Cryptos: stable coins, but in the wrong way
Rising rates have shown how dependent cryptocurrencies were on broader bullishness
Cryptos, never easy assets for non-believers to rationalise, are presenting yet another conundrum. Instead of gyrating wildly, as they had previously done, they have stabilised.
Bitcoin has been rangebound around $20,000 for the past four months. Ethereum is stuck at about $1,300. The S&P 500 index, to which some cryptocurrencies had shown a close relationship, has gained and lost about 20 per cent over the same period.
You might think that cryptos have vanquished critics and proved their worth as an uncorrelated asset and a store of value. If so, think again.
Bitcoin has crashed from its peak of $68,000 in November last year. Crypto businesses such as Voyager Digital and Celsius Network have gone bust. So-called stablecoins — terra, luna — have evaporated. A host of entities with horrendous risk management were caught in a whirlpool of contagion and flushed out of the cryptosphere.
The value destruction has been immense. The market worth of all bitcoins in existence has fallen from $1.3tn in November to about $400bn today. Since its launch last October, the world’s first exchange traded fund tracking the price of bitcoin has lost just under $1.2bn. That is about two-thirds of investors’ money and a bigger money bonfire than for any other misfiring ETF debut.
The crash may also be the death knell for El Salvador’s much-hyped billion dollar bitcoin bond. The first and so far only country to accept bitcoin as legal tender appears to have quietly shelved an issue originally slated for March this year.
More than half of all bitcoin wallets are in the red. This has happened before. But crypto is in its first bear market since the end of the money-printing, zero interest rate era. “Bitcoin was launched into the biggest bull run in history,” says Dan Ashmore, a crypto data analyst. “It has never existed in a wider bear market.”
Higher energy costs have made profits harder for bitcoin miners to realise. The price crash appears to have flushed out the wild, leveraged investors. That leaves true believers and habitual speculators “HODLing” on for dear life.
Bitcoin retains its utility to buyers as a speculative asset, ideological badge or currency for illicit transactions. You could theorise that its current price represents that residual value. Lex had been using bitcoin as a benchmark of irrational exuberance. That function is in abeyance while rising rates make bears of us all.