Author: The Economist
Compiled by: TechFlow TechFlow
TechFlow Dive: Despite Bitcoin's price remaining above $70,000, the crypto market is experiencing an unprecedented "lonely winter." This article delves into the differences between this downturn and previous ones: the chain reaction of leveraged liquidations, the fact that once-promising ETFs have now become drivers of price drops, and most importantly—the loss of "vibe."
As cryptocurrencies have transformed from a cool, anti-mainstream culture into a "mediocre asset" embraced by the elite but not truly accepted by the mainstream financial system, their premium is rapidly dissipating.
The author warns that if that unique passion cannot be rediscovered, this winter may be exceptionally long.
The full text is as follows:
A cold snap has swept across the U.S. East Coast for weeks, with temperatures in some areas dropping to their lowest levels in decades. But this pales in comparison to the "deep freeze" that has driven investors into crypto assets. Bitcoin's price has plummeted from $124,000 in early October to around $70,000 today, and the total market capitalization of all cryptocurrencies has shrunk by more than $2 trillion. While these assets have suffered blows before, the frustration of their supporters seems stronger than ever.
In some ways, their level of suffering is baffling . Bitcoin's 45% drop is by no means the worst in history: from its peak at the end of 2021, its price plummeted by 77%. It took the crypto industry about three years to recover its market capitalization. And the current bear market has only lasted four months.
But look at the performance of other asset classes. In 2022, crypto investors could find some solace in the fact that everyone was losing money. That year, the tech-heavy Nasdaq 100 fell by more than a third from its peak to its trough. Now, the index is less than 4% away from its all-time high reached a few weeks ago (despite the poor performance of some software companies). The sadness of crypto fans stems from their loneliness.
The forces driving such a volatile and speculative market are always shrouded in mystery. However, it is clear that leverage and liquidation are playing a significant role. As of the end of September, just before the crash began, the monitored size of crypto asset lending was approximately $74 billion—more than doubling in the past 12 months and surpassing levels seen at the end of 2021.
Subsequently, starting October 10th, leveraged positions worth approximately $19 billion were rapidly liquidated due to massive losses. This was followed by the liquidation of a series of smaller positions. Market concerns about Strategy Inc. (a company that buys Bitcoin through lending and issuing shares) intensified. Its stock price has fallen nearly 70% since July.
The wide variety of crypto products may have exacerbated this decline. The introduction of crypto exchage-traded funds (ETFs) in 2024 was intended to support prices by expanding the pool of potential buyers. This did work for a time. The iShares Bitcoin Trust ETF (IBIT) became the fastest-growing ETF in history, reaching nearly $100 billion in assets by October. However, now, ETFs are dragging down prices. IBIT has seen $3.5 billion in outflows over the past 80 trading days—its first sustained sell-off. Most of those invested in the fund are currently experiencing losses.
The final factor suppressing cryptocurrencies is the hardest to quantify: the "vibe" is wrong. For a speculative asset class lacking fundamental value or yield-generating potential, the intangible "halo" is everything. And the aura of excitement that once surrounded digital assets seems to have vanished.
Part of the reason is that they've lost their rebellious edge. How much of a "counter-cultural" quality can an asset class retain if the US president and his family are deeply involved? As Ethereum co-founder Charles Hoskinson succinctly put it last month: "We've all basically become part of the system. You know what the system does when you become part of it? It makes it less cool."
For some companies, the newly acquired "dull" reputation of cryptocurrencies has its advantages. Institutionalization has helped stablecoin issuers, thereby simplifying digital payments. However, assets like Bitcoin, while losing their "cool" appeal, have yielded little return; they appear to be part of the "system," but are not actually adopted by it. Professional, conservative investors continue to shun cryptocurrencies. A Bank of America survey in September revealed that the vast majority of fund managers do not allocate any cryptocurrency to their portfolios. Digital assets accounted for only 0.4% of the total value of respondents' portfolios.
Meanwhile, central banks are buying gold to protect themselves from inflation, geopolitical threats, and sanctions. Digital assets, once touted as alternatives to fiat currency, are now being sidelined. The Czech central bank became the first to publicly announce cryptocurrency purchases last year, buying $1 million worth of experimental (and negligible) Bitcoin. It has not yet announced further purchases.
Digital assets have proven far more resilient than many financial columnists (who are always keen to write obituaries for them) once doubted. Despite bear market after bear market, they have consistently withstood predictions of total collapse. But there are good reasons why this crypto winter feels exceptionally bitter. Don't expect a recovery unless the atmosphere improves.
Twitter: https://twitter.com/BitpushNewsCN
BitPush Telegram Community Group: https://t.me/BitPushCommunity
Subscribe to Bitpush Telegram: https://t.me/bitpush
