The Indicator from Planet Money : NPR




SYLVIE DOUGLIS, BYLINE: NPR.

(SOUND OF THE ELECTRIC DROP SONG, “WAKING UP TO THE FIRE”)

WAILIN WONG, HOST:

This is THE INDICATOR OF PLANET MONEY. Son Wailin Wong.

PADDY HIRSCH, HOST:

And I’m Paddy Hirsch. Crypto-verse, that is, cryptocurrencies and all the financial technology associated with them, has been going through a difficult time lately. The flagship cryptocurrency asset, bitcoin, has dropped dramatically in value. Its market capitalization is reduced to about $ 390 billion, about the same level as in December 2020.

WONG: It’s quite the opposite of last October when bitcoin had a market capitalization of $ 1.14 trillion and Matt Damon was launching crypto.com.

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MATT DAMON: Fortune favors the brave.

HIRSCH: Fortune favors the brave. I love it. Thanks, Matt. Since that announcement was issued, the total value of cryptographic assets has dropped by two-thirds. It was at $ 3 trillion. Now they’re 1 trillion, in fact, less than that. Really, really, I want to call Matt Damon and ask him how brave he is feeling right now. But I don’t have his number.

WONG: And it ignores all my texts. I don’t know why.

HIRSCH: What? He is a demon.

WONG: Most investments in cryptography are institutions, but many people have opted for cryptography, some because they believe in the future of the blockchain and cryptocurrency, others because they have seen the profits that many cryptographic companies have made and want to jump on that bandwagon.

HIRSCH: Yes. A Pew Research Center survey found that 16% of American adults said they had invested in, traded, or used a cryptocurrency. That means a lot of exposure to one of the riskiest assets known to humanity, and the recent collapse is a huge loss of money for a lot of people. So let’s spend some time on THE INDICATOR exploring the aftermath of this collapse in a series of stories today and next week.

WONG: In today’s program, we look at the effect of cryptography fusion on the broader economy. A lot of money has been lost and a lot of people in crypto-verse are harmed. But what about those of us who have no exposure to cryptography? And that’s most of us. How much do we really need to worry about?

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HIRSCH: Recently, investors in cryptography have been having – not to put it too finely – an absolute nightmare.

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UNIDENTIFIED REPORTER # 1: Because we know it’s been several consecutive days of brutal bitcoin sales …

UNIDENTIFIED REPORTER # 2: Bitcoin and other cryptocurrencies plummeted while …

UNIDENTIFIED REPORTER # 3: It was another chilling day for crypto. Digital currency …

WONG: And you can divide cryptographic investments into two groups. You have your institutions: they are investment funds and venture capitalists and all that. And you have retail investors, people like you and me.

HIRSCH: Emma Rose Bienvenu is the chief of staff of Pantera Capital. Pantera is a fund that invests exclusively in companies associated with bitcoins and crypto. That’s what he had to say about last week’s collapse.

EMMA ROSE WELCOME: I mean, obviously, you know, these: bullish markets are a lot more fun than bearish markets.

WONG: And we’re definitely in a bear market when it comes to crypto. A bear market is when a market index falls 20% or more from its most recent high. Cryptographic assets fell by almost 70%. So it’s like a brown bear market. But Emma didn’t seem so baffled by the consequences.

WELCOME: This was not a failure of the cryptographic or blockchain technology itself. It was the asset that responded exactly like a risk of, you know, a highly liquid asset would react to the market environment in which we find ourselves due, you know, to high inflation and the Fed tightening. A person who has no exposure to cryptography, like, encouraged her, you know, is a good time to buy.

HIRSCH: A good time to buy, Wailin.

WONG: I think I’ll pass. I’m too scared.

HIRSCH: It’s not a failure. Anyway, Emma wouldn’t say if Pantera has lost money, but she pointed out that, like most investment firms, hers is set to withstand, and possibly even benefit from this kind of slowdown. Now, that’s not the same for individual investors, many of whom have complained on news and social media platforms like Reddit that they have lost thousands of dollars.

WONG: And there are many individual investors in crypto. An annual Fed survey found that 12% of American adults have used or maintained cryptography exclusively for investment in the past year. Now, probably not everyone has lost their money, but that’s 31 million people. Are you sure this will affect the economy in some way?

HIRSCH: Well, you’d think so. But Jamie Cox says he probably won’t. He is a managing partner of Harris Financial Group in Richmond, Virginia.

JAMIE COX: This isn’t going to have the same deleterious effect we’ve seen with the real estate market, you know, spreading to banks and creating insolvencies and then leading to potential: a global financial crisis that could easily lead to a global depression. . It’s not where we are.

WONG: Jamie doesn’t talk about losses, but he says the economy in general is pretty isolated from them. First, the amounts of money we are talking about are relatively small. The market capitalization of the entire cryptocurrency market is less than $ 1 trillion.

HIRSCH: Yes. A trillion dollars may seem like a lot, but it’s actually less than half the market capitalization of Apple or Amazon. Therefore, the danger that the losses of an individual fund in the wave of cryptography in the market are quite low, says Jamie. And as for the losses of individual investors …

COX: The good news is that there is a lot of money in the system. People have jobs. They do not run the risk of being permanently harmed by making some bad financial choices as they would if it were 2008.

HIRSCH: Back then, people were asking for a lot of loans to buy houses that they couldn’t pay to the banks that were willing to lend them the money, without asking questions. When the market fell, many of those people lost everything. Banks collapsed and the entire world economy almost collapsed.

WONG: But this time, people are generally not borrowing large sums of money to invest in crypto. Perhaps most importantly, neither individuals nor corporations are using cryptocurrencies as collateral for loans.

HIRSCH: That’s a big problem, isn’t it? – because when people or companies borrow money, they have to provide collateral, some security. That is some kind of asset that the lender can take and sell if the borrower defaults. Like, if you borrow money to buy a house, then the house is the collateral. And if you don’t pay your mortgage, the bank can take your home.

WONG: Companies use all sorts of things as collateral for the loans they borrow. But for the most part, no one is using cryptographic assets now. They are too risky, too volatile, too uncertain. And that means the corporate loan economy, the $ 22 trillion, isn’t affected by what’s happening in the crypto land.

HIRSCH: And the refusal of lenders to accept cryptocurrencies as collateral for loans is like this huge firewall between the crypto-verse and the U.S. economy at large. That’s not to say that cryptography isn’t leaked here and there. Jamie says the stock market is a bit weak link because publicly traded corporations are increasingly starting to venture into cryptography.

COX: There’s a lot of ownership in cryptocurrency that didn’t exist a couple of years ago. The most notable are Tesla or MicroStrategy, but there are many others – insurance companies and the like – who have taken positions, albeit small in relation to their balance sheet, but trying to learn how these things work. Therefore, it is a factor that contributes to some of the Nasdaq declines.

WONG: In other words, while the U.S. economy is pretty much isolated from the ups and downs of crypto-verse for now, things are moving fast. Cryptographic assets are becoming increasingly popular.

HIRSCH: And that means more and more Americans will be exposed to that world, either directly through their own investments or indirectly by owning shares in companies that have invested money in crypto. And Jamie says that’s something the government is very aware of.

COX: I think that regulation was already being prepared, but it’s definitely going to come in an important way. You will see that the SEC regulates for investment advisors and things like that to have higher fiduciary standards. And then you’re going to have Congress come in and basically have a framework in which it’s going to be very, very difficult to have these things, you know, negotiable and operational in the United States.

HIRSCH: Regulation: This may seem like a nuisance to freedom-loving crypto-heads. But Emma Rose Welcome to Pantera Capital – remember that Pantera invests exclusively in crypto-verse – she accepts that some regulation is needed, if only to protect individual investors.

WELCOME: There’s a kind of trope that, you know, people who work in cryptocurrency investment companies are against regulation and are somewhat libertarian. In fact, that is not the case for us. We thought a sensible regulation would be very good. And a lot of very dishonest projects, you know, have led to a lot of people who didn’t really know how these products work losing their savings. And that is unacceptable.

WONG: A lot of people believe that the blockchain and cryptocurrency are the future of finance. Even governments are boarding the cryptographic train. But that doesn’t mean that in the future, the cryptocurrency market is going to be less volatile or risky than it is today.

HIRSCH: Yes. In fact, it could mean a greater risk to the economy as these companies get bigger and more people invest in them. So, yes, we can afford to ignore this latest cryptographic collapse, but we probably won’t have that luxury for much longer.

(SOUND OF MUSIC)

WONG: This episode of THE INDICATOR was produced by Jamila Huxtable and designed by Isaac Rodrigues. It was verified by Catherine Yang (ph). Viet Lee is our main producer. And Kate Concannon edits the show. THE INDICATOR is a production of NPR.

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