https://www.wsj.com/articles/the-fire-burning-beneath-crypto…
**The Fire Burning Beneath Crypto’s Meltdown**
**The cryptocurrency implosion followed rampant creation of new digital money, something that never ended well in the traditional world**
**By James Mackintosh, The Wall Street Journal, June 22, 2022**
**...**
**There was a massive bubble in bitcoin and crypto in general as speculators piled in with the hope of getting rich. It was accentuated by a failure to learn lessons from history, as decentralized finance (defi) reinvented many of the problems of excessive leverage and liquidity mismatches that have bedeviled traditional finance for hundreds of years.**
**So much, so normal. Pile on too much leverage, use short-term borrowing to finance longer-term lending, and disaster eventually results....**
**The irony in all this is that part of the original appeal of crypto was the cap on how many bitcoin can ever exist, something supposed to prevent the sort of unlimited money creation that worries many critics of government-issued, or “fiat,” currencies. Rather than unlimited creation of bitcoin, crypto ended up with unlimited proliferation of new tokens. The new structures of intermediaries and defi tools allowed even bitcoin to be reused or lent on, meaning multiple people thought they owned the same token....** [end quote]
Cryptocurrencies aren’t used for routine commercial payments because they are more costly to use than USDs. It simply doesn’t make sense to use crypto when using USDs is easy, free and seamless.
Real people are speculating on crypto without being aware of the history of finance and busts. In the 1800s, banks issued their own currencies (before the Federal Reserve was organized) and there were many bank failures where the currency became worthless.
Intercst posted about a “crypto Fed” that loaned money to one of the crypto companies that is about to go bust. The article gave the amount in USDs, not in crypto. This means that somebody loaned real money to throw into the crypto bonfire as a speculation that it would recover and become profitable.
Young people (especially young men) and minorities are more likely than other demographics to buy cryptocurrency. About four-in-ten men ages 18 to 29 (43%), say they have ever invested in, traded or used a cryptocurrency, which I think is amazingly high. This compares with 31% in that age range that owned stocks in 2017. (It’s possible that stock ownership is higher now since Robinhood made stock trading so easy and appealed to young investors during the 2020 Covid shutdown.)
https://www.pewresearch.org/fact-tank/2021/11/11/16-of-ameri…
https://news.gallup.com/poll/211052/stock-ownership-down-amo…
The new generation is learning the hard way about speculative bubbles and busts. Crypto will go into the books as a classic speculative bubble (like tulip bulbs). This is somewhat different than the “Saul-type” high-growth tech company bubble (which resembles 2000) since those companies actually produce a service and some might survive to grow after the bust.
Wendy