The Crypto Crash Was Inevitable and Necessary for Idealists to Come of Age

“Rashbehari, Hazra, Bhowanipore, Exide, Park Street…” and so on the rap of a bus ticket conductor in Kolkata. The speed at which he rattles off the names of upcoming bus stops might be fascinating, but not nearly as much as the number of cryptocurrencies – and NFTs and top locations in Decentraland – that a 20-year-old might pick up at the good time (or not), only a few months ago.

The recent crash of Bitcoin, Tether, Solana and their peers – as the latest run on crypto lender Celsius – is not just a price correction. This may not even be the end of a “fad”. What it definitely is: A reality check for an entire generation that saw the mirage of a libertarian ideal (basically, a truly free society where no one is forced to play by state rules) in his reach. It was cute.

The end goal was that cryptos would replace money as we know it, and governments would lose the power to define what is legitimate currency and what is not. The surge in Dogecoin and Shiba Inu, the million-dollar auction for digital art, and the skyrocketing price of pixels in Decentraland were a cue to poke fun at baby boomers who didn’t believe that science -fiction was knocking on our doors, for real.

Don’t make a mistake. It’s not just millennials and Gen-Zers who take themselves too seriously. Like all utopian things, someone else would have dreamed of it sooner.

From Friedrich Hayek to James Dale Davidson and William Rees-Morg to our contemporary Ron Paul (who had an altcoin named after him), have predicted, recommended or wished for a society where individual freedom will reign supreme and a currency, free from government control, will be an important tool in the construction and survival of such a society.

The emergence of Bitcoin and its alternatives has made utopia seem closer than ever. For those who didn’t care for the Champs Elysées – the equivalent of paradise in Greek mythology – on Earth, they wanted to make the most of the rising tide of perceived value.

The recent crash in the value of these private digital currencies, which has plummeted along with other risky assets like stocks, has forced fans to wake up and smell the coffee.

These are some realities that have dawned on the dreamers. Ideology cannot be an excuse for financial indiscipline. Many borrowed money to buy bitcoin because fear of missing out — FOMO, as the popular acronym goes — outweighed rational investment principles. And, when they cut their losses and dump their holdings in the market, prices fall even further, taking the rug out from under those with greater risk appetite.

This can last until everyone is covered in a damp blanket or when new investments start pouring in. The financial indiscipline triggered by FOMO is not unique to crypto enthusiasts. Stock market investors around the world have done the same from time to time, including before the global mega crises of 1929 and 2008.

This brings us to the second fact about the world that also weighs on cryptocurrencies.

While there is something inherently nice about the idea that there is no single central institution like the government or the central bank controlling currencies, the alternative as it stands today hui – as investors in Terra and Luna’s UST stablecoin discovered in May 2022 – has been just as bad if not worse.

Large chunks of many cryptocurrencies, especially smaller ones, are held by a few people with lots of money to spare. When they go on a rampage, they cause a lot of damage to a lot of people.

A similar concentration risk has been seen in Lido Finance, which rewards owners of a cryptocurrency called Ether for validating transactions on the network. This allows owners to earn passive income from their investment without selling their Ether holdings.

One of Lido’s big clients, Celcius, pools client deposits to generate this passive income and redistributes it (after reserving some of it for himself). This worked well as long as the value of the staked Ether (the token given as a reward or passive income) is worth the same as the Ether itself and other market participants are willing to trade it for more. other tokens.

So whether it’s a run on a traditional bank or a decentralized financial platform, they look awfully similar. And, there aren’t as many people engaged in crypto as fans might want to believe.

The efficiency of any market depends on the number of participants in any market, be it cricket bats or cryptocurrencies. More the merrier, the merrier.

While the chaos and conversation in the crypto world can be all-consuming, there are only a few very loud people at these parties. Decibels don’t make the party “cool”. But they can attract the cops.

Influencers like Elon Musk (backing Dogecoin) can boost sentiment and prices with just tweets during good times, but their words don’t matter much when the tide is turning.

Even reading crypto charts through the eyes of the brilliant government-hating Hayek, who argued that prices reflect everything you need to know about a particular product/service/asset, the following chart would be depressing at best for believers. bitcoin and its peers.

Even the French Connection Finance dividend-paying token is down nearly 16% in the past month.

Like many other forms of idealism, this too, at a young age, sunk into the wall called reality. Maybe it will evolve, maybe it will come back with more intensity, maybe it won’t either. What is more certain, I will always be on this side of a laptop computer jotting down my observations.

Author Sriram Iyer is editor-in-chief of The opinions expressed are personal.

(Edited by : Sudarsanan Mani)

First post: STI

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