“Grab your conviction and stay with it.” That piece of advice, doled out on Tuesday by the hosts of popular cryptocurrency podcast Bankless, Ryan Sean Adams and David Hoffman, encapsulates the mindset prevalent in crypto circles these days.
Crypto is in a bad place. In the past seven days, the price of bitcoin has slumped by over 29 percent, while Ethereum dropped by 38 percent, and essentially every other cryptocurrency followed suit. According to cryptocurrency data provider Coinmarketcap, the combined value of the cryptocurrency market has fallen by about 70 per cent from its high in November 2021, when the rise and rise of crypto and Web3 looked irresistible. The Tether stablecoin, a cryptocurrency designed to maintain parity with the US dollar and reputedly backed by dollar reserves (although there are questions regarding the composition of those reserves) has lost its peg, and at the time of writing trades for 99 cents a unit. Major crypto companies, starting with exchange Coinbase, have announced major layoffs. The latest victim of the crypto crunch is Celsius, a lending platform that according to insights company Kaiko has put $475 million of its customers’ money into stETH—a synthetic asset theoretically redeemable for leading cryptocurrency Ethereum at some point in the future. That follows the meltdown of stablecoin terra-luna, last month, which sent shockwaves across the industry. The S&P 500 index dropped by 3.5 percent on Monday, and the Nasdaq crashed even further down by 4.2 percent.
If you are one of the 16 per cent of Americans who bought cryptocurrency over the past couple of years, this might look like the right moment to start freaking out. But among crypto space heavyweights, the general response to this drop ranges from zen to blasé. A meme posted on Bankless’s Twitter handle features a noose-wearing James Franco at the gallows—a stand-in for crypterati who weathered the 2018 crypto crash— asking two weeping crypto-holders from 2022 whether it is their “first time” there. A less charitable meme shared by Twitter crypto-skeptics compares self-assured crypto investors to a serene dog sipping coffee in a burning shack. “This is fine,” the dog says, as flames threaten to engulf it. This too shall pass.
“If you look at the fundamentals—blockchain adoptions, user expansion, real use cases being unearthed, you wouldn’t think the industry is going anywhere down,” says His Excellency Justin Sun, Grenada’s ambassador to the World Trade Organization, and creator of the TRON blockchain, whose stablecoin usdd also lost its peg to the dollar last week. “The market is full of FUD [fear uncertainty and doubt] right now, the crash of [terra-luna] and the more recent insolvency issues of some DeFi platforms and funds out there are not helping either, but I’m a believer in rational expectations and the market corrects itself. There’s always been cycles, and we are sitting on the slippery slope of the current one.”
Speaking last week, Paolo Ardoino, Tether’s chief technical officer, spotted a silver lining in the crisis, at least where bitcoin is concerned. “Bitcoin might have already proven to be more solid and be less subject to volatility than other coins. Bitcoin went down 60 percent—but the other altcoins went down much farther than that. So bitcoin is showing much more resiliency,” Ardoino says. “We might see a scenario where bitcoin starts to rally in the next months, while the rest of the ‘alt-coins’ remain down.”
The elephant in the room, however, is the fact that cryptocurrencies—assets routinely touted as a hedge against inflation and the vagaries of the financial system—are behaving exactly like the rest of the stock market. Ardoino himself drew a parallel between bitcoin’s misfortunes and the recent disastrous performance of Netflix stock, which tanked by 40 per cent in a single day in April over disappointing subscriber figures.