Cryptocurrencies only seem to “work” when prices are going up. On the way down, nothing functions as it should — a trait common to Ponzi schemes throughout history. In the current market carnage, the exchanges that have promoted digital currencies have a lot to answer for. Bitcoin, supposedly a store of value and inflation hedge in the eyes of luminaries such as Jack Dorsey or El Salvador’s Nayib Bukele, is failing at both. It’s down about 56% in six months as investors dump it for the traditional fiat money that crypto was supposed to disrupt.
Stablecoins such as Terra and Tether, designed to avoid wild swings in price through algorithmic management or backing by regular currencies and other traditional assets, have become unstable. TerraUSD is bouncing around 66 cents while Tether dropped below 95 cents Thursday, with selling pressure de-pegging them from the U.S. dollar.
And cryptocurrency exchanges, which have made big-name billionaires out of figureheads including Binance’s Changpeng “CZ” Zhao or FTX’s Sam Bankman-Fried, aren’t exchanging. Binance has this week announced temporary suspensions, network congestion and derivatives delistings.
What this adds up to is a system-wide evaporation of money, confidence and trust — pretty ironic for a technology-based infrastructure that claims to revolutionize finance. Lengthy online debates about the investment case of individual tokens don’t amount to a hill of magic beans in times of stress. The unwinding of speculative excess has made little distinction between NFT fuel Ethereum (down 57% in one year), SWIFT competitor Ripple (down 75%), or Elon Musk favorite Dogecoin (down 90%).
What might ordinarily result in falling knives worth catching looks more like “standing outside
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