If you’ve spent the past month buried under piles of snow, shivering day in and day out amid unseasonably cold temperatures, take some comfort that you’re not alone. Our beloved cryptocurrencies are also in the midst of what is shaping up to be a long, dark winter.
What happened: Bitcoin prices have fallen 20% in the past week and it’s now trading nearly 50% from its peak. Ethereum and Solana, two other popular cryptocurrencies, are down 30% over the last week.
Gemini, the crypto exchange founded by the Winkelvoss twins, announced it would exit Europe and Australia and lay off 200 employees.
Why it matters: Crypto has always been a boom-and-bust space, but this latest downturn comes at a time that seems almost tailor-made for the industry to thrive. There is a crypto-friendly administration in the White House that’s appointed friendly financial regulators, plenty of ETFs that make it easy for mainstream investors to trade crypto, and growing worries about political interference at the Federal Reserve that could undermine the U.S. dollar (and make alternative forms of money more attractive).
Why it’s happening: It’s difficult to pin down one reason behind the crash, but there are a few possibilities:
Investors are growing more risk-averse generally (see: the sell-off in tech), and crypto tends to fare poorly when appetite for risk diminishes — speculators have instead piled into metals, like gold and silver.
Legislation to regulate crypto, which was backed by much of the crypto industry, stalled in Congress after Coinbase withdrew its support.
Traders who placed leveraged bets on bitcoin going up are being forced to sell their positions to cover losses, sending prices down further.
What’s next: Crypto has been through slumps before and always manages to bounce back stronger. Whether that pattern repeats is anyone’s guess, but the story of bitcoin as a trusted store of value or hedge against inflation seems good and dead.—TS