the money game

Crypto Is Crashing. It Deserves to.

Photo: Valeria Mongelli/Bloomberg via Getty Images

If you’re anything but a die-hard observer of the crypto markets, all the crashes, frauds, Ponzi schemes and criminal indictments that have plagued the market during the past six months have been something of a blur. Crypto is volatile, but it lives at the margins of the financial world. In the U.S., at least, traditional markets and the broader economy have never really integrated with digital currencies, and most people don’t use bitcoin or dogecoin or ethereum on a day-to-day basis, like the dollar. When bad news happens, it can feel like hearing about a coup in a country you’re only vaguely aware of. Bad for somebody, sure, but does it affect me? So when bitcoin started to crash over the weekend, then continued to fall below $23,000, its lowest point in 18 months, it might have seemed like just another point of red on the downward continuum, another “crypto winter” that, its advocates will tell you, is part of a natural cycle that strengthens and purifies the market. And maybe it is. But the crash this weekend looks like more than just a reset after things got too hot — there are signs that the system could be breaking and that the money propping it all up was less solid than it seemed.

To put it bluntly: The crypto market is bleeding out. The total market for all digital currencies the world over fell below $1 trillion, according to — down from $3 trillion last fall and the lowest point for the whole market since February 2021. Ethereum, the second-largest cryptocurrency, is worth about a quarter of its November peak, a stunning collapse considering the network is in the middle of a highly anticipated upgrade to its systems so it won’t be so slow and energy intensive. Throw a dart at a list of digital tokens and you’ll likely see a double-digit loss during the past 24 hours. — which owns the naming rights for the Los Angeles arena where the Lakers play — cut about 5 percent of its staff. Even a mass-produced JPEG of a monkey isn’t worth what it used to be, if you can believe it.

There isn’t any one explanation — the broader stock markets have fallen into a bear market on the back of bad news about persistent inflation — but at the center of all this seems to be a classic dash for the exits. Over the weekend, the Celsius Network (a kind of savings-and-lending platform for crypto, which offered yields of up to 18 percent) said it wasn’t going to give money back to users for the time being, blaming “extreme market conditions.” Then the world’s largest crypto exchange, Binance, stopped people from taking out their money too, blaming a “backlog” that persisted for nearly four hours. (Changpeng Zhao, the Binance CEO, invoked an “emergency insurance” fund for the company’s assets; its acronym, SAFU, may or may not be intentionally similar to the military acronym SNAFU — situation normal: all fucked up.) New Jersey–based Celsius has been rumored to be facing solvency problems since Terra collapsed last month. But Alex Mashinsky, Celsius’s founder, has been adamantly denying that there are any problems with its funds — up to the very end, he was scolding people on Twitter for entertaining doubts about his company.

FUD, for those who don’t know, is short for “fear, uncertainty, doubt.” It’s a smear of sorts in the crypto world, a term that has effectively hardened the believers against the critics. What has propelled crypto through its booms is a fervent techno-optimism — except that, instead of the general Silicon Valley belief in technological progress, there’s a singular focus on this one 13-year-old technology to transform the way the world uses money. For people like Michael Saylor, CEO of MicroStrategy, a company that holds thousands of bitcoins, that optimism is existential. Maybe that’s why he posted this intense new profile picture on Twitter after losing about $1 billion on paper:

(Bitcoin enthusiasts went through a fad of giving themselves laser beams as eyes on social media. You know what’s crazier than lasers? Lightning.) But the situation for Saylor and his company would appear to be a bit perilous with bitcoin in free fall: Further declines could trigger a dreaded margin call from banks and, perhaps, a total wipeout.

These probably aren’t the last days of crypto, even if they are the last of this go-go era. As recently as early 2019, bitcoin was 85 percent off its highs, and ethereum was down more like 95 percent. The billions of dollars that Andreessen Horowitz, Sequoia, and the rest of the Sand Hill Road set have sunk into crypto have a lot to do with the fact that the markets aren’t really regulated, giving them a window to make huge profits before the government steps in. But it’s also hard to imagine that game — in which crypto is the wild new frontier of the financial and tech industries and players of all sorts figure out how to profit there — is over and done with.

That said, something feels different now: The fear is pervasive, the uncertainty is obvious, and the doubt is smart. And while there are plenty of threats from outsiders — like regulators threatening to rein in fraud, and countries like China shutting down the markets — the problems driving the recent declines appear to be largely self-inflicted. A lot of big players (Celsius and Saylor being just two, in addition to the recently imploded Luna project) seem to have put themselves in a dangerous position and made commitments they may not be able to keep. In aggregate, it amounts to a recipe for a classic financial panic, the kind of thing that led to the crash of Lehman Brothers in 2008.

The case for crypto has always been partially about its economic might, something obvious to anyone who watched as bitcoin notched new highs — getting up to $69,000 — in 2021 and saw cities like Miami become big pots of money, minting millionaires and billionaires daily. But now? With everything crashing and the uncertainty (or danger) far from over, it looks more and more like a lot of that money was imaginary to begin with.

Crypto Is Crashing. It Deserves to.