The cryptoverse plunged further into crisis Thursday as a self-fulfilling prophecy set it.
Like almost all forms of money, cryptocurrencies have no intrinsic value, but with the exception of Bitcoin and Ethereum, the shared myth that imbued them with the trappings of value and money-like qualities isn’t strong. It certainly isn’t widespread for the vast majority of tokens.
Bitcoin fell to just above $25,000 Thursday, erasing gains for 2022 in the process (figure below).
Measuring from the highs in November, Bitcoin has lost some $730 billion in market cap. Ethereum fell below $1,800, taking its market cap to just $229 billion. That figure was $560 billion in November.
Ether “gas,” (the cost of transacting) was astronomical early Thursday in the US, presumably as the chain groaned under the pressure of what I imagine are margin calls, liquidations and generalized chaos across decentralized finance platforms and NFT marketplaces.
Popular altcoins were devastated. Solana, last year’s upstart darling and an Ether competitor, dropped to $37. It was $260 in November. It’s sleek, speedy, outage prone and, now, on the brink (figure below).
Avalanche, another of 2021’s top performers, fell to $23. It was near $150 at the highs.
Polygon, which won a $450 million investment from Sequoia Capital India earlier this year, dropped to $0.50. It was near $3 in late December.
Polkadot, touted late last year by Dan Morehead, the former Goldman bond trader who once worked for Julian Robertson and eventually founded crypto fund Pantera, plunged to $7. It was $55 at the highs.
During a CNBC interview in late December, Morehead also lauded Terra, the ecosystem at the center of this week’s existential crypto rout. LUNA, Terra’s native token and the linchpin of the arb process that was supposed to keep Terra’s now infamous stablecoin pegged at $1, fell all the way to $0.05 as it absorbed exits from its broken cousin (figure below).
Gemini, the crypto exchange founded seven years ago by the Winklevoss twins, denied rumors it facilitated a loan to Citadel and BlackRock, who some conspiracy theorists suggested colluded to undermine Terra’s stablecoin.
“We are aware of a recent story that suggested Gemini made a [Bitcoin] loan to large institutional counterparties that reportedly resulted in a selloff in LUNA. Gemini made no such loan,” the exchange wrote, on social media.
BlackRock likewise denied any involvement. “Rumors that BlackRock had a role in the collapse of TerraUSD are categorically false,” the firm said. “In fact, BlackRock does not trade UST.” Citadel was even more dismissive. “Citadel does not trade stablecoins,” a representative told Bloomberg. “Including UST.”
The rumors were patently absurd. I said as much on Wednesday, when a few Twitter accounts began circulating diagrams and other attempts to reconstruct the purported scheme. In the wake of 2021’s meme stock fiasco, Citadel sought to be more transparent in a PR push aimed at helping the public better understand what the firm does. One thing it doesn’t do, nor would it have any reason to do, is undermine an algorithmic stablecoin. For its part, BlackRock is a conspiracy theory magnet. It’s all nonsense. Terra’s mechanism failed because it failed.
Tomb, an algorithmic stablecoin pegged to Fantom, the native token of another Ethereum blockchain, was wildly disconnected. A related asset, “Tomb Shares,” fell more than 80%.
Consider that all of these tokens are embedded in ecosystems, many of which have automated market makers which issue their own tokens. Those too plunged. Spookyswap, a token issued by a liquidity provider on Fantom, traded near $3. It was near $40 in late January. Serum and Raydium, tokens issued by Solana-linked liquidity and swap platforms, sank. JOE, a token issued by a popular Avalanche-based marketplace that provides a variety of services, fell to $0.30. BTRFLY, a coin issued by Redacted Cartel, a heavily-hyped protocol that aimed to amass tokens related to the legendary “Curve Wars,” dropped below $30. It was above $3,000 in January.
Do note: NFT holders are likely getting hit on two fronts. Would-be sellers who need to raise cash are almost surely reducing floors, while the currencies in which the NFTs are denominated are depreciating rapidly against the dollar. Imagine you owned a blue chip NFT from a collection which, prior to the selloff, had a floor price of 50 ETH. That meant your NFT was worth, at minimum, $150,000 with Ethereum at $3,000. If other owners in the same collection offer to sell their NFTs at, say, 25 ETH amid a rush to the exits, and Ethereum falls to $1,900, the implied minimum value of your NFT drops to $47,500, a 68% haircut. And that assumes you can sell it, a dubious proposition in the best of times.
The market cap of all cryptocurrencies, as calculated by CoinMarketCap, stood at $1.15 trillion on Thursday. It was $3 trillion in November. That’s a $1.85 trillion wipeout.
Nikita Fadeev, partner and head of crypto fund Fasanara Digital, told Bloomberg “the death spiral is very reflexive at these levels.” He was talking specifically about Terra, but that assessment applies to the entire crypto universe, from the coins to the decentralized finance protocols to NFT platforms.