Crypto’s plunge tests the durability of the hype-based industry.


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As many cryptocurrencies plummet this week, Washington Nationals fans may have spotted a strange tweet on their baseball team account. “Crypto 101”, read, introduced the basic concepts of digital currency with embedded video clips of Nats stars in action and voiceovers. “You have a question. You have an answer.”

Terra, the crypto company behind the tweet, could start by answering a few questions about itself.

The company signed a five-year, $40 million promotional deal with the Washington baseball team earlier this year, which includes introducing cryptocurrency as a payment method at ballparks as early as next year. However, digital coins, a type of cryptocurrency known as stablecoins, have freefalled this week because they aim to keep the price at $1. Known as TerraUSD or UST, it traded at 30 cents on Wednesday morning before recovering to 80 cents on Wednesday night.

It is not yet clear what caused the UST to plummet. However, the eruption of the third-largest stablecoin by total market value points to a broader calculation of the hype asset class, which is shrinking dramatically this year as it was inflated in 2021.

According to CoinMarketCap, the sell-off in the past seven days has wiped out more than a quarter of the value of the global cryptocurrency market. Most dramatically, UST’s sister coin, Luna, loss of more than 90% of value I got rid of all but most of the people who invested last week.

And overall, interest in cryptocurrency trading seems to be waning. Coinbase, the largest cryptocurrency trading platform in the U.S., lost $430 million in the first quarter as its share price fell 79% this year. The exchange reported that there were 9.2 million active monthly users in the first quarter of this year, down from 11.4 million in the previous quarter.

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Bitcoin, the world’s most popular cryptocurrency, fell below $30,000 on Wednesday, down more than 56% since its all-time high in November. It is currently trading near the lows of 2021. This means that with the surge in public interest in cryptocurrencies last year, most investors who bought them are now in the red. As a whole, around 40% of Bitcoin holders are locked in their assets, according to a new report. analysis From crypto analytics company Glassnode.

The well-known Ethereum has also more than tripled since December 2020, but has fallen 54% since its peak six months ago. However, Tether, the most popular stablecoin, has never seen its value drop below $1. It does not use algorithms in the same way as UST. The latter is an unorthodox method. Basically relying on transactions instead of assets to back up It could be the cause of the plunge.

The plunge in cryptocurrency prices tracks a widespread move by investors to sell risky assets like tech stocks as the Federal Reserve raises interest rates to combat inflation. The tech-focused Nasdaq is down 10% since Thursday. Giants like Netflix and Meta are among the companies hit hardest in 2022. Netflix is ​​down 75% over the past six months, while Meta is down 45%.

However, the downturn in the cryptocurrency market is particularly painful for startups. It comes as industry leaders see the technology gaining the type of institutional adoption they hope will push irreversibly into the financial mainstream.

Institutional players, for example, have overtaken individual investors on Coinbase. Mom and pop traders accounted for a third of platform trading volume in 2018, up from 80% in 2018, according to a new study by Morgan Stanley. And Wall Street companies continue to jump into the sector. March Goldman Sachs execution first over-the-counter transaction of Bitcoin options; Last month’s Black Rock presentation I am investing in Circle Internet Financial, a stablecoin company.

Tyler Gellasch, founder of the non-profit Healthy Markets Association, said traditional financial institutions have missed the boom in cryptocurrency values ​​too long to give up on the cryptocurrency market. “Fears about fraud, volatility and regulatory uncertainty have left many traditional financial institutions on the lookout for the boom in digital assets,” he said. “After years of missing out on profits, many in the traditional finance sector have recently committed to the digital asset market. If they make a U-turn right now, I will be surprised. We put a lot of resources into it.”

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Crypto challenges can also damage some entities that have collaborated with them. The NBA, for example, has made huge investments in the Warriors, Mavericks, and Heat all making brilliant deals with crypto companies. This is a potential optics issue as all three teams play postseason games this week. The specter of companies like Coinbase (the league’s official cryptocurrency platform partner) and FTX (which has arena branding deals with Warriors and Heat) pushing their services into sector craters makes themselves younger and smarter than their opponents.

Some academic experts warn that volatility is not new to cryptocurrencies and should not be read with the underlying implications of this week’s slump or a larger decline over the past six months.

“We’ve seen his films,” said David Yermack, professor of finance and business innovation at New York University’s Stern School of Business, who closely studies cryptocurrencies and economics. “There was a big drop in 2014 and there was a ‘crypto winter’ in 2018 and there were a lot of small episodes in between. It’s just very unstable. And we can see it again. Both ways.”

He said he does not expect any contagion to the larger economy or other investments. “The total market cap of the cryptocurrency economy is $1.3 trillion, far less than people invest in stocks and real estate,” Yermack said. “It’s mostly speculation that young people grab a small chance on a big payday.”

But those people were feeling the pain, especially from Luna. all reddit forum This week’s call is dedicated to a dark story. Number of people saying they lost money in Terra currency.

A user named No-Forever2056 wrote, “I lost $15,000.” “I have a desire to make more money so that at least I can make a down payment for my family. Then I don’t think I have a house or savings.”

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Another user is CryptographerTop8162, “A friend and former colleague of mine (my manager for 15 years) attempted suicide this morning. He basically moved all his savings to crypto in 2021 and LUNA has been a huge player in his portfolio.”

Other financial giants are signaling that they see no reason not to make it easier for the average American to invest in crypto, despite backlash from Washington policymakers. Fidelity Investments announced last month that it will become the first major retirement plan operator to allow investors to invest some of their 401(k) savings in Bitcoin. The announcement was criticized by the Department of Labor and a pair of Democratic senators Elizabeth Warren (Massachusetts) and Tina Smith (Minnesota). wrote Companies are asked to address “significant risks of fraud, theft and loss” associated with their assets.

Warren said the plunge in cryptocurrency prices this week highlights the risk for retirees. “When the unregulated and unstable cryptocurrency gambling collapses, Americans’ life savings and retirement cannot be put at risk,” she said in her statement.

But Fidelity showed no sign of backing down. Company spokesperson Eric Sandwen said Fidelity is providing “a responsible solution for initiative sponsors looking to meet the needs of mainstream interest in cryptocurrencies and provide employees with exposure to digital assets.” He said the company is offering “institutional consumer protection”, including investment caps and training, and will continue to discuss the matter with policy makers.

However, Fidelity’s 20% limit on the amount of Bitcoin a 401(k) account can hold doesn’t seem very limiting. Morningstar senior research analyst Madeleine Hume said the cap is “pretty lenient given the volatility of the asset class,” adding that the influential investment research firm Morningstar does not recommend cryptocurrencies to investors concentrating on retirement.

“The tide of investor sentiment can change quickly, as we’ve seen,” Hume said. And investors lack the protection offered by more tightly regulated investment tools. “There are currently no precautions against cryptocurrency insider trading. Investors can trade behind the flow of information in the market, which is a significant risk.”

Some say that a long-term view will reward those with a greater risk appetite. Professional cryptocurrency investors note that the industry has suffered a previous crash and continued divestitures were inevitable. “The price had to come down again and it happened,” said Abraham Chaibi, co-founder of cryptocurrency trading firm Dexterity Capital. “This is not an existential crisis for cryptocurrency in any sense.”

Jeremy Epstein, chief marketing officer for a DC-based decentralized finance company, said: Jockey He also runs two crypto investment funds and believes that observers should keep a longer tech history in mind.

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He said, “Looking back on the dot-com era, Webvan and Pet.com also collapsed and disappeared in an instant.” “But that doesn’t mean you don’t want to shop online for groceries or pet supplies. We just did the wrong thing at the wrong time.”

The cryptocurrency slump has not spurred any new impetus to create clearer federal regulations for assets. But the collapse of the UST is under tremendous scrutiny. The coin relies on complex financial engineering to maintain a stable price, and crypto detectives are still debating a chain of events that began over the weekend when the UST first fell to 99 cents. The company did not respond to requests for comment.

Federal Reserve Chairman Janet L. Yellen, who testified before the Senate Banking Committee on Tuesday, said it was doomed to highlight the threat that unregulated stablecoins could pose to the entire financial system. “It simply shows that this is a fast-growing product,” she said. saidHours before Nats posted a Terra-sponsored tweet, “There is a risk to our financial stability and we need an appropriate framework.”



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