Last Monday marked one of the biggest television events of June: Game 5 of the NBA Finals. So naturally, cryptocurrency exchange Coinbase took the opportunity to run an ad poking fun at crypto’s most enthusiastic doomsayers. A series of tweets declaring “Crypto is dead” (some new, some nearly a decade old) fade in and out during a performance of Chopin’s funeral march. Then a new slogan emerges in a scratchy blue font: “Long live cryptocurrencies.”
The next day, Coinbase laid off 1,100 employees, roughly a fifth of its workforce. Perhaps the doomsayers had something in mind: The prices of Bitcoin and Ethereum, the two most popular coins, have fallen more than 70 percent from pandemic highs; the NFT market has crashed; and optimism is scarce. Everywhere you look, the dominoes are falling: One prominent company, Three Arrows Capital, is nearing collapse, while other companies are desperately seeking bailouts to stay afloat. In the last three months, the crypto market has lost more than $1 billion. (A Coinbase spokesperson explained the timing of the announcement by saying it was “part of a pre-packaged package that came with our NBA sponsorship.”)
And yet, the overwhelming sentiment among many of these companies, even as they are bleeding to death, is that cryptocurrencies are not dead at all. Across the industry, you can spot the rhetorical gesture in that Coinbase announcement: an insistence on the idea that investors and onlookers are taking recent bearish trends too seriously. One would think that a collapse of this magnitude, the first since cryptocurrencies fully entered the mainstream, would be a humbling moment for the industry, one that would force some of the movement’s leading proponents to dig in and build systems. more solid. But at this point, many cryptocurrency kingpins refuse to ponder at all.
Not coincidentally, the companies that reflect the least are the ones with their hands deepest in the cookie jar. Part of what caused the current crash was a cryptocurrency called TerraUSD, a type of stablecoin designed to more or less equal the value of the US dollar. The main purpose of stablecoins is that they are supposed to be less volatile than other cryptocurrencies, a way to protect your money while also keeping your chips in the casino. That was the idea, at least: TerraUSD was pegged to another cryptocurrency called Luna, and when its value crashed in early May, investors quickly dumped their TerraUSD. Tokens meant to be sold for $1 each were suddenly trading for next to nothing and according to Bloomberg$60 billion of investor money was wiped out.
Do Kwon, the 30-year-old co-founder of the company that created Terra, responded to the chaos with a simple proposition: Terra 2.0. It would be as if Bear Stearns launched “Bear Stearns 2.0” in 2008, an act of hubris so extreme it almost defies belief. Kwon, who did not respond to a request for comment, relaunched the new tokens with a slightly modified battle plan, and Luna holders approved the reset. While the rest of the world awaits more concrete answers about that $60 billion, Kwon has doubled down on Terra 2.0 with a series of Twitter threads. But of course the confidence is not there: after an initial rally, the price has been on a steady decline.
As the broader crypto market has tumbled in the weeks since Terra’s collapse, other reeling companies have also been unwilling to reflect publicly on the damage. Crypto lender Celsius Network succeeded by promising much higher returns than traditional bank accounts. That approach made loads of money when cryptocurrencies were booming, but apparently didn’t fare so well during the downturn. As rumors of Celsius’s financial troubles began to circulate, company founder Alex Mashinsky dismissed the whole thing as “FUD,” crypto short for “fear, uncertainty, and doubt.” “Do you know a single person who has trouble withdrawing from Celsius?” the tweeted. Just over 24 hours later, the company froze all withdrawals, locking customers out of their accounts. (The freeze remains in effect nearly two weeks later.)
Mashinsky, whose Twitter profile picture depicts him as a Roman emperor, laurel wreath and all, has gone dark on social media and halted the company’s regularly scheduled “ask me anything” sessions. A company memo, published a week ago, shed little light on the situation: Nothing is known about the whereabouts of investor funds or ongoing investigations into the company’s operations by regulators in al least five states. (Celsius and Mashinksy did not respond to a request for comment.)
Although the company now displays a grim banner on its website referencing the freeze and has posted a short FAQ about it, Celsius also continues to tout a product with “military-grade security, next-level transparency, and an app to do everything designed to help you reach your financial goals, whether you’re HODLing long-term or trading daily.” (HODL is an intentionally misspelled call to “hold” your coins, even if the value of your investment drops) The unspoken message is that customers must continue to trust Celsius, even as the walls begin to close in.
Across the industry, there is a feeling from major crypto players that if we all keep the faith, traders can effectively come out of the crisis. Cameron Winklevoss, the billionaire co-founder of the Gemini cryptocurrency exchange, recently tweeted that Bitcoin’s decline feels “irrational,” because “the underlying fundamentals, adoption, and infrastructure have never been stronger.” However, it is not a question of fundamentals; Asking people to take a closer look at technology will not somehow end the bear market. A few days ago, Michael Saylor, whose software company, MicroStrategy, has spent billions of dollars acquiring Bitcoin, I call the cryptocurrency “a lifeboat, thrown into a stormy sea, offering hope to anyone in the world who needs to get off their sinking ship.” But right now, Bitcoin it is the sinking ship
I don’t pretend to know the best way to respond to a situation like this, but if you’re an executive hoping to rebuild your reputation after losing billions of dollars of other people’s money, it’s probably ideal to drop the idea that everything it’s going to be OK. Nobody expects cryptocurrency companies to criticize cryptocurrencies, but the most guilty actors could at least temper that “buy the dip” spirit as everyone’s portfolios begin to unravel. Sometimes it’s actually wise to admit defeat; at least in 2008 we weren’t subjected to a barrage of defensive antics on Twitter from bankers asleep at the wheel.
After all, these are not just numbers on a screen. It’s easy to feel complacent about the collapse of cryptocurrency if you’ve been wary of the entire subculture, but something of a mental health crisis has been unfolding on crypto-focused Reddit forums as traders find the community in commiseration. . (Suicide hotlines were at one point pinned to the top of a forum for Terra enthusiasts.) People who got loans from Celsius are on the verge of losing their homes. And as the contagion begins to infect other companies, like Three Arrows Capital, which is crumbling, those with the least to lose will be hit the hardest.
But even if doubling is an awkward move, it fits squarely within the broader free-market libertarianism that goes back to the origin of Bitcoin: the idea that market corrections should help weed out scammers and give investors more choice. solid in the future. . It’s up to traders to “DYOR” (“Do Your Own Research”) and make cautious investments, says the thinking; the government shouldn’t have to bail you out if things go wrong. It doesn’t help that the industry still feels like it has a chip on its shoulder, Rohan Gray, a law professor at Willamette University who studies cryptography, told me in part because of his historically uneasy relationship with the traditional banking system. Cryptocurrency companies “are always trying to show that they are not only pro-market and pro-profit, all those things that the rest of Wall Street loves,” he said, “but they are also doing it with this big middle finger up. “. to traditional elites.
And yet people like Kwon and Mashinsky are The elites The riches of the industry are creating a new set of rules in real time: newly minted crypto billionaires are already pouring money into media and politics, with an eye to creating new institutions more friendly to their ambitions. The cryptocurrency project is, in a sense, about avoiding the guardrails and guardrails that we have come to associate with traditional finance. Maybe that worked in 2013 when Bitcoin was more of a niche curiosity, but it’s different now that cryptocurrencies have grown by leaps and bounds. When the numbers go back up (and they almost certainly will), you can expect a fair amount of “I told you so” from this same crowd. But if there is no sense of responsibility on the part of these giant companies, we could end up right where we started.