Crypto Crash

With Bitcoin struggling to keep its head above the $20,000 mark, each week seems to bring bleaker news for cryptocurrencies. The decidedly precarious picture has brought long-standing concerns about the industry into sharper focus and led many to question not only the underlying assumptions of the cryptosphere but the implications for closely linked areas like Web3. Opinion is divided quite markedly, though, between those who maintain that the underlying technology, blockchain, is nothing short of revolutionary and those who believe it to be ‘risky, flawed, and unproven.’

Although there have been some significant casualties in the latest ‘crypto crash’ – not least Celsius and Voyager Digital, which filed for bankruptcy this month – digital assets are no stranger to volatility, and it is far from the first time that Bitcoin, for instance, has seen its value plummet. It may take quite some years to see whether the current sell-off is merely a prelude to greater things or the death knell for what are seen by many experts as extraordinarily risky speculative instruments.

Be that as it may, the FT suggests that there are several interesting parallels (in both technological and financial terms) between the current situation and the dot-com bubble around the turn of the new millenium. Both were based on the revolutionary nature of technology and its potential to challenge existing power structures. And both saw new classes of 'assets' quickly mount in value before tumbling precipitously – around 70% from its November peak of $3tn in the case of crypto to below $1tn, versus a circa 60% plunge in the case of dot-com shares. As happened 20 years ago, though, the recent turmoil will give way to a more stable and lasting tech revolution, the FT quotes Meta's head of commerce and financial technologies as saying.

While the long-term potential of cryptoassets remains to be seen, the current volatility has had a disproportionately severe impact on certain demographics. According to a recent survey, Black Americans, for instance, are much more likely to have invested in crypto than white Americans. The research found that 25% of black Americans own cryptocurrency – versus 15% of white people in the US – and that among those under the age of 40, that figure increases to 38%.

Far from bolstering financial inclusion, crypto could make matters worse for low-income groups. Moreover, investors should see the collapse as a 'cautionary tale' and cannot expect to be bailed out, the head of the European securities regulator recently said.

With that in mind, perhaps a recent survey of investors which found that Bitcoin is more likely to slump to $10,000 than make it back to $30,000 could be food for thought.