Crypto Market Musings
- The crypto markets have been crashing hard for the past seven days. After spending about a month trading around $30,000, bitcoin is now flirting with $20,000.
- Bad inflation news last Friday combined with increased fuel prices sparked a massive sell-off in the equities market on Monday. The S&P 500 closed down 4% and in bear territory. The downswing in the stock markets sent the crypto markets tumbling as well.
- The close correlation between the broader equities market and crypto means the crypto bear market will continue until investor confidence returns. And that’s not happening until inflation is under control. So this bear market will be around for a while.
What Vin Is Thinking About
Coinbase laid off 18% of its workforce on Tuesday. I was sitting in a room full of crypto investors when the news broke. And not a single person was surprised when they heard the news.
We were all horrified that so many people who had changed their lives to go work for Coinbase no longer had jobs. Many of us were wondering if there was a way we could hire some of the people who had lost their jobs. But none of us were surprised. And there was absolutely no panic.
The attitude was that Monday’s market crash, the bear market of 2022 and Coinbase’s layoffs were all just signs of crypto being crypto. Archetype Venture Partner Katherine Wu told the audience at Tuesday’s Axios crypto event that bear markets are a good time to focus on investing in crypto infrastructure projects. And there was a general belief among the people I spoke with that we’d been through this before, that we know the market will bottom out and that the markets would rebound better than ever. That’s been crypto’s history. And that would be crypto’s future.
That confidence in crypto’s future makes this different from other crypto bear markets I’ve seen. Crypto investors — even the true believers — used to worry about just how low the market would go and what that meant for the future of crypto. Now many crypto investors are much like stock investors. They believe the crypto markets will bounce back as an article of faith. And that even a prolonged bear market won’t kill this nascent asset class.
Crypto has a Celsius problem. Celsius was one of the more popular crypto lending platforms. But it suspended withdrawals, swaps and transfers on Sunday. The move puts Celsius at risk of going bankrupt. And a Celsius bankruptcy could wipe away millions in customer funds and trigger another flash crash.
This has been a rough month for some decentralized finance (DeFi) projects. First Luna crashed. Now Celsius is on the verge of failing too. Both projects faced different problems. But the one commonality is that extreme market volatility created financial problems for both networks. Volatility isn’t going away in the crypto markets. And if DeFi is going to succeed, it needs to figure out how to manage crypto’s crazy swings in a way that doesn’t lead to financial ruin.