“Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic” (NYT, today):
A steep sell-off that gained momentum this week starkly illustrated the risks of the experimental and unregulated digital currencies.
The problem is not that a string of random bits has no inherent value, in other words, but that the U.S. government is not regulating Bitcoin.
(For those that argue that fiat currency has no inherent value… you need it to pay your taxes, without which you will be put in prison. So its inherent value is at least whatever your freedom is worth to you.)
The price of Bitcoin plunged to its lowest point since 2020. Coinbase, the large cryptocurrency exchange, tanked in value. A cryptocurrency that promoted itself as a stable means of exchange collapsed. And more than $300 billion was wiped out by a crash in cryptocurrency prices since Monday.
The crypto world went into a full meltdown this week in a sell-off that graphically illustrated the risks of the experimental and unregulated digital currencies. Even as celebrities such as Kim Kardashian and tech moguls like Elon Musk have talked up crypto, the accelerating declines of virtual currencies like Bitcoin and Ether show that, in some cases, two years of financial gains can disappear overnight.
The moment of panic amounted to the worst reset in cryptocurrencies since Bitcoin plummeted 80 percent in 2018.
It recovered from the 2018 crash so we just have to buy and hold? 16 percent of Americans agree:
During the coronavirus pandemic, people have flooded into virtual currencies, with 16 percent of Americans now owning some, up from 1 percent in 2015, according to a Pew Research Center survey. Big banks like Northern Trust and Bank of America also streamed in, along with hedge funds, some using debt to further juice their crypto bets.
But crypto’s decline is more severe than the broader plunge in the stock market. While the S&P 500 is down 18 percent so far this year, Bitcoin’s price has dropped 40 percent in the same period. In the last five days alone, Bitcoin has tumbled 20 percent, compared to a 5 percent decline in the S&P 500.
Let’s go back to January 2021 when I wrote Bitcoin being pumped up a fraudulent Tether? Bitcoin was then valued at $36,000. Today it is quoted at approximately 30,000 Bidies (mini dollars). How’s Tether doing? Actually not too bad!
This week, Luna lost almost its entire value. That immediately had a knock-on effect on TerraUSD, which fell to a low of 23 cents on Wednesday. As investors panicked, Tether, the most popular stablecoin and a linchpin of crypto trading, also wavered from its own $1 peg. Tether fell as low as $0.95 before recovering. (Tether is backed by cash and other traditional assets.)
Regulators say that more regulation is the answer:
“We really need a regulatory framework,” Treasury Secretary Janet Yellen said at a congressional hearing on Thursday. “In the last couple of days, we’ve had a real-life demonstration of the risks.”
Why would it make sense for the folks in Washington, D.C., who have failed to maintain a stable value for the U.S. dollar, to try to monkey with Bitcoin? People who want a currency that is subject to the regulation and manipulation of technocrats in D.C. already have one: the U.S. dollar.
Would any HODL readers like to make the case for buying cryptocurrencies right now? If so, which one(s)?
Crypto Believer at the local strip mall this evening… (I was at PetSmart)
Thank you for reading the Economist so I don’t have to. The sun never sets what what I say
Three words: the regression theorem.
Bidies! Great term from the mind of Phil
Wasn’t the F1 Miami race sponsored by crypto?
@Rick: Crypto.com, festooned all across the Start/Finish line, IIRC. In fact, the official title of the race was:
“Formula 1 Crypto.com Miami Grand Prix”
Also Rolex, Emirates, and a bunch of other wealthy-sounding words. Which makes sense because my belief is that rich and sophisticated investors want the proles to plow their money into crypto so they can “milk the cow” from time to time. The Little People are best considered to be Shock Absorbers. They exist to smooth out the bumps in the ride for the people in Rolls Royces.
I have developed a good sense of Bitcoin’s value by listening to my print broker’s tone of voice. For a little while in 2018, every time he spoke to me he was a malignant cuss, barking orders at me and giving me ultimatums. I said to him: “Whoa, what’s up here? Are you OK? Are your wife and kids OK?”
“Oh, we’re fine, I’m sorry, I didn’t realize I was yelling.”
He started doing it again recently. I suspect he’s got The Crypto Blues.
Like everyone else, he was using it as a pure gambling adventure, a totally speculative Hail Mary hoping to become more of a millionaire than he already is. Except he’s using real money, not Monopoly money.
One thing about Crypto that I don’t understand, probably because I’m not smart enuf – but excuse me for a second – I thought that when you “invested money” in something, like a company, an enterprise, a person, or anything else, what you were doing was converting your hard-earned cash into “shares” so that the company could grow, hire people, execute their plans, sell their products or services, compete in the marketplace with others, and make money.
When you invest in Crypto, what is the product? What does Bitcoin “produce?”
It doesn’t produce anything (neither does gold, fiat currencies…etc.). Bitcoin is money.
aw: if Bitcoin is money then it shouldn’t be useful as an investment! Some professionals perhaps can make money by trading currencies, but they don’t just buy and hold one or more currencies. It isn’t an investment strategy to say “I’m putting everything into yen” or “I sold the S&P 500 and bought euros.” https://www.schwab.com/cryptocurrency is a page from a reasonably conservative company. It says “Cryptocurrency investors can buy or sell them directly in a spot market, or they can invest indirectly in a futures market or by using investment products that provide cryptocurrency exposure.”
@aw: Gold is actually much closer to a “store of value” than cryptocurrencies are. So are diamonds. There is very close to a fixed quantity of them in the world – we’re not making very much new gold, and it’s very strictly controlled, as are diamonds [some people have tried to pass off gold-plated tungsten, which is very close in terms of density, but I don’t recommend it.]
When and if you buy gold, you do it to hedge your bets against a fiat money currency’s collapse, similar to diamonds and other precious, hard-to-make, hard-to-find substances.
Then, when the “coast clears” you take your gold and diamond holdings and convert them back into some stable fiat currency and use that money for other purposes.
So what is the value of your “crypto money” when everyone+dog is ginning up some new random bits to sell with a different name, and everybody is speculating on it?
If a big gold and diamond-filled asteroid is floating around out there and Elon Musk finds it first, all the gold and diamonds on the Earth will be instantly devalued. Worth less than wampum (which was once an accepted currency in the Massachusetts Bay Colony.)
If you believe the US Geological Survey:
https://www.usgs.gov/faqs/how-much-gold-has-been-found-world
“About 244,000 metric tons of gold has been discovered to date (187,000 metric tons historically produced plus current underground reserves of 57,000 metric tons). Most of that gold has come from just three countries: China, Australia, and South Africa. The United States ranked fourth in gold production in 2016.”
The accepted value for the density of gold is 19.32 grams/cm^3. 244,000 metric tons = 244 billion grams. Divided by 19.3 g/cm^3 that’s ~ 446,465 cubic feet.
Take the cube root and in other words, all the gold in the world amounts to a cube approximately 76.43 feet on a side. If you could pull it there, you could stash it all in a big aircraft hangar!
As the Gatlin Brothers once sang: “All the gold in California is in a bank in Beverly Hills, in somebody else’s name.” And that’s not far from the truth.
bitcoin is just another fiat currency https://www.sofi.com/learn/content/fiat-currency/, it is not money in itself.
Crypto is pure digital diarrhea. Instead of investing in it, you should invest in a homeless shelter, so they can build some new shower facilities and give people a place to wash themselves off afterward.
Why would it make sense for the folks in Washington, D.C., who have failed to maintain a stable value for the U.S. dollar, to try to monkey with Bitcoin? No!
Would any HODL readers like to make the case for buying cryptocurrencies right now? If so, which one(s)? I have no idea what that is…. sorry.
Crypto is a Ponzi scheme, plain and simple. The early scam artists make off with a lot of cash, and the late joiners get left holding the bag with something that is completely worthless.
The government and the press have been completely negligent in not making this clear to the public.