Bitcoin and other cryptocurrencies are down. The future is ambiguous.

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Over the past few days, many cryptocurrencies have seen their prices collapse to historic lows.

The effect was rapid and widespread. Nearly 40 percent of bitcoin holders have lost money on their investments, according to data from crypto-intelligence firm Glassnode. More than a quarter of the global cryptocurrency market has evaporated, according to crypto analytics website CoinMarketCap. The sell-off comes after terraUSD, a cryptocurrency that pegs its value to the US dollar through an algorithm, began trading at less than a dollar.

Since then, cryptocurrency investors have been selling their stakes, causing prices to drop to levels not seen since 2020. Amidst this, industry analysts, experts and cryptocurrency pundits have been eyeing how the drop will affect the digital currency, noting that the crash may be a A wake-up call for the dangers of digital assets.

To find out more, The Washington Post spoke with Ben McMillan, chief innovation officer of IDX Insights, an asset management firm specializing in cryptocurrency, along with Molly White, the software developer who runs the Web 3 Is Going Just Great website.

“We’ll see consolidation in the industry,” MacMillan said. “We’ve kind of seen this movie before with Internet stocks in the ’90s. There was a period of euphoria where Pets.com disappeared and they survived the Amazon family.”

Conversation has been edited for length and clarity.

Why is cryptocurrency crashing now?

MacmillanThis weekend, there was a cryptocurrency event in the form of the stablecoin Terra Luna that basically crashed. Stable coins are a very important part of the crypto ecosystem, and they are supposed to be stable. They are supposed to have a one-to-one rating with the US dollar. It is where many investors go to seek refuge in times of volatility.

Terra was a so-called arithmetic stablecoin with a market capitalization of about $20 billion. But there was just over $1 billion worth of bitcoin as collateral. Therefore, there were a lot of Terra Luna stablecoins out there that were not backed by anything other than other people’s belief in this system. So what happened is that there was just a good old fashioned on the bank.

This is a death spiral – once decode a stable coin like this. Over the weekend and Monday morning, that just started galvanizing across the digital asset ecosystem. It was just kind of the straw that broke the camel’s back.

white: Realistically speaking, I don’t think you can say crypto is dead in any kind of literal sense. But I think we may be seeing more of a collective realization that it’s not a good idea to invest in cryptocurrency, especially with money that’s not just fun money and it’s really important, in terms of your actual investment, our ability to pay the bills.

The pink-tinted glasses go off a bit. On the other hand, people were looking at these projects that promised 20 percent returns – like Terra – for example. Suddenly, they saw what happened when things started to go wrong. Now there is no money left for the people of Tira. I wouldn’t be surprised if public perception drops a bit and we stop seeing some huge hype and massive big-ticket crypto sales and things like that. I don’t think it is realistic to say that cryptocurrencies will die, blockchains will disappear and cryptocurrencies will not exist. There is still a lot of money in it, despite what the market is doing.

Macmillan: Even encryption is not dead. But this only highlights investors that it is a very risky asset class. He has also been called in to question how investors are thinking about it. Many investors were thinking of it as a digital version of gold, or as a way to hedge against inflation. Really, bitcoin and digital assets are traded like multiple high tech stocks. So, I think there has been a repositioning of how investors think about bitcoin, both in terms of where it has to sit in the portfolio as well as what the risks are.

I think we will see a consolidation in the industry. We’ve kind of seen this movie before with internet stocks in the ’90s. There was a period of euphoria where Pets.com vanished and the Amazon family survived. We’ll have the weaker projects that won’t work, and the investors will be more discerning as to where they put the capital. Venture capitalists will be more discerning with the projects they support. Every day users will be more discerning as to where they put their money.

How does this collapse affect industry regulation?

white: I think it came kind of at a good time because there were some lawmakers looking at the stationary coins and they started saying, “These look kind of shaky.” I think it has somewhat caught the attention of regulators and legislators because they see people losing this money unprotected, and they see these stablecoins really threatening things outside of the crypto market. They’re kind of starting to think that maybe that’s something we need to pay attention to right now.

And there doesn’t seem to be a lot of regulation they can squeeze today that will change things right away. But we have seen regulatory interest towards stablecoins.

Macmillan: Therefore, regulators are already looking at stablecoins as a kind of clear area to focus on again, which makes sense. This is where the high street meets the crypto universe. Stable coins are where most people deal with cryptocurrencies. Therefore, it is important that there are standards around transparency and guarantees.

The collapse of the third largest stablecoin by market capitalization over the weekend has accelerated the task of regulators to really start setting some standards around stablecoins and stablecoin issuance. I think it will most likely end up like we see with the banks. I wouldn’t be surprised if regulators required stablecoin issuers to be FDIC insured, have the lowest guarantee ratios and [have] Minimum standards about transparency.

Will Bitcoin Price Rise Again? How low can they go? Should I buy a snorkel?

Macmillan: Yes, when you look over the next five to ten years, when you look at what is being developed on different blockchains, including bitcoin and ethereum, when you see some kind of power of this technology, it’s impossible not to be optimistic. Now, this does not mean that it will be a bullish streak. This does not mean that it will not be a choppy path. That doesn’t mean we won’t get 50 percent of withdrawals every year. But, especially at these levels, when you start to get into pretty bleak territory and there’s a lot of bad news, it’s hard not to see that bitcoin prices aren’t higher a year or two from now.

white: It is difficult to predict the markets to any reasonable level. With crypto, it is very volatile, highly unpredictable and somewhat unrelated to reality that it is possible to buy a pullback, but it could also mean that you are buying your way down and they can always go down. People trying to buy dip, I think are not very wise. And they are exposing themselves to a lot of risks in a situation that has somewhat recently begun to deteriorate and could continue to get worse for a long time.

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