have yourself a merry crypto christmas
Several of you have quite rightly commented that, once a highly vociferous and vocal supporter of cryptos, I have been noticeably silent of late on the divisive digital future. Guilty as charged, your honour. However, whilst I do concede I’ve been licking my financial wounds and counting my losses, I remain stupidly/heroically/idiotically/calmly* a firm believer and here’s a broad-brush summary of the last few months.
The continued and ongoing market shake-up has certainly, painfully, proved the point that cryptos, specifically bitcoin, are not the digital gold they were once mooted to be. Grand claims made for their standing as a ‘store of value’ have been comprehensively trounced. Similarly, the second key component of a currency, that it is a utilitarian ‘means of exchange’ has proved notably elusive. I concede that until this crucial criteria is met cryptos will largely remain an instrument of pure speculation, which is exactly the opposite of Satoshi Nakamoto’s original 2009 intent.
The value of destruction has been immense. The market worth of all bitcoins in existence has fallen from $1.3trn, when the coin hit a peak of £68,000, to just $320bn with a current price of £13,600. The once $3trn value of the whole crypto market now stands at about $800bn. Specifically, more than half of all bitcoin wallets are in the red and heaven knows how many of the other crypto ones are, though I suspect all of them wouldn’t be a bad guess. Luckily, I remain in the black, but only just. Now, admittedly this has happened before, five or six times since its inception and long-term holders (the official HODL term is ironically recognised as ‘hold or die laughing’) are resigned to this reality, but the difference this time is that crypto is in its first bear market. Bitcoin was launched into the biggest bull run in history, an era of unprecedented zero-interest money-printing and its existence in the wider bear market represents uncharted territory.
The punishing crypto Winter actually started in Spring with the collapse of Terra/Luna/USD and other similar ‘stable coins’ and was immediately followed by the demise of the high profile ‘crypto lender’, Celsius. The company, which bragged that its 1.7m customers could “borrow like a billionaire” had seemed to offer the best of all worlds to crypto enthusiasts, paying an advertised 18% interest on crypto assets whilst also allowing customers to borrow US dollars. Now, I’m no financial guru (no sh*t, Sherlock! – ed) but even I always try to remember the age old ‘if it looks too good to be true…’ adage, and Celsius’s customers must be rueing this daily. The bigger issue though has been one of contagion. Unlike the collapse of TerraUSD, Celsius was intrinsically connected with many other cryptos and their ecosystems.
Enter stage left the cherub-faced saviour and owner of crypto exchange, FTX, Sam Bankman Fried. SBF, as he is known, stepped in to calm things down by buying large stakes in several large lenders including BlockFi & Voyager Digital, before being outed as a fraudster who appears to have used punters’ cash to make leveraged bets via his own hedge fund. Uh oh. FTX, it transpired was not the $32bn colossus it claimed to be but an enterprise with barely a quarter of these assets and way over-stretched in the liquidity department. Ironically, the final nail in the FTX coffin was struck by SBF’s nemesis, Binance’s ex-burger-flipping CEO, Changpeng Zhao (CZ to his friends), who was going to save them and then he wasn’t.
So, who knows what is going to happen in the near or far-off future? If crypto manages to stay the course it is undoubtedly going to be beset by long overdue regulation and control. CZ himself announced plans to create an industry recovery fund and vowed to make digital coin holdings more transparent. Meanwhile, the rest of us are debating whether the last year’s performance should be compared to the collapse of Enron, BCCI, Northern Rock and Lehman Brothers. Are SBF and Bernie Madoff two of a kind? Will the recent history deliver a fatal blow to crypto or simply make a half-decent Hollywood movie?
Arguably, the current lowly price may actually represent cryptos’ residual value but it’s too early to say for sure. With the recent amount of work undertaken by all western governments and their respective federal banks on currency-specific digital coins (albeit at a time when prices and enthusiasm were both riding high), I genuinely believe they are here to stay but I can guarantee there will be many more twists and turns ahead.
(*delete as appropriate)
