The Crypto Rout

Breathes there a soul out there who yet harbors ambitions for Bitcoin to become a store of value, unit of account, and medium of exchange? If so, please step forward and identify yourself—and ignore the snickering.

We aren’t yet ready to abandon the hope entirely that digital currencies can function as real money—that is, perform the classic, tripartite role spelled out in the paragraph above.

As we’ve mentioned in this space a number of times over the years, cryptocurrency can’t function in the role of “real” money—rather than in that of an investment vehicle—until it gets past the appalling volatility that has characterized it for years. In case any optimists out there had harbored hopes that crypto was solving this problem—much as adolescents mature and get past the foolishness of youth—cold, hard reality roared down the track this year like a freight train, smashing these hopes and once again consigning crypto to the margins of finance.

The biggest cryptocoin by market value, Bitcoin, peaked eight weary months ago, at more than $67,500, and since then the ride has been all downhill. It was trading around $20,500 at mid-June, according to Coinmarketcap. The story is much the same with Ethereum, the number-two coin. It fell over the same span of time from a high of $4,600 to $1,200.

We recite these facts, not to lament some sad new trend, but simply to underscore a longstanding problem that goes unsolved. Nor is volatility leaving the so-called stablecoins unmolested. Tether, the biggest of these by market value, and the third-largest of all digital currencies, shocked the financial world in May when it broke its peg to the dollar. A month later, it was still trading at 99.89 cents.

Amid the slaughter, the big crypto exchange Coinbase rocked the financial world last month when it said it would shed 18% of its workforce, or nearly 900 people. It was hard not to see the move as a direct consequence of sliding crypto values, though chief executive Brian Armstrong linked the move to recession fears. Among its many functions, Coinbase offers custom checkout and invoicing services to merchants.

This crypto winter, however, may offer an opportunity for stablecoins. Despite Tether’s problems, Circle Internet Financial LLC’s USD Coin has maintained its dollar peg and now ranks fifth on Coinmarketcap’s hit parade, at a valuation of $5.65 billon at mid-June.

We recite these facts not to dispense entirely with the notion of crypto serving as digital money for real-world purchases. We feel that jury is still out. Our purpose is merely to say, enthusiasts may need to be patient—very patient.

—John Stewart, Editor, john@digitaltransactions.net