A crypto winter or a meltdown? Fear of recession and layoffs hit cryptocurrencies: NPR

SACHA PFEIFFER, VERT:

Cryptocurrencies have been in free fall, and there is a gut feeling for millions of amateur investors who thought they bought into the finances of the future. NPR’s David Gura joins us now with more. Hey, David.

DAVID GURA, BYLINE: Hey, Sacha.

PFEIFFER: So this has been a bit of a rise and now a fall. How did the crypto market come to this place?

GURA: We see a bit of a perfect storm taking place in the world of cryptocurrencies. Bitcoin has fallen dramatically. It is down about 70% from the highest level ever. And other smaller digital currencies like Dogecoin are down as well. In recent days, we have begun to see the fallout from this. Several crypto companies such as Coinbase have announced layoffs, and a few others have stopped withdrawals.

PFEIFFER: Why are cryptocurrencies falling so sharply?

GURA: Well, these are speculative assets, and much of what drives stock sales also drives digital currency sales. Right now, the Federal Reserve is raising interest rates aggressively to combat high inflation. Bitcoin boosters have claimed that it would be the ultimate inflation hedge because there is a limited number of bitcoin out there, but it has not behaved that way, as they said it would. Technological stocks have gone up, and bitcoin is definitely not on the rise. Ed Moya is a senior market analyst at the company OANDA, and he says that there is also a feeling of panic that contributes to the sale.

ED MOYA: The crypt house is on fire, and everyone just hurries, you know, to the exits because there is just complete loss of confidence in the room.

GURA: I’m going to notice this route, this unrest we see stands in stark contrast to what we saw just a few months ago then – if you remember Sacha – it seemed like all the other ads during the Super Bowl were for a crypto company.

PFEIFFER: I remember that – a lot of celebrities promote them. How are these companies doing today?

GURA: Well, not good. Today, Coinbase, the company I mentioned at the beginning – it’s the largest cryptocurrency exchange in the United States, it sent an ad during the Super Bowl that was just a QR code – Coinbase announced plans to cut a fifth of the workforce. BlockFi is another company that has announced layoffs. The same goes for crypto.com, which hired Matt Damon as spokesman. Coinbase’s CEO told employees in a note that the company was growing too fast, but he also said he made the decision to cut back due to financial uncertainty. He said he thinks we are at the beginning of a recession. So we see not only this massive sale of crypto, but also this overall fear of where the US economy is heading.

PFEIFFER: Millions of people bought crypto, and it can not feel good for their portfolios.

GURA: No. This has been a very rude awakening for them. Eswar Prasad is a professor of economics at Cornell, and he told me that 2021 was the height of cryptocurrency.

ESWAR PRASAD: It was definitely a watershed. So that meant cryptos had risen a lot, and that gave them a lot more room to fall.

GURA: Bitcoin hit a record high of more than $ 69,000 in November 2021. Today it trades at around $ 23,000. And if you bought bitcoin the day after that advertising bonanza during the Super Bowl, it’s now worth about half of what you paid for it.

PFEIFFER: And what about regulators? They must notice this. They must take note of this.

GURA: Yes, absolutely, and what is of particular concern to regulators is that the cryptocurrency universe continues to expand, and it has given rise to many products, some of which are very sophisticated, some of which are gimmicky or outright fraudulent. Regulators have noticed this growth. They have also said that they are concerned about all the amateur investors who have bought crypto. But this continues to be a room that is largely unregulated. Campbell Harvey is a professor of finance at Duke University.

CAMPBELL HARVEY: If there is no guidance whatsoever, people will be exploited and we want to prevent that.

GURA: Right now there’s just not much clarity in the basics, like which regulator is responsible for what. Senator Cynthia Lummis, Senator Kirsten Gillibrand recently proposed new legislation. Their bill would give more authority to the Commodity Futures Trading Commission. But the point is, there’s a real feeling, Sacha, that the regulation just hasn’t kept up.

PFEIFFER: And very briefly, David, where does the crypto go from here?

GURA: Yeah, there are a lot of crypto-skeptics out there who say I said that. But true believers claim that we are in what they call a crypto winter that will give rise to a crypto spring. More credible cryptocurrencies will survive, and the rest will disappear. What seems certain is, given the environment we are in right now, with the Fed likely to continue raising interest rates, Sacha, there will be more pain going forward.

PFEIFFER: NPRs David Gura, please.

GURA: Thank you.

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