Is there a sheriff in Crypto Wild West?

“Here’s a commercial clip by actor Matt Damon – aka Jason Bourne on screen to embody the hero of the action movie” The memory in the skin »,« Death in the skin “, etc. – would no doubt have liked to have passed by in silence. Only here is it, the price of cryptocurrencies in October 2021, the date of the publication of this ad with the title” Fortune favors the brave[1] (“Happiness smiles to the daring”) and intended to say all the good things he thought on the Crypto.com page are no longer quite the same. That’s the least we can say since the collapse of cryptocurrency prices[2] caused hundreds of billions of dollars to evaporate.

A collapse in prices from 67,000 to 19,000 dollars

If the global cryptocurrency market six months ago weighed more than $ 3,000 billion, its value is nearly $ 1,000 billion by mid-June. And this has been further reduced in recent days, especially under the impact of recent measures taken by central banks to curb galloping inflation.

The fall in these cryptocurrencies – and especially Bitcoins, whose value fell from a maximum of $ 67,000 in November 2021 to $ 19,000 in mid-June 2022 – is like Jason Bourne’s stunts: dizzying.

To measure the extent of the damage, MarketWatch ended the Twitter account by going directly to the case:

If, when Matt Damon’s music video “Fortune Favors the Brave” was released, you bought bitcoins for $ 1,000, today they are worth about $ 481. [3]. »

If this announcement, dated 13 May 2022, were to be updated in mid-June, that would be enoughwith 250 kr … And some network users joker:Matt Damon was in Ocean’s 11, 12, 13. Crypto guys have just fallen victim to his latest robbery. “

A context of financial bubble

In his popular work Economy of the common good Jean Tirole, Nobel Prize in Economics, recalls that a ” bubble exists when the value of a financial asset exceeds the “fundamental” value of the asset, ie. the present value of the dividends, interest or rent that it will provide today and in the future[4]. “.

Compared to the macroeconomic context of recent years (easy money due to low or even zero interest rates – a phenomenon largely maintained by quantitative easing central banks -, low inflation, the growth in the values ​​of technology companies …), it is easy, subsequently, to see that all the ingredients of this sequence (access to credit, speculation, transactions) were gathered for a bubble to form.

Cryptos, safe haven? The veil of illusion lifts, the king is naked

In the case of cryptocurrencies, it would have been enough for several macroeconomic indicators to go wrong for the whole thing to falter.

Here, the global economic downturn, the uncertain economic situation, as well as the inflationary pressures that central banks are strongly facing, show the fact that these cryptocurrencies are not the safe havens that are so notorious by some.

For simplicity, one can say that “the king is naked”. Because the corrections that have been going on for seven months in the crypto market actually show that the basic elements of these virtual assets are fragile, if not non-existent: what about their inherent value? And what about their stability or their presumed character as a “storehouse of value”?

The market’s answers to these few questions are well known: collapsing prices and almost failures on several transaction platforms: Celsius, Babel Finance, TerrasUSD or even Coinbase, which recently announced the elimination of 18% of its workforce (around 1,100 jobs)[5]…

Published in 2016, “Economy of the common good”, by Jean Tirole, already drew this almost prophetic conclusion:

If the market one day decides that Bitcoin has no value – if investors lose faith in Bitcoin – Bitcoin will really have no value, because there is no fundamental value behind Bitcoin, as opposed to a stock or real estate. »

Is there a sheriff in Crypto Wild West?

It may well be that this crisis of confidence affecting cryptocurrencies, including all digital currency aids, will leave lasting traces. Maybe not an icy winter that would freeze all forms of development of these innovative technologies, but rather, and at least in the short term, some cooling of the air …

In addition to the fact that this crypto-asset crisis has shown that the initial promise of being new credible intermediaries, allowing the passage to be freed from all institutional financial institutions (banks, central banks, even states), fell more a libertarian utopia than an economic reality, The designers of these digital media will have to adapt to new forms of regulations that will regulate this far west of cryptocurrencies better.

In Europe, the MiCA (Market in Crypto Assets) draft should soon harmonize the legal and regulatory context in order to impose on issuers of these digital assets a framework within which the development of these new technologies can be placed. It is clear that one is trying to regulate in order to better protect and, above all, to succeed in determining what these digital assets are still very much lacking: confidence. Without this trust “, an important ingredient in all monetary history since the beginning of mankind, the crypto building will continue to falter. The proverb is known:

Confidence is gained in drops but lost in liters. »

It is high time that this leak is closed so that all these lost liters can one day be found.

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NOTES

1 https://youtu.be/9hBC5TVdYT8

2Crypto assets represent virtual assets stored on an electronic medium, enabling a community of users who accept them as payment, to carry out transactions without having to resort to legal tender.

3 https://twitter.com/MarketWatch/status/1524898004167274496

4 Jean Tirole, Economy of the common goodPUF. (See Chapter 11 “What is funding for?”)

5 https://www.npr.org/2022/06/14/1105026558/coinbase-cryptocurrency-layoffs?t=1655718921410