Cryptocurrency prices are plummeting. The future is vague.

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The prices of several cryptocurrencies have fallen to near all-time lows over the past few days.

The impact was rapid and widespread. Nearly 40 percent of bitcoin holders lost money on their investments, according to crypto intelligence firm Glassnode. More than a quarter of the global cryptocurrency market has evaporated, according to crypto analytics site Coin Market Cap. The sell-off came as TerraUSD, a cryptocurrency that has algorithmically pegged its value to the U.S. dollar, started trading below $1.

Investors in major cryptocurrencies have been dumping their stakes since then, sending prices plummeting to their highest levels since 2020.During this period, industry analysts, pundits and critics of cryptocurrencies have been examining how the crash will affect the digital currency, noting that the crash could be a wake-up call to the level of risk in digital assets.

To learn more, The Washington Post spoke to Ben McMillan, chief innovation officer at IDXInsights, a cryptocurrency-focused asset manager, and Molly White, a software developer who runs the Web 3 Is Going Just Great website.

“We’re going to see consolidation in the industry,” McMillan said. “We’ve seen this movie before on 90’s internet stocks. For a while, the sites all disappeared, and the Amazonians survived.”

Dialogue has been edited for length and clarity.

Why are cryptocurrencies crashing now?

McMillan: This weekend, there was a crypto-specific event in the form of the Terra Luna stablecoin that basically broke the buck. Stablecoins are a very important part of the crypto ecosystem and they should be stable. They should be valued one-to-one with the dollar. This is where many investors seek refuge in turbulent times.

Terra is a so-called algorithmic stablecoin with a market cap of nearly $20 billion. But there is over $1 billion in bitcoin as so-called collateral. So there are a lot of Terra Luna stablecoins out there that don’t have any support at all other than other people’s trust in the system. So what happened was a good old-fashioned run on the bank.

It’s a death spiral – once stable coins decouple like this. On weekends and Monday mornings, this is just starting to catalyze the entire digital asset ecosystem. This is just the straw that breaks the camel’s back.

white: Actually, I don’t think you can say that encryption is dead in any literal sense. But I do think we’re probably seeing more mass awareness that investing in cryptocurrencies is not a good idea, especially those that are not just fun money, but actually important to your actual investment money is the ability to pay the bills .

The rose colored glasses come off a bit. On the one hand, people are focusing on projects that promise 20% returns, such as Terra. Suddenly, they saw what was happening when things started to deteriorate. There is no money left for the Terra people now. I wouldn’t be surprised if public awareness drops a bit and we stop seeing some huge hype and huge cryptocurrency sales and stuff like that. I don’t think it’s realistic to say that encryption will die, blockchains will disappear, and encryption will not exist. Despite what the market is doing, there is still a lot of money in it.

McMillan: So encryption is not dead. But that just emphasizes to investors that it is a risky asset class. Investors’ views on this are also being questioned. Many investors see it as a digital version of gold, or as an inflation hedge. Indeed, Bitcoin and digital assets are traded just like tech stocks. As such, I think investors’ perceptions of Bitcoin have repositioned, both in terms of where it should be in a portfolio and what the risks are.

I do think we’re going to see consolidation in the industry. We’ve seen this movie before in ’90s internet stocks. For a while, the site disappeared, and the Amazons survived. We’ll have weaker projects that won’t succeed, and investors will be more discerning where they’re putting their money. Venture capitalists will be more selective about the projects they back. Everyday users will be more discriminating where they put their funds.

How will the crash affect industry regulation?

white: I think it’s a good time because there are some legislators looking at stable coins and starting to say, “These look a little volatile.” I think it’s getting the attention of regulators and legislators to a certain extent because they Seeing people lose this money without protection, and they see these stablecoins actually threatening things outside the crypto market. They kind of started to think, maybe that’s something we need to pay attention to right now.

And there doesn’t seem to be much regulation that they could pull the trigger today and that would instantly change things. But we have seen regulators focus on stablecoins.

McMillan: So it makes sense that regulators have already seen stablecoins as an obvious area to watch again. This is where Main Street meets the cryptocurrency world. Stablecoins are where most people join cryptocurrencies. Therefore, it is important to have standards around transparency and collateralization.

The crash of the third-largest stablecoin by market capitalization over the weekend has definitely accelerated the regulator’s mission to really begin to set some standards for stablecoins and stablecoin issuance. I think it might end up like what we see in the bank. I wouldn’t be surprised if regulators required stablecoin issuers to be FDIC-insured, have minimum collateralization ratios, and minimum transparency standards.

Will Bitcoin price rise again? How low can they go? Should I “buy the dip”?

McMillan: Yes, when you look 5 to 10 years into the future, when you see what’s being developed on different blockchains, including Bitcoin and Ethereum, when you see the power of this technology, it’s impossible not to be optimistic. Now, that doesn’t mean it’s going to be an upwards line. That doesn’t mean it won’t be an unstable road. That doesn’t mean we won’t have 50% withdrawals every year. But, especially at these levels, when you start to get into fairly subdued territory and there’s a lot of bad news for prices, it’s hard not to see Bitcoin price not going higher in a year or two.

white: It is difficult to predict the market to any reasonable level. With cryptocurrencies, they’re so volatile, they’re so unpredictable, and they’re so untethered from reality that it’s possible that you’re buying the dips, but it could also mean you’re Buy on the way down and they can always go lower. People who are trying to buy the dip, I don’t think it’s very wise. They are taking a big risk in what has recently started to get bad and will likely get worse for a long time to come.


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