Crypto crashes. Have the crypto managers learned anything at all?
Last Monday marked one of the biggest TV events of June – Game 5 of the NBA Finals. So naturally enough, the crypto exchange Coinbase took the opportunity to send an ad that tricked cryptos into more enthusiastic doomsday. A series of tweets declaring “Crypto is dead” – some new, others almost ten years old – tones in and out over a rendition of Chopin’s funeral march. Then a new slogan appears in a hard blue font: “Live crypto”.
The very next day, Coinbase laid off 1,100 employees, about one-fifth of the workforce. Perhaps the judges were in on something: The prices of bitcoin and Ethereum, the two most popular coins, have fallen more than 70 percent from pandemic heights; The NFT market has cratered; and optimism is in short supply. Wherever you look, the dominoes are falling: a prominent company, Three Arrows Capital, is reportedly approaching collapse, while other companies are desperately seeking rescue efforts to stay afloat. Over the past three months, the crypto market has lost more than $ 1 trillion. (A Coinbase spokesman explained the ad’s timing by saying it was “part of a pre-arranged package that came with our NBA sponsorship.”)
And yet, the overwhelming feeling among many of these companies, even if they bleed out, is that crypto is not really dead at all. Across the industry, you can see the rhetorical gesture of the Coinbase ad – an insistence on the idea that investors and spectators all take the latest downtrends a little too seriously. You would think that a crash of this magnitude – the first since crypto has entered the mainstream – would be a humiliating moment for the industry, a moment that would force some of the movement’s biggest spokesmen to plunge and build more robust systems. But at this point, many cryptocurrencies refuse to reflect at all.
It is no coincidence that the companies that reflect the least with their hands are deepest in the cake glass. One of the things that spurred the current crash was a cryptocurrency called TerraUSD, a type of so-called stack coin designed to be more or less equal to the value of the US dollar. The whole point of stack coins is that they are meant to be less volatile than other cryptocurrencies, a way to protect your money while still keeping your chips in the casino. That was at least the idea: TerraUSD was linked to another cryptocurrency called Luna, and when the value fell in early May, investors immediately dumped TerraUSD. Tokens meant to sell for $ 1 per pop were suddenly traded for almost nothing, and according to Bloomberg$ 60 billion of investors’ money was zapped away.
Do Kwon, the 30-year-old co-founder of the company that created Terra, responded to the chaos with a simple suggestion: Terra 2.0. It would be as if Bear Stearns launched “Bear Stearns 2.0” in 2008, a hybrid act so extreme that it almost defies belief. Kwon, who did not respond to a request for comment, relaunched the new tokens with a slightly shifted battle plan, and the Luna owners approved the restart. While the rest of the world is waiting for more concrete answers about the 60 billion dollars, Kwon has doubled on Terra 2.0 with a number Twitter threads. But confidence is of course not there – after an initial rise, the price has been in a steady decline.
As the broader crypto market has declined in the weeks since the Terra collapse, other flailing companies have been equally reluctant to publicly reflect on the damage. The crypto lender Celsius Network made it big by promising returns much higher than on traditional bank accounts. That approach generated a lot of money when crypto flourished, but apparently it did not do so well during the downturn. As rumors began circulating about Celsius’ financial problems, the company’s founder, Alex Mashinsky, dismissed it all as “RD & D”, cryptostenography for “fear, insecurity and doubt.” “Do you even know one person who has trouble withdrawing from Celsius?” he twitret. A little over 24 hours later, the company put a freezer on all withdrawals, and locked customers out of their accounts. (The freezer stays in place almost two weeks later.)
Mashinsky, whose Twitter profile picture shows him as a Roman emperor, laurel wreath and all, has gone dark on social media and stopped the company’s regular “ask me anything” sessions. A note from the company, published a week ago, shed little light on the situation: No word on where investors’ funds are located, or on the ongoing investigations into the company’s activities by regulators in at least five states. (Celsius and Mashinksy did not respond to a request for comment.)
Although the company now displays a gloomy banner on its website referring to the freezer and has released a brief FAQ about it, Celsius also maintains a product with “military security, next-level transparency and a do-it-all” app designed to help you reach your financial goals – whether you stay long-term or change daily. » (HODL is a deliberately misspelled call to “hold” your coins, even if the value of your investment falls.) The implicit message is that customers should continue to trust Celsius, even when the walls begin to close.
Throughout the industry, there is a feeling from the major players in crypto that if we all just keep the faith, traders can effectively use the way out of the crisis. Cameron Winklevoss, the billionaire co-founder of the crypto exchange Gemini, recently twitret that bitcoin dip feels “irrational” because “the underlying fundamentals, adoption and infrastructure have never been stronger.” It is not a matter of basics; Asking people to take a closer look at the technology will not in any way end the bear market. A few days ago, Michael Saylor, whose software company, MicroStrategy, spent billions of dollars on bitcoin, cold the cryptocurrency “a lifeboat, thrown into a stormy sea, and gives hope to everyone in the world who needs to get off their sinking ship”. But right now, bitcoin is the sinking ship.
I do not claim to know how to best respond to a situation like this, but if you are a leader hoping to restore your reputation after losing billions of dollars of other people’s money, it’s probably ideal to drop the idea that everything is coming. to happen. good bye. No one expects crypto companies to criticize crypto – but the most guilty players can at least tone down the “buy dip” ethos when everyone’s portfolios start to crumble. Sometimes it is actually wise to admit defeat; at least in 2008 we were not exposed to a barrage of defensive twitter attacks from bankers sleeping at the wheel.
After all, these are not just numbers on a screen. It’s easy to feel complacent about cryptocurrency if you’ve been on guard against the whole subculture, but a kind of mental health crisis has unfolded on cryptocentric Reddit forums, as traders find fellowship in compassion. (Suicide phones were at one point attached to the top of a forum for Terra enthusiasts.) People who took out loans from Celsius are on the verge of losing their homes. And when the infection begins to infect other companies, such as the crumbling Three Arrows Capital, those with the least to lose will be hardest hit.
But while doubling is a difficult move, it fits perfectly into the larger free market libertarianism that stretches back to the origins of bitcoin: the idea that market corrections will help shake out fraudsters and give investors more robust options in the future. It is up to traders to “DYOR” (“Do your own research”) and make prudent investments, one thinks; The government should not have to save you if things go south. It does not help that the industry still feels that it has a piece on its shoulder, said Rohan Gray, a law professor at Willamette University who studies crypto, to me, partly because of his historically troubled relationship with the traditional banking system. Cryptocompanies “always try to prove that you’re not just pro-market and pro-profit, all the things that the rest of Wall Street loves,” he said, “but you do the same with this big middle finger up to the traditional elites.”
And yet people like Kwon and Mashinsky is elites. The riches of the industry create a new set of rules in real time: New crypto-billionaires are already pouring money into the media and politics, with an eye to creating new institutions that are more friendly to their ambitions. The crypto project is in one way or another about avoiding the protection and the railings we have come to connect with traditional finance. Maybe it worked in 2013, when bitcoin was more of a niche curiosity – but it’s different now that crypto has grown by leaps and bounds. When the numbers go up again (and they will almost certainly go up again), you can expect a good deal I-told-you-so from this same amount. But if there is no sense of responsibility from these giant firms, we could end up right back where we started.
