Bitcoin and other cryptocurrencies are declining. The future is bleak.

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In the last few days, several cryptocurrencies have seen their prices collapse to almost historically low levels.

The impact is fast and wide. Nearly 40 percent of bitcoin holders have lost money on their investments, date from the crypto intelligence company Glassnode shows. More than a quarter of the world’s cryptocurrency market has evaporated, according to the cryptocurrency website Coin Market Cap. The sell-off comes as TerraUSD, the cryptocurrency that pegs its value to the US dollar through an algorithm, began trading below $ 1.

Since then, investors in major cryptocurrencies have been selling their stakes, causing prices to fall to unprecedented levels by 2020. Against this background, industry analysts, experts and critics of cryptocurrency are looking at how the decline will affect the digital currency, noting that the collapse could be a wake-up call about how risky digital assets are.

To learn more, The Washington Post spoke with Ben Macmillan, chief innovation officer of IDXInsights, a cryptocurrency asset management company, along with Molly White, software developer who runs the website. Web 3 is just great.

“We will see consolidation in the industry,” Macmillan said. “We’ve seen this movie before with internet action in the ’90s. There was a period of euphoria when all Pets.com disappeared and the Amazons survived. “

The conversation is edited for length and clarity.

Why is cryptocurrency collapsing right now?

Macmillan: This weekend there was a cryptocurrency-specific event in the form of the stable Terra Luna coin, which was basically breaking money. Stable coins are a very important part of the crypto ecosystem, they must be stable. They must have a one-on-one valuation with the US dollar. This is where many investors go to seek refuge during instability.

Terra was the so-called algorithmically stable coin, which had a market capitalization of almost $ 20 billion. But there were just over a billion dollars in bitcoins as so-called collateral. So, there were many stable Terra Luna coins that were simply not supported by anything other than other people’s faith in this system. So what happened was just a good old-fashioned run ashore.

This is a spiral of death – after a stable coin peels off like that. Over the weekend and Monday morning, this has just begun to catalyze in the digital asset ecosystem. It was just like the straw that broke the camel’s back.

white: Realistically, I don’t think you can say that crypto is literally dead. But I think we see perhaps a more widespread awareness that it’s not such a great idea to invest in cryptocurrency, especially with money that is not just fun money and is actually important in terms of your real investment is the ability to pay the bills.

The pink glasses take off a little. On the one hand, people watched these projects, which promised a 20% return – like Terra – for example. Suddenly they saw what had happened when things started to go wrong. And now there was no money left for the people of Terra. I would not be surprised if public perception decreases a little and we stop seeing some of the huge noise and huge big sales of cryptocurrencies and things like that. I don’t think it’s very realistic to say that crypto will just die, blockchains will disappear and crypto will no longer exist. There is still a lot of money, despite what the market is doing.

Macmillan: So cryptocurrency is not dead. But this is just emphasizing to investors that this is a risk class asset. It is also questionable how investors think about this. Many investors thought of it as a digital version of gold or as a hedge of inflation. Indeed, bitcoin and digital assets are traded as high-tech stocks. So, I think there is a repositioning of the way investors think about bitcoin, both in terms of where it should be in the portfolio and what the risks are.

I think we will see consolidation in the industry. We’ve seen this movie before with internet action in the 90’s. There was a period of euphoria when Pets.comEverything disappeared and the Amazons survived. We will have weaker projects that will fail, and investors will be much more discriminatory about where they invest. Venture capitalists will be much more discriminatory with projects they support. Everyday consumers will be much more discriminatory about where they put their money.

How does this collapse affect the regulation of the industry?

white: I think it came at a good time because there were some lawmakers who looked at stable coins and started saying, “They look kind of unstable.” without any protection and see these stable coins that actually threaten things outside the crypto market. They began to think that maybe this was something we should pay attention to now.

And there don’t seem to be too many regulations that could pull the trigger today, which will change things immediately. But we have seen regulatory attention to stable coins.

Macmillan: So regulators are already looking at stable coins as a kind of obvious area to focus on again, which makes sense. This is where Main Street meets the crypto universe. Stable coins are where most people join crypto. So it is important to have standards for transparency and security.

This collapse of the third largest stable coin by market capitalization over the weekend simply accelerated the mission of regulators to really start setting some standards around stable coins and stable coin issuance. I think it will probably end up like banks. I would not be surprised if regulators require issuers of stable coins to be insured by the FDIC, to have minimum collateral ratios and minimum transparency standards.

Will bitcoin prices rise again? And how low could they fall? Do I have to ‘buy a dip?’

Macmillan: Yes, when you look at the next 5-10 years, when you look at what’s being developed in different blockchains, including bitcoin and ethereum, when you see some power of this technology, it’s impossible not to be tuned. This does not mean that it will be an ascending line. This does not mean that it will not be a volatile path. This does not mean that we will not have 50% absorption every year. But, especially at these levels, when you start to enter a very depressed area and there is a lot of bad news, then it’s hard not to see that bitcoin prices are not higher in a year or two.

white: It is difficult to predict the markets to a reasonable level. With crypto, they are so volatile and so unpredictable and so unrelated to reality to some extent that it is possible to buy a downturn, but it can also mean that you are buying down the road and they can always go down. People who are trying to buy a dip, I think, are not very wise. And they run a big risk in a situation that has only recently started to go bad and could go on for a long time.

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