This was supposed to be their time. But last week — after years of discussions, debates and prophecies about cryptocurrency being the system that would replace (or at least challenge) the dominance of central banking, particularly in the face of any global crisis — crypto traders were in disarray. They watched as pretty much every coin value nosedived (or collapsed entirely) in a matter of hours.
Bitcoin, the most stable of the cryptocurrencies, lost over a quarter of its value: the largest long-term collapse in its history. The crash sent shockwaves across Reddit’s cryptocurrency communities, with some traders reporting that they’d lost anywhere from thousands of dollars to the entirety of their life savings pretty much overnight.
But in his one-bedroom apartment in Southwark, a neighborhood in South London, Harry Bell, a private hedge-fund advisor who spends his downtime speculating on the futures market, was privately relieved. He’d made the “right call” early on.
A few years ago, during the cryptocurrency boom, he’d invested $2,000 in precious metals such as gold. His friends in finance had berated him for it, dismissing it as “libertarian nonsense.” Now, though, as he watched those same friends desperately try to sell off their Litecoin and Ethereum holdings, he could stay somewhat calm; his gold holdings hadn’t declined nearly as much in value. “I didn’t lose that much, and I still expect gold to stabilize and probably even increase in value over the long run,” he tells me.
All of which is to say, that even as stockbrokers and finance bros flee their offices to work in quarantine (and in expectation of a recession), the war between Bitcoin Bros and Gold Guys continues, with both sides believing that they still hold the keys to the future (recent evidence notwithstanding). “The relative stability of gold proves it’s a safe asset,” Bell says. “Even on the worst days, the value of gold fell by 5 percent. Compare that to 25 or 30 percent for the most stable cryptocurrencies, and it makes sense why people who have invested in precious metals aren’t looking to cash out as fast as they can.”
On the flip side, some analysts have long predicted that even in worst-case scenarios like global wars or food shortages, cryptocurrencies, when operating on strong, self-correcting blockchain technologies, would be effective at stabilizing prices, and in so doing, prevent a catastrophic global recession. So, as you can imagine, the fact that it hasn’t has split Bitcoin traders into two groups — one that’s questioning its support for cryptocurrency, and another that’s doubling down on its support, believing that the currency will stabilize and self-correct one way or another.
That said, the vast majority of cryptocurrency traders I spoke to either refused to comment, or claimed that things were too uniquely volatile to make a judgment call. Some even accused me of deliberately trying to “talk down Bitcoin,” and they worried that articles with negative outlooks would further topple cryptocurrency values. Such sentiments are echoed by cryptocurrency’s most notable traders and analysts on Twitter, most of whom either dismiss the nosedive as the result of an unprecedented global pandemic or insist that it’s more crucial than ever to hold and buy cryptocurrency in order to reassure investors and regain some stability.
“Some Bitcoin guys are congratulating themselves for anticipating the tanking values because they think they have a superior ability to grasp the ‘exponential function,’ so they feel that this was inevitable. But at the same time, they’re tearing out their hair because the nosedives are so big that so much value is being lost,” says Ben Munster, who reports on cryptocurrency for Decrypt. “Still, there are a lot of people so sure of crypto’s earth-shattering potential that they’re trying to spin this as a good thing.”
Though Munster — like most other crypto journalists and traders — isn’t sure why the crash has been so intense (or whether crypto will recover), he hypothesizes that it might be the result of Bitcoin bros demanding to be taken seriously for so long — and succeeding. “Bitcoiners were desperate for institutional support and investment,” he says. “So when they finally got it, their fortunes were tied to those institutions.”
In other words, once upon a time, Bitcoin might have operated as an alternate financial system that could (emphasis on could) have been strong enough to withstand a global pandemic, but now it’s become mainstream enough that that’s less and less viable. “Bitcoin can’t be an uncorrelated asset that acts differently in the market while also having billions of dollars from mainstream banks buoying its price,” Munster explains. “It’s very much become tethered to the institutions — like banks and wealth funds — that it’s supposed to be a buffer against.”
For what it’s worth, Gold Guys like Bell aren’t exactly in the clear either. He still believes his gold assets are a safer bet, but given that the stock market still tanked after the Federal Reserve cut interest rates to zero and the U.S. government approved a $700 billion stimulus package, he’d be lying if he said he wasn’t worried. “We’re in uncharted territory and even stable assets are tanking,” he tells me. “If anyone says they know what’s going to happen in the next week, let alone the currency of the future, they’re totally full of shit.”