra, Bhowanipore, Exide, Park Street …” and so follows the rap of a bus ticket driver in Kolkata. The speed at which it peaks the names of upcoming bus stops can be fascinating, but not as much as the amount of cryptocurrencies (and NFTs and major places in Decentraland) that a 20-something could touch when indicated (or without it). , just a few months ago.

The recent crash of Bitcoin, Tether, Solana and colleagues, as the latest version of the cryptocurrency lender Celsius, is not just a price correction. It may not even be the end of a “fashion.” What it definitely is: a check of reality for an entire generation that has seen within its reach the mirage of a libertarian ideal (without saying, a truly free society where no one is forced to play by the rules of a state). It was beautiful.

The ultimate goal was that cryptocurrencies would replace money as we know it, and governments would lose the power to define which currency is legitimate and which is not. The rise of Dogecoin and Shiba Inu, the multimillion-dollar offerings for digital art, and the rise in the price of pixels on Decentraland have been a clue to mock the boomers who didn’t believe science fiction was knocking on our doors, really. .

Don’t get me wrong. It’s not just millennials and Gen-Z is taken too seriously. Like all utopian things, someone else would have dreamed of it before.

From Friedrich Hayek to James Dale Davidson and William Rees-Morg to our own contemporary Ron Paul (who had an alternative currency that bore his name), they predicted, recommended, or desired a society where individual freedom reigns and a free government currency. . control, will be an important tool in the creation and survival of this society.

The advent of Bitcoin and its alternatives made it seem like utopia was closer than ever. For those who did not care about the Champs Elysees, the equivalent of the sky in Greek mythology, on Earth they wanted to make the most of the rising tide of perceived value.

The recent collapse in the value of these private digital currencies, which has plummeted along with other risky assets such as stocks, has forced fans to wake up and smell coffee.

These are some realities that dreamers realized. Ideology cannot be an excuse for financial indiscipline. Many borrowed money to buy bitcoins because the fear of getting lost – FOMO, as the popular acronym says – was stronger than the principles of rational investment. And, when they cut their losses and throw their shares in the market, prices fall even further, pulling the carpet under those who have a greater appetite for risk.

This can continue until everyone is covered in a damp blanket or when new investments start flowing. The financial indiscipline unleashed by the FOMO is not unique to cryptography enthusiasts. Stock market investors around the world have done the same from time to time, including the times before the mega global crises of 1929 and 2008.

That brings us to the second fact about the world that is also affecting cryptocurrencies.

While there is something intrinsically pleasing about the idea that there is no central institution like the government or the central bank that controls currencies, the alternative is as it is today, as investors in the UST Earth and Moon stable currency discovered in May 2022, was just as bad. if not worse.

Large pieces of many cryptocurrencies, especially the smallest ones, are owned by a few people with a lot of money left over. When released, they cause a lot of damage to many people.

A similar concentration risk was witnessed in Lido Finance, which rewards owners of a cryptocurrency called Ether for validating online transactions. This allows homeowners to earn passive income from their investment without selling their stakes in Ether.

One of Lido’s big customers, Celcius, collects customer deposits to generate this passive income and redistribute it (after maintaining a cut). This worked well as long as the value of the bet Ether (the token given as a reward or passive income) is worth the same as Ether himself and other market participants are willing to exchange it for other tokens.

Therefore, whether it is a traditional bank or a decentralized financing platform, they look very similar. And there aren’t as many people committed to cryptography as fans would like to believe.

The efficiency of any market depends on the number of participants in any market, whether cricket bats or cryptocurrencies. The more the better.

Although chaos and conversations around the crypto world can consume, there are only a few people, but very noisy, at these parties. Just decibels don’t make the party “cool”. But they can attract cops.

Influencers like Elon Musk (supporting Dogecoin) can raise sentiment and prices with just tweets during good times, but their words don’t count for much when the tide changes.

Even reading the cryptographic graphics through the eyes of the brilliant Hayek, who hates the government, who argued that prices reflect everything you need to know about a particular product / service / asset, the following table would be, at best, depressing for bitcoin believers and their peers.

Even the French Connection Finance dividend payout symbol has dropped nearly 16 percent in the last month.

Like many other forms of idealism, this one also, again, hit the wall called reality. Maybe it will evolve, maybe it will come back with more intensity, maybe not either. What’s more, I’ll still be on this side of a laptop writing down my observations.

Author Sriram Iyer is the executive editor of CNBCTV18.com. The opinions expressed are personal.

(Edited by: Sudarsanan Mani)

First post: IST



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