Economic disruptions are never fun, but they weed out some innovations that seemed like a good idea at the time but would not likely survive economic turmoil. Mercator covered the topic in 2021, where we noted that regulators and financial institutions bridle growth and ensure market stability.
The Wall Street Journal notes that “The Crypto Party is Over,” as global economies face a shift from a bull to a bear market, quoting Mark Cuban, who put the Crypto and the upcoming economic climate into context:
“The reality is that like stock, with crypto, everyone is a genius in a bull market.”
“Now that prices are falling for both, those companies that were unnaturally sustained by easy money will go away.”
The economic change does not mean crypto is gone forever, but the gold rush, which operates outside fiat currencies, backed by governments and industry, will take a more conservative posture. Some progressive thoughts on the exchangeability of money and cash flow are inside cryptocurrencies.
In some ways, the whole concept of crypto modernized the thoughts of Adam Smith in his classic “The Wealth of Nations.” If you recall days of Economics 101, Smith talks about money as a store of value, and its ability to facilitate commerce, in the days before the American Revolution, when bartering was beginning to phase out. Indeed, I might have a cow, you might have a loaf of bread, so how do we make a sandwich, was the simple way to look at it. With the growth of currency, there was value established by country authorities, which facilitated trade.
The big question with crypto, though, was: can private entities control it? Would governments push aside their right to make fiat currencies to allow technologists to take control? Not likely, we think, but there are some excellent concepts there that fit today’s world.
Perhaps it is similar to Buy Now, Pay Later in that a good idea exists, but established players will not likely cede control.
Back to the WSJ.
At times, crypto has looked like a combination of Beanie Babies, dot-com stocks and the Velvet Underground: It is manic, it is money, and all the cool people are into it. It has also shared characteristics with other bubbles throughout history, marked by speculation bordering on delusion, disregard and disrespect for risk, and greed.
Now, with markets sliding and inflation plaguing the global economy, cryptocurrencies have been among the first assets sold.
Since bitcoin hit an all-time high in November, roughly $2 trillion of cryptocurrency value—more than two-thirds of all the crypto that existed—has been erased. Bitcoin itself has plunged to $21,206, roughly 69% off its all-time high of $67,802.30.
And, in a world where currency stability is necessary, crypto never hit the mark.
The crypto world is no stranger to booms and busts, which many in the industry refer to as “winters.” But many investors and workers feel this crypto crash more acutely than previous ones. Some crypto products and companies may no longer exist when the dust settles.
Let’s face it: the world is bracing for an economic storm. Crypto did not build confidence, though there are some interesting components that serve the world in the long haul.
For now, hang onto your buck, euro, loonie, pound, shekel, or yen. With the downturn, you will need them.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group