Bitcoin Is Crashing and All Grown Up

In the beginning of 2010, the price of a single Bitcoin was around $0.01. At its height, in November of last year, it was hovering close to $70,000—an almost 700 million percent increase in value in just over a decade. Even Warren Buffett’s Berkshire Hathaway, considered one of the greatest and most stable investments of the past half-century, only grew by a mind-boggling 1.8 million percent between 1964 and 2014. Naturally, with such meteoric growth in the digital coins, Wall Street saw these numbers rising over the past couple of years and, with a little bit of FOMO, decided they wanted in on the crypto-gambling circuit. Hedge funds started buying into crypto, Coinbase went public last year at a staggering $328.28 per share, putting the company’s worth at over $100 billion. Even some mutual funds began diversifying into this nascent thing people often referred to simply as “digital gold.”

Well, this week it looks like Wall Street just learned the old adage: Be careful what you wish for.

In the span of just 24 hours, $200 billion was wiped off the cryptocurrency market as the value of Bitcoin has fallen. Coinbase’s stock went down 50% in the last week alone, and more than 80% from its high during its IPO last year. Shit hit the fan with such velocity at the company’s headquarters that it had to post a notice letting users know that if Coinbase were to go bankrupt, users’ assets are not protected and could be used to pay off debtors. Luna, which is supposed to be a “stablecoin” that is pegged to the dollar and shouldn’t fluctuate in value, fell a vertiginous 98% in the span of five days, causing the coin to lose $25 billion in value and leaving it hovering at near worthlessness. BitPrime, the crypto-exchange based in New Zealand, had to halt trading on its platform because, according to the company, “combined with extreme market volatility,” it literally didn’t have the liquidity to be able to return the money to crypto-investors. On some Reddit threads devoted to crypto, people were telling stories of investors they knew who were attempting suicide because of their losses this week. “My friend and ex-colleague (my manager for 15 years) tried to commit suicide this morning. He basically moved all of his savings to crypto in 2021 and LUNA was a massive player in his portfolio,” wrote one. 

So what is going on?

This is where those Wall Street bankers come in. For some time, Bitcoin and other crypto-assets would go in the opposite direction of the stock market. If the market crashed, the digital assets would go up, like one side of a scale pushing another in the opposite direction. But as these financial systems have been braided together over the past year, what goes down, now goes together. Everything is becoming entangled into one giant, messy minestrone financial soup. Many mutual funds, hedge funds, mom-and-pop investors, and venture capitalists have huge stakes in the crypto-world. And the volatility is seeping in from one universe to the next. Unlike massive crypto sell-offs before, these assets are now increasingly being tied to the S&P and Nasdaq, which are informing what happens to the Dow and on and on. And while virtually all markets have plummeted in recent weeks, few areas have suffered as abruptly as tech stocks, which were once darlings of the investing world. Tesla is down about 26% compared to a month ago, for example, Apple is down about 17%, and Amazon is down a staggering 30% in the same period—just to name a few. (One of the biggest and most-talked-about drops, next to Coinbase, has been Shopify, which has seen about 80% of its value wiped out in the past six months.)

One of the problems leading to the current chaos in the financial markets is the lack of oversight of crypto and the continued extreme volatility. In March, President Joe Biden issued an executive order to look into crypto and its extreme price volatility, with the hope of protecting U.S. consumers, investors, and businesses from the potential “systemic financial risks posed by digital assets.” And in a recent report by the Federal Reserve about financial stability in the United States, the central bank noted that one of the (many) underlying risks with the financial market is the lack of clarity around “stablecoins,” which are supposed to be digital assets that remain stable and, in the past week, have shown volatility similar to the rest of the digital market. The Fed suggested in its report that if there were a “run” on the digital currencies, or even a lack of confidence in them, the entire digital economy could collapse as a result. Many Bitcoin investors have always been against regulation and government oversight, citing the anonymity and independence of the currencies (having no ties to a government) as an integral part of their fundamental premise, but after the pure insanity and volatility of the past week, perhaps crypto-investors will welcome these regulators with open arms.

https://www.vanityfair.com/newsletter/2022/05/bitcoin-crashing

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