The first rule of writing about bitcoin is: don’t write about bitcoin.
The history of the world’s most well-known cryptocurrency is amazingly fast-paced, and its fans will soon be lining up to tell you you got it all wrong.
But we have to write about this because the last 24 hours have been disastrous for the cryptocurrency grande dame – even by Bitcoin standards.
I’ll focus on bitcoin here – but if you’re a crypto devotee, you’ll know that the entire market is in trouble, to say the least.
As of this writing, Bitcoin is trading at $21,974 (£18,000). In the last five days alone, it has fallen 25% to its lowest level in 18 months. It seems like forever since its peak of almost $70,000 in November.
The charts are all red and they are going in one direction – down.
Experts say this is due to the global climate. Not only in the crypto world does it not look good.
A recession is looming, inflation is rising, interest rates are rising and the cost of living is biting. Stock markets are also faltering – the US S&P 500 is in bear market territory for the first time in years (meaning stock values are steadily falling).
As a result, large investors are also less free with their money. And many ordinary investors — not rich hedge fund owners or corporations, but people like you and me — have less to invest in anything, period.
For many, investing in something as volatile and unpredictable as cryptocurrencies seems like too much of a risk these days.
It is unregulated and not protected by the financial authorities. So if you use your savings to invest in it and it falls in value or you lose access to your crypto wallet, your money is gone.
Over the past month, two much more unremarkable but nonetheless significant coins have collapsed – and it has shaken a lot of confidence in the market overall.
As a result, people are increasingly choosing to sell.
The more people sell, the less bitcoin is worth because that’s how it works – its value depends on its desirability. This has the effect of getting more people to sell because they see the value go down… and the cycle continues.
Unlike other more traditional assets, Bitcoin has no intrinsic value to back it — there are no bricks-and-mortar, revenue streams or underlying trades, says FT Markets Editor Katie Martin.
“The price is whatever people are willing to buy you for,” she tells me.
“That’s when it gets scary for people, because if enough people go to the exit, there’s no floor. There is nothing stopping it from trading at $10,000 tomorrow if enough people give up or are forced to sell.”
So that’s the already troubled background for Bitcoin – and then the last 24 hours saw these developments:
- Binance, the largest global crypto exchange (basically a cryptocurrency trading platform), has suspended all bitcoin withdrawals for a few hours. It said it was due to a “stuck transaction” – although not everyone believed it
- Crypto lender Celsius did the same — but he cited “extreme market conditions” rather than technical difficulties. And now, the Coinbase exchange has just announced that it will lay off 18% of its workforce, due in part to the “crypto winter.”
- Scared investors started selling even more bitcoin
The first two caused panic. Imagine suddenly being unable to withdraw cash from your bank or hearing that others cannot. You would be at the nearest ATM with everyone else in record time, and that alone would create more uproar and more panic.
In short – to stabilize it, people who still have bitcoin would have to hold onto it and others would have to buy it back. This has happened before.
Crypto fans will tell you that now is a good time to buy because it’s cheap – and then you’ll have to sit tight and watch it turn the corner. That’s how it’s always worked.
One of them tweeted me earlier, “The pump will always happen.”
The compelling “get-rich-quick” stories and high-profile celebrity endorsements are attracting new money.
Elon Musk has tweeted extensively about his love for crypto — and his electric car company Tesla invested $1.5 billion in Bitcoin last year.
But investment advisors urge extreme caution.
“Frankly, it’s a place only the brave should enter,” Altaff Kassam, chief executive of State Street Advisors, told BBC Radio 5 Live’s Wake Up To Money programme.
Speaking of brave, Hollywood A-lister Matt Damon unveiled a crypto ad in October 2021 with the tagline “fortune favors the brave.” She played at the Super Bowl and has been viewed 28 million times on Twitter and YouTube.
But the “brave” who bought bitcoin when the ad came out probably won’t feel like they were being done a “favor” now — it was worth about three times what it is now.
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