This time it was all over for sure. As inflation started to hit its 40-year high, central banks started raising interest rates for the first time in more than a decade, and money printing presses finally stopped working, cryptocurrency currencies collapsed.
What an accident it was. Bitcoin, the most well-known cryptocurrency, fell from $61,000 last November to less than $19,000 in June, a dramatic drop of more than two-thirds. Ethereum, Solana and other more fragile “coins” – as well as the even more fragile digital collectibles known as NFTs – have all gone out of business. It finally seemed to confirm what the skeptics had always said. Cryptocurrencies were nothing more than the latest in a long line of speculative follies: a 21st-century version of the Dutch tulip bubble of the 1630s. Sooner or later, it had to burst, and it did.
However, wait. In fact, something more interesting is going on. Cryptos may have crashed but now they are steadily coming back. Since mid-June, Bitcoin has worked its way up to nearly $25,000. Ethereum has doubled in value in the past month, from just over $900 to $1,800. Solana went from $30 to $45. The list goes on.
None of the cryptocurrencies are close to regaining their highs yet, and this could turn into what traders call a “dead cat bounce”. But the events of the past few weeks may apply to a sustainable recovery, which should take several months.
This is what makes cryptocurrency different from the typical investment mania. After the crash of the hectic tulip market, the bulbs never came back (except in the gardens, of course). After the South Seas Bubble burst in 1720, the South Seas Company faltered until 1853, but never reached its former heights. Radio stocks, which were part of the massive bull market boom of the 1920s, did not return to their old prices after the Great Depression. The Japanese market, the largest post-war bubble, is a long way from the peak of 1989. Once a real bubble burst, it’s over and everyone moves on.
Cryptos are not like that. They remain an almost volatile investment. If you bought anywhere near the top of the market, it has certainly been a difficult year to hold one of the best cryptocurrencies. Even the merry Dogecoin, originally created to satirize the whole crazy boom, fell from $0.33 last November to just $0.06, down more than 80%.
The stock market may have suffered during this time, as could most other assets. But it was cryptos that suffered the worst carnage and scorched a generation of investors who had jumped on the bandwagon as it gained momentum.
So it was easy—maybe too easy—to claim cryptography was over. Currencies never had any real substance, experts said. They were the scum of the financial bubble created by a decade of ultra-cheap money in which central banks printed cash on an unprecedented scale. During the lockdown, speculators flocked there, in part because there wasn’t much else to do. But as the era of easy money came to an end, they were exposed as worthless.
Worse, they had been sold as inflation protection: a form of digital gold that, because supply was strictly limited, kept its value even as governments poach their devices and go into debt. But once inflation hit, reaching 9% or more in most major economies, cryptos quickly crashed. After all, they weren’t a store of value.
And none of them, not even Bitcoin, are also fit to be used as currency by the masses. So what was the point of all this? No one knew – until the start of the latest rally, and suddenly everyone was recommending to believe that crypto is “the future of money” again.
Bitcoin has now experienced four major crashes and several minor crashes. But each time he recovered. In 2011, it rose from $2 to $32 in frenetic trading, then fell back to a single cent. In April 2013, it shot up again, reaching $260, before falling back to $50. In 2017, it had an epic bull run, rising to $20,000 before crashing again, settling below $12,000 and spending most of 2018 remained in the doldrums.
Then came the epic load from 2020 to 2021. Serious funds started funneling serious money into cryptocurrencies and even NFTs. Elon Musk, the richest man in the world, has invested huge chunks of his wealth in cryptos.
Collapse was inevitable and it was. But that seems to be what cryptos do. They explode, then collapse, and then the whole cycle starts all over again. By the time you read this article, they may be heading south again. But here’s the key: each time, the peak has always ended higher, and the low tends to do so too.
In this regard, therefore, cryptocurrencies start out much more than a normal financial asset, be it stocks, gold, real estate or dollars. On the other hand, it is also possible that we have never seen anything like it.