The Planet Money Indicator: NPR






And I’m Paddy Hirsch. The cryptoverse, that is, cryptocurrencies and all the financial technology associated with them, has been in trouble lately. The flagship crypto asset, bitcoin, has fallen dramatically in value. Its market capitalization has shrunk to roughly $390 billion, roughly the same level it was in December 2020.

WONG: It’s the complete opposite of October of last year, when bitcoin had a market cap of $1.14 trillion and Matt Damon was promoting


MATT DAMON: Fortune favors the brave.

HIRSCH: Fortune favors the brave. I’m lovin ‘it. Thanks Matt. Since that announcement was made, the total value of crypto assets has dropped by two-thirds. It was at $3 billion. Now it’s 1 trillion, actually less than that. I really, really, really want to call up Matt Damon and ask him how brave he feels right now. But I don’t have his number.

WONG: And he’s ignoring all my text messages. I do not know why

HIRSCH: What? He is a demon.

WONG: Most cryptocurrency investors are institutions, but many people have gone into cryptocurrency, some because they believe in the future of blockchain and cryptocurrency, others because they have seen the profits that many cryptocurrency companies have made and They want to get me on that train.

HIRSCH: Yes. A Pew Research Center survey found that 16% of American adults said they had invested, traded, or used a cryptocurrency. That’s a lot of exposure to one of the riskiest assets known to mankind, and the recent crash adds up to a lot of money that a lot of people are losing. So we’re going to spend some time on THE INDICATOR exploring the aftermath of this collapse in a series of stories today and next week.

WONG: On today’s show, we look at the effect of the cryptocurrency crash on the broader economy. A lot of money was lost and many people in the cryptoverse are suffering. But what about those of us who are not exposed to cryptocurrencies? And that’s most of us. How much do we really need to care?


HIRSCH: Recently, crypto investors have been having, not to put too fine a point, an absolute nightmare.


UNIDENTIFIED REPORTER #1: Because we know there have been several consecutive days of brutal bitcoin sales…

UNIDENTIFIED REPORTER #2: Bitcoin and other cryptocurrencies have plummeted as…

UNIDENTIFIED REPORTER #3: It was another embarrassing day for cryptocurrencies. Digital Currency…

WONG: And you can divide crypto investors into two groups. You have your institutions, that’s hedge funds and venture capitalists and all that. And you have retail investors, people like you and me.

HIRSCH: Emma Rose Bienvenu is the chief of staff at Pantera Capital. Pantera is a fund that invests exclusively in companies associated with bitcoin and crypto. This is what she had to say about last week’s meltdown.

EMMA ROSE BIENVENU: I mean, obviously, you know, these: bull markets are a lot more fun than bear markets.

WONG: And we are definitely in a bear market when it comes to cryptocurrencies. A bear market is when a market index falls 20% or more from its most recent high. Crypto assets fell almost 70%. That’s like a grizzly bear market. But Emma didn’t seem so disturbed by the consequences.

WELCOME: This was not a failure of the crypto or blockchain technology itself. It was the asset that responded exactly like a risk, you know, a highly liquid asset would react to the market environment that we’re in because of, you know, high inflation and the Federal Reserve tightening. A person who has no exposure to crypto, like, I would encourage them, you know, it’s a good time to buy.

HIRSCH: A good time to buy, Wailin.

WONG: I think I’m going to pass. I am very afraid.

HIRSCH: It’s not a flaw. Still, Emma wouldn’t say whether Pantera has lost money, but she did point out that, like most investment firms, hers is set up to weather, and possibly even benefit from, these types of downturns. Now, that’s not the same for individual investors, many of whom have complained in news reports and on social media platforms like Reddit that they lost thousands of dollars.

WONG: And there are a lot of individual investors in cryptocurrencies. An annual Fed survey found that 12% of American adults used or held cryptocurrency solely for investing in the past year. Now, probably not everyone lost their money, but it’s 31 million people. Surely that’s going to affect the economy in some way?

HIRSCH: Well, one would think so. But Jamie Cox says probably not. He is a managing partner of Harris Financial Group in Richmond, Virginia.

JAMIE COX: This is not going to have the same deleterious effect that we saw with the housing market, you know, hitting the banks and creating insolvencies and then leading to a potential — a global financial crisis that could have easily led to a depression. global. . That’s not where we are.

WONG: Jamie doesn’t take the losses lightly, but says the economy as a whole is pretty much protected from them. First of all, the amounts of money we are talking about are comparatively small. The market cap of the entire crypto market is less than $1 trillion.

HIRSCH: Yes. A trillion dollars may sound like a lot, but it’s actually less than half the market capitalization of Apple or Amazon. Therefore, the danger of an individual fund’s losses in crypto spilling over into the market is quite low, says Jamie. And as for the losses of individual investors…

COX: The good news is that there is a lot of money in the system. People have jobs. They don’t risk permanently hurting themselves by making poor financial decisions like they would have if this had been 2008.

HIRSCH: Back then, people took out big loans to buy homes they couldn’t afford from banks that were willing to lend them the money, no questions asked. When the market went down, many of those people lost everything. Banks plummeted and the entire global economy nearly collapsed.

WONG: But this time around, people are generally not borrowing large amounts of money to invest in cryptocurrencies. Perhaps most importantly, neither individuals nor corporations use crypto assets as collateral for loans.

HIRSCH: This is a big deal, right? – because when people or companies borrow money, they have to provide collateral, some security. That is some kind of asset that the lender can take and sell if the borrower defaults. For example, if you borrow money to buy a house, then the house is the collateral. And if you default on your mortgage payments, then the bank can take your home.

WONG: Companies use all sorts of things as collateral for the loans they borrow. But for the most part, nobody right now is using crypto assets. They are too risky, too volatile, too uncertain. And that means that the corporate lending economy ($22 trillion) is not affected by what is going on in the crypto world.

HIRSCH: And the refusal of lenders to accept crypto assets as collateral for loans is like this huge firewall between the cryptoverse and the broader US economy. That is not to say that cryptocurrencies do not leak here and there. Jamie says that the stock market is a bit of a weak link because publicly traded corporations are starting to get more and more into cryptocurrencies.

COX: There is a lot of ownership in crypto that didn’t exist a couple of years ago. The most notable are Tesla or MicroStrategy, but there are many others (insurance companies and the like) that have taken positions, albeit small relative to their balance sheet, but trying to learn how these things work. So that’s a contributing factor to some of the declines on the Nasdaq.

WONG: In other words, even though the US economy is pretty insulated from the ups and downs of the cryptoverse for now, things are moving fast. Crypto assets are becoming more and more common.

HIRSCH: And that means more and more Americans will be exposed to that world, either directly through their own investments or indirectly by owning shares in companies that have invested money in cryptocurrencies. And Jamie says that’s something the government is very aware of.

COX: I think regulation was already in the works, but it will definitely come in a big way. You’ll see that the SEC regulates to make investment advisers and things like that have higher fiduciary standards. And then he’s going to have Congress come in and basically have a framework where it’s going to be very, very difficult to have these things, you know, tradable and operational in the United States.

HIRSCH: Regulation, that may sound like a bummer for freedom-loving cryptocurrency lovers. But Emma Rose Bienvenu at Pantera Capital, remember, Pantera invests exclusively in the cryptoverse, agrees that some regulation is needed, if only to protect individual investors.

BIENVENU: There’s kind of a trope that, you know, people who work at crypto investment firms are against regulation and they’re, you know, libertarians. Actually, that is not the case at all for us. We believe that a sensible regulation would be very good. And a lot of very rogue projects, you know, led to a lot of people who just didn’t know how these products work to lose their life savings. And that is unacceptable.

WONG: Many people believe that blockchain and cryptocurrencies are the future of finance. Even governments are jumping on the crypto bandwagon. But that does not mean that in the future, the crypto market will be less volatile or risky than it is today.

HIRSCH: Yes. In fact, it could mean more risk to the economy as these companies grow and more people invest in them. So yes, we can afford to say goodbye or ignore this latest crypto crash, but we probably won’t have that luxury for much longer.


WONG: This episode of THE INDICATOR was produced by Jamila Huxtable and designed by Isaac Rodrigues. It was verified by Catherine Yang (ph). Viet Le is our main producer. And Kate Concannon edits the show. THE INDICATOR is an NPR production.

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