Future of cryptocurrencies in question after plunge in value Transcript

Judy: (00:00)
It’s been a very rough year so far, for stocks and other investments of markets have dropped sharply over the past few months. That plunge has been even larger and going on longer for cryptocurrencies and that sector. William Brangham breaks down what’s behind the plunge.

William Brangham: (00:18)
Judy, after hitting recent lows over the weekend, some key cryptocurrencies, like Bitcoin, did rebound a bit today, but that’s only after months of steady dramatic losses. In fact, the total market value of all cryptocurrencies combined is down nearly two thirds. That’s about $2 trillion since November. Some of the biggest ones like Bitcoin are down 50% or more from their highs. And several trading platforms dedicated to crypto have suspended activity in recent weeks. It’s all a far cry from the gold rush like atmosphere from not that long ago.

Dion Rabouin follows all this for The Wall Street Journal, and he joins me now. Dion, thanks so much for being here. Before we get into why crypto is having this meltdown, can you just remind us a bit, give us a primer on what cryptocurrencies are and why they were created in the first place?

Dion Rabouin: (01:15)
Oh, wow. The why question is one that I think people will be debating for a while, but cryptocurrencies are essentially… It’s a computer program or a standardized ledger where people create these tokens that can’t be replicated or can’t just be created whenever someone has the urge. You have to go through a process. And there’s a scarcity. So there’s only a certain number of tokens that can be created and published for people. That’s the draw is that it’s not an unlimited resource. There is only a certain amount that can be created. And the idea is that, that scarcity creates value.

Okay. And that’s a digital currency then that people can use to buy and sell things and trade them back and forth.

Yeah, exactly. It’s a digital currency that isn’t created by governments or central banks, which is where the idea of a cryptocurrency comes from.

Okay. So people may remember the avalanche of crypto ads that ran during the super bowl. And there was this, as I mentioned, this gold rush that everybody was trying to get into it, but then valuations have had this incredibly precipitous fall. What has happened? Why are they falling?

That’s another very good question. No one’s entirely certain why they’re falling, why do the markets do what they do. But based on conversations we’ve had at the journal with investors and some of these crypto evangelists, it’s a few things. Number one has just been crypto has moved a lot in line with the stock markets and particularly tech stocks, some of those high flying very risky bets that we’re doing very well towards the tail end of 2020 and in 2021, and really peaked out towards the end of November.

So a lot of the same investors. I did a video recently for The Wall Street Journal’s YouTube channel about how Wall Street had really moved into crypto. Wall Street investors have traded about 10 times as much crypto in 2021 as they did in 2020. So you’re literally seeing a magnitude 10 shift of Wall Street moving in. And that’s good in terms of increasing the validity and mainstreamization of crypto. But also when these guys sense a little bit of risk, they’re much quicker to sell than some of the true Bitcoin and crypto believers that are out there who believe in huddling, which is just another way of saying holding crypto and not selling under any circumstances. So a lot more Wall Street traders are in it.

There’s been a lot of worry about risk, and Bitcoin is still seen as a risky asset. There really isn’t an underlying use for Bitcoin, unlike things like gold or copper, some of the commodities that are out there that has been compared to. You don’t really treat cryptocurrency like currency. It’s not generally used to buy or sell things. So there’s been that use case scenario where people have just sold it.

Also, a lot of folks have been getting margin calls, meaning that they’re borrowing money and using that money to invest. And then when things sell off and they lose value, well, they’ve got to sell more things to make up for the money that they owe or to not have to pay that in full. So there are a lot of different things that are weighing on the market, but none of them are helping the cryptocurrency market at the moment.

Right. It’s funny because I remember the early evangelists all saying that somehow cryptocurrencies would be immune from these other market forces. Seems like that’s not totally the case. In all of this enormous loss, these trillions of dollars in value losses, who is getting hurt in those cases? Is it big investors, little investors? Who is it?

Largely it’s a lot of little investors who have held, who really bought at the peak and are now having to sell at the trough. So a lot of people got into crypto late and a lot of them were your mom and pop retail investors who thought this was a great way to get rich quick. So they bought when Bitcoin was 30, 40, 50, 60,000 and thought it was only going to continue going up. And now it’s going down and seems to be moving only in that direction.

Big investors are certainly being hurt. There were a lot of people who bought in big on the Bitcoin train and are now seeing a lot of their positions eroded and really run a muck or a foul the rest of their portfolio. So it’s across the board, but I think the people who are really suffering are those people who bought in high and are now going to have to sell low or write it down to zero

Dion Rabouin of The Wall Street Journal, thank you so much.

Thanks for having me.

Future of cryptocurrencies in question after plunge in value Transcript

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