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As prices fall, companies fall, and doubts grow, the hot rate producing bitcoin and other cryptocurrencies has become much colder.
The hot history of producing wealth for Bitcoin and other cryptocurrencies has become very cold.
As prices fall, companies fall, skepticism rises, wealth and jobs disappear overnight, and speculative speculation by investors is replaced by frozen calculations, in what industry leaders refer to as “the crypto winter.”
It is a dramatic change for investors and companies that by early 2022 are at the forefront of finance and culture. Crypto-evangelizing companies used ads during the Super Bowl and spent a lot of money to sponsor stadiums and baseball teams. The combined assets of the industry at that time were estimated to be worth more than $ 3 billion; today, they cost less than a third of that. It is possible.
On Monday, the price of Bitcoin traded at $ 20,097, more than 70% below November’s peak of $ 69,000. Another leading cryptocurrency, Ether, was trading near $ 4,800 at its peak in November; it is now less than $ 1,000.
Bitcoin and other cryptocurrency prices have been fluctuating throughout the year, a decline that has accelerated as the Federal Reserve indicates that interest rates will rise in an attempt to curb inflation. What is happening in crypto, in part, is an extreme version of what is happening in stocks, as investors sell risky assets at a time when the threat of economic downturn is rising.
But crypto sales are more than that, experts say; reflects the growing panic on Wall Street and Main Street about the foundations of the industry, which currently looks shaky.
“There was this ridiculous excitement,” Mark Hays told Americans for Financial Reform, a consumer advocacy group. “They did the same thing that led to the 2008 crisis: marketing these products violently, promising unreasonable benefits, ignoring the risks, and dismissing any criticism as irrelevant.”
Hays and others compared the collapse of the 2008 housing market, as the collapse of Bitcoin and other digital currencies was accompanied by changes in the crypto banking industry and a lack of directing guidance that created fears about how serious the damage could be. find out.
Unlike housing, the crypto industry is not big enough to cause major disruption to the broader economy or financial system, analysts say.
Recent events, however, have undermined the confidence of many investors:
– The so-called stablecoin Terra collapsed in a few days in May, extorting $ 40 billion from investor wealth. In the crypto business, stablecoins are marketed as a safe investment and each price is usually identified in a traditional financial instrument, such as the U.S. dollar. Terra instead relies on an algorithm to keep its price stable near $ 1 – and in part supports its value with Bitcoin.
– A company called Celsius Network, which operates as a crypto ownership bank, last week closed its 1.7 million customer accounts. Celsius took deposits, paid interest, and made loans and other investments with its customers’ money, at an estimated $ 10 billion. Unlike a real bank, there is no corporate insurance policy that reimburses these customer deposits.
– Shortly after Celsius suspended accounts, the founder of Three Arrows Capital, a Singapore-based cryptocurrencies fund, spoke of rumors of its imminent collapse in an unintelligible tweet: “We are in the process of communicating with the appropriate organizations and fully committed.
Extended periods of stock uncertainty are called bear markets. In the crypto world, indicators are selling very fast in the HBO series “Game of Thrones,” which adds a stark warning: “winter is coming.”
Last week, the CEO and founder of Coinbase, one of the largest crypto trading companies, announced that the company would lay off about 18% of its employees, and said a broader economic downturn could make industry problems worse.
“The recession could lead to another crypto winter, and it could take a long time,” said CEO Brian Armstrong.
This is not the first crypto winter. In 2018, Bitcoin dropped from $ 20,000 to less than $ 4,000. But analysts say that this time you feel differently.
Hilary Allen, a law professor at the University of the United States who conducted research on cryptocurrencies, said she was not concerned about the recent industrial upheaval that results in a wider economy. However, among crypto investors, problems may mature under the surface.
“There are hedge funds with bank loans that have made crypto betting, for example,” he said.
And whenever investors borrow money to increase the size of their betting – something known in the financial world as ‘‘ leverage ’’ – there is concern that losses may accumulate quickly.
“People are trying to do analytics, but there is a lack of transparency and it is difficult to understand how much equity exists in the system,” said Stefan Coolican, a former investment banker and now a member of the advisory board at Ether Capital.
For these reasons, along with others, there has been a push in Washington to closely regulate the crypto industry, an effort to gain smoke.
“We believe the recent turmoil only emphasizes the urgent need for regulatory frameworks that reduce the risks posed by digital assets,” the Treasury said in a statement.
Amid all the cold warnings, however, hope remains unresolved for some crypto investors
Jake Greenbaum, a 31-year-old known as Crypto King on Twitter, said he recently lost at least $ 1 million in his crypto investment – “a good piece of my portfolio.” Although he believes that things can get worse before they get better, he does not give up.
Things look bad now, he said, “so that’s where you want to start going back”