Crypto crashes. Have the Crypto Bosses Learned Anything at All?

Last Monday was one of the biggest televised events of June, Game 5 of the NBA Finals. So naturally, crypto exchange Coinbase took the opportunity to run an ad mocking the more crypto-enthusiastic pessimists. A series of tweets declaring that “Crypto is dead” – some new, some nearly ten years old – fade into a rendition of Chopin’s funeral march. Then a new slogan appears in a hard blue font: “Long live crypto.”

The next day, Coinbase laid off 1,100 employees, about a fifth of its workforce. Perhaps the pessimists were on to something: the prices of Bitcoin and Ethereum, the two most popular currencies, were down more than 70% from pandemic highs; the NFT market collapsed; and lack of optimism. The dominoes are falling everywhere you look: One top company, Three Arrows Capital, is reportedly on the brink of collapse, while other companies are desperate for bailouts to keep their heads above water. In the past three months, the crypto market has lost more than $1 trillion. (A Coinbase spokesperson explained the timing of the announcement by saying it was “part of a prearranged package that came with our NBA sponsorship”.)

And yet the prevailing sentiment among many of these companies, even if they are bleeding, is that crypto is not dead at all. Across the industry, you can see the rhetorical gesture of this Coinbase ad – an urge that investors and onlookers alike are taking all the recent downward trends a little too seriously. You would think that a crash of this magnitude — the first since crypto fully entered the mainstream — would be a humbling moment for the industry, one that would force some of the movement’s biggest proponents to back off and build more robust systems. to build. But right now, many crypto kings refuse to think at all.

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It’s no coincidence that the companies that think the least are the ones with the deepest hands in the cookie jar. Part of what caused the current crash was a cryptocurrency called TerraUSD, a type of so-called stablecoin designed to more or less match the value of the US dollar. The whole point of stablecoins is that they are supposed to be less volatile than other cryptocurrencies, a way of protecting your money while keeping your chips in the casino. At least that was the idea: TerraUSD was pegged to another cryptocurrency called Luna, and when its value plummeted in early May, investors quickly dumped their TerraUSD. Tokens that were meant to sell for $1 a pop suddenly traded for next to nothing and according to Bloomberg$60 billion in investor money was funneled away.

Do Kwon, the 30-year-old co-founder of the company that founded Terra, responded to the chaos with a simple proposal: Terra 2.0. It would be like Bear Stearns launched “Bear Stearns 2.0” in 2008, an act of hubris so extreme it’s almost unbelievable. 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 restart. While the rest of the world waits for more concrete answers about that $60 billion, Kwon doubled on Terra 2.0 with a series of Twitter feeds† But of course the confidence is not there – after an initial rally, the price has fallen steadily.

When the broader crypto market crashed in the weeks following Terra’s collapse, other struggling companies also refused to think publicly about the damage. Crypto lender Celsius Network has managed to promise returns far above traditional bank accounts. This approach generated tons of money when crypto was booming, but apparently it didn’t work very well during the recession. When rumors started circulating about Celsius’s financial troubles, company founder Alex Mashinsky dismissed it all as “FUD”, crypto shorthand for “fear, uncertainty and doubt”. “Do you even know anyone who has trouble withdrawing from Celsius?” he tweeted† Just over 24 hours later, the company froze all withdrawals, excluding customers, from their accounts. (The gel stays put almost two weeks later.)

Mashinsky, whose Twitter profile picture portrays him as a Roman emperor, laurel wreath and all, has disappeared from social media, interrupting the company’s regular “Ask Me Anything” sessions. A memo from the company, released a week ago, shed no light on the situation: no word on the whereabouts of investors’ funds, or ongoing investigations into the company’s operations by regulators in at least five states. (Celsius and Mashinsky did not respond to a request for comment.)

Although the company now displays a dark banner on its website that references the freeze and has posted a short FAQ about it, Celsius also still touts a product with “military-grade security, next-level transparency, and versatile use.” . you achieve your financial goals whether you do long-term HODLing or trade on a daily basis. (HODL is a deliberately misspelled call to “hold” your coins even if the value of your investment falls.) The unspoken message is that customers should continue to trust Celsius even when the walls begin to close.

Across the industry, the biggest crypto players believe that if we all maintain confidence, traders can indeed get out of the crisis. Cameron Winklevoss, the billionaire co-founder of crypto exchange Gemini, recently tweeted that Bitcoin’s decline seems “irrational” because “its underlying fundamentals, adoption and infrastructure have never been stronger.” It’s not about the basics, though; asking people to take a closer look at technology will not end the bear market. A few days ago, Michael Saylor, whose software company, MicroStrategy, spent billions of dollars acquiring Bitcoin, called the cryptocurrency “a lifeboat, thrown into a stormy sea, offering hope to everyone in the world who has to get off their sinking ship.” But right now Bitcoin is the sinking ship.

I don’t claim to know how best to respond to a situation like this, but if you’re a leader hoping to regain your reputation after losing billions of dollars in other people’s money, it’s probably ideal to ditch the idea. that everything is going well. be all right. No one expects crypto firms to criticize crypto, but the most guilty players could at least water down that “buy the dip” philosophy as everyone’s wallets begin to crumble. Sometimes it’s even safe to admit defeat; at least in 2008 we weren’t subjected to a torrent of defensive antics on Twitter from bankers sleeping behind the wheel.

After all, it’s not just numbers on a screen. It’s easy to be complacent about the crypto crash when you’ve been wary of the entire subculture, but something of a spiritual crisis has emerged in the cryptocentric Reddit forums as traders find a community of compassion. (Suicide hotlines were at one point pinned to the top of a Terra enthusiast forum.) People taking out loans from Celsius are on the brink of losing their homes. And as the contagion begins to infect other companies, such as crumbling Three Arrows Capital, those with the least to lose will be hit the hardest.

But while doubling up is a tricky decision, it fits neatly into the larger framework of free-market libertarianism that goes back to Bitcoin’s origins: the idea that market corrections should shake off fraudsters and give investors more robust options in the future. † It is up to traders to “DYOR” (“Do your own research”) and make careful investments, it is thought; the government shouldn’t be saving you if something goes wrong. It doesn’t help that the industry still feels like it has a chip on its shoulder, Rohan Gray, a Willamette University law professor who studies cryptography, told me, in part because of his historically difficult relationship with the traditional banking system. Crypto firms are “always trying to prove that you’re not just pro-market and pro-profit, all those things that the rest of Wall Street loves,” he said, “but you also do it with this big middle finger up… for traditional elites.

And yet people like Kwon and Mashinsky to be the elite. The industry’s wealth is creating a new set of rules in real time: newly minted crypto billionaires are already pumping money into the media and politics, aiming to create new institutions that are more respectful of their ambitions. In a sense, the crypto project is about avoiding the safeguards and guardrails that we have come to associate with traditional finance. Maybe it worked in 2013 when bitcoin was more of a niche curiosity, but it’s different now that crypto has grown by leaps and bounds. If the numbers rise again (and they will almost certainly rise again), you can expect a fair amount from that same audience. But if there’s no sense of responsibility in these giant corporations, we can end up where we started.

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