Crypto. Web3. Blockchain. It can be difficult to keep track of jargon from tech’s box of wonders. Right now, though, those buzzwords do not sound so magical. Crypto’s critics are having a field day, what with plummeting valuations for tokens in the market and the collapse of multibillion dollar projects.
Adding to the chaos are people like noted venture capitalist and crypto booster Marc Andreessen. In a widely circulated clip, Andreessen struggles to explain the benefits of Web3 to economist Tyler Cowen. He rambles on and does not make much sense. There are many other instances where Web3 enthusiasts are unable to explain the concept in simple terms.
Critics have piled onto these clips as proof that there is not much substance to cryptocurrencies and Web3. They have a point. When you cannot explain the benefits of your product in simple words to a lay audience, then there might be a problem with the product itself.
Bitcoin (And Crypto) Don’t Care
Carping crypto critics aside, the hijinks continue in cryptocurrencies and blockchain. Crypto traders are turning against each other to stave off losses. Lending platform BlockFi has received a $250 million bailout from cryptocurrency exchange FTX, according to The Block. BlockFi raised a down round recently and paid a hefty fine to the SEC last year. Another lending platform Celsius is facing its own reckoning and working with regulators to “find a resolution” to its liquidity crisis.
Bitcoin prices fell below $20,000 over the weekend but recovered this morning. As of this writing, the original cryptocurrency is changing hands at $21,509.84, up almost 5% from its price a day ago.
But traders are not holding their breath for a sustained trajectory change. “All negative fundamentals remain,” FxPro’s Alex Kuptsikevich told Coindesk, citing the Fed’s monetary policy tightening.
Meanwhile, Celsius’s token is the target of a short squeeze by traders this morning, according to reports. Prices for its CEL token, which is used to conduct transactions in its network, are up by almost 60%. Traders conducting the short squeeze are using a playbook similar to the GameStop squeeze at the beginning of the pandemic. That trade caused heavy losses to hedge funds who had shorted the company.
Because this is crypto, the traders and beneficiaries of the squeeze shall remain anonymous. As if that wasn’t enough, Celsius’s “lead investor” Simon Dixon has emerged from the shadows and promised to deploy “financial innovation” to help recovery efforts.
CEL is not the only coin on an upswing. According to Coinmarketcap, the Terra Classic token is one of the biggest movers in crypto markets this morning. The LUNC token was, in its earlier avatar, Terra’s native token Luna. It imploded spectacularly last month. It has a market cap of $393 million, as of this writing. In case you are wondering, that valuation is the remnant of past times, when a bazooka’s worth of new tokens was released to save the project. And so, there are $6550.7 billion LUNCs available to traders in the market. Each one is priced at $0.00005.
Will Crypto’s Crash Affect Mainstream Finance?
Away from the turmoil and drama of markets, however, crypto and its technology continues to make news. The Bank of International Settlements (BIS) released its report on the global monetary system’s future this morning. Even as it criticizes cryptocurrencies, the report envisages an important role for Central Bank Digital Currencies (CBDCs) in the future.
During an online press conference to discuss the report, its author Hyun Song Shin was asked about possible spillover effects from the current crash in crypto markets to the mainstream financial system. He said the “microeconomic mechanisms”, such as crashes due to excessive leverage, playing out in crypto markets are similar to the ones that played out during the global financial crisis. But they are smaller.
“Even now, crypto is fairly self-contained,” he said. That circumscribed nature of crypto’s ecosystem should limit its effect on the global financial infrastructure. There are always outliers, though. “We’ll have to watch out for who are the players straddling crypto and conventional financial system,” said Shin.