‘Crypto winter’ has come. And it’s looking more like an ice age.steemCreated with Sketch.

in hive-108451 •  2 years ago 

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A year ago, the crypto world was booming, with prices for bitcoin and ethereum at all-time highs, celebrities stumbling over each other to promote expensive digital art, and logos from blockchain companies gracing sports stadiums and Super Bowl ads.

That era is over.

In the last year, cryptocurrency prices have fallen by more than half, trading volume has cratered, and several high-profile companies have collapsed in liquidity crises. The arrest last week in the Bahamas of Sam Bankman-Fried, the former CEO of what until very recently was one of the biggest and best-respected cryptocurrency exchanges in the world, has only deepened the sense that the crypto bubble has definitively popped, taking with it billions of dollars of investments made by regular people, pension funds, venture capitalists and traditional companies.

Governments that had long demurred on regulation are suddenly pressing for more oversight, while federal regulators and law enforcement have rolled out multiple civil and criminal investigations.

The crypto industry is calling this moment its “crypto winter.” They say it’s cyclical, much like a bear market for Wall Street — something that has happened before and will eventually blow over.

But experts say the ferocity and scale of this downturn could end up leading to more of an ice age.

“Where we are is at a deeply existential point for the industry,” said Yesha Yadav, a law professor at Vanderbilt University who closely follows cryptocurrency regulation.

A major determining factor: “How deep is the rot?”

The spectacular rise and fall of the cryptocurrency markets has rocked its world of investors and boosters, who just a year ago were riding at the top of the market. Finance experts have compared the collapse to other major busted bubbles in the past — from the dot-com crash two decades ago, to a run on Florida property a century ago.

Crypto has crashed before, but this time it fell from a greater height — having gained mainstream acceptance in a way it hadn’t before, even finding itself in some 401(k)s and pension funds for retirees. It’s unclear whether it can recover.

Created a little over a decade ago and fueled by the global financial collapse, cryptocurrencies are computer-run digital assets intended to function outside established financial institutions, whether a bank or government.

The most popular cryptocurrency, bitcoin, was created in early 2009 as a way to sidestep the need for financial middlemen, revolutionize the global economic system and make it easier for people to do business directly with each other. It has gone through several boom and bust cycles — most notably in 2017 and 2018, when the price of bitcoin rapidly rose to around $20,000 before a series of high-profile scams and rumors of some countries planning to ban trading in cryptocurrencies led to it losing 80 percent of its value in just a few months.

The hangover from that crash persisted for some time, but the crypto world starting booming again amid the pandemic. Interest rate cuts made it cheaper for people to borrow money and invest in speculative assets. Stock trading apps and new easy-to-use crypto exchanges made the complicated process of buying and selling crypto coins easy and accessible for millions of people who until recently hadn’t heard of bitcoin. Non-fungible tokens, or NFTs, used crypto technology to allow people to trade digital art — which also took off.

By November 2021, a Pew survey said that one in six Americans had invested in crypto. The same month, the total value of cryptocurrencies tracked by data company CoinGecko surpassed $3 trillion, roughly equal to the GDP of the United Kingdom.

Is crypto a house of cards?

A single bitcoin was worth nearly $68,000, nearly four times what it was worth at its previous peak in 2017. The NFT market approached $25 billion in 2021.

And a “crypto bank” called Celsius Network was offering double-digit interest rates to users who parked their digital coins in its accounts.

“The whole model was working fairly well as long as the line continued to go up,” said Molly White, a software engineer who became one of the most prominent skeptics of the crypto industry by cataloguing its scams, idiosyncrasies and failures in her blog. “We’re seeing what happens when that assumption no longer holds.”

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