A disinterested observer may be bemused, or even gleeful at this red sea. The walls reverberate with ‘I told you sos’. I suspect if you are a stakeholder in this new ecosystem, particularly an innocent one, the humour will be lost on you.

I am one of those stakeholders, personally and professionally. But I am still smiling, albeit through gritted teeth, holding on to my optimism with whitened knuckles. 

Here is why.

Cryptography has been around for thousands of years but lurched forward in the 1970s as many researchers started developing new techniques for keeping secrets. More importantly, the market for this arcane mathematics grew quickly from military, to telecommunications, to industry, to the Internet. But the industry we generally now refer to as ‘crypto’ and see daily in the headlines was really borne in 2009, which was when Bitcoin was conceived.

Not to put too fine a point on it, the explosion of innovations since then has been breathtaking — hard to follow, hard to digest and hard to predict. Cryptocurrencies, financial services, NFTs, crypto-secured supply chains, the metaverse, gaming, governance-communities and other wondrous things have emerged (and continue daily to do so), all built on the back of cryptography.

This is to say that the quantum of brain power committed to this industry — mathematicians, statisticians, computer scientists, economists, financial engineers, innovators, inventors, developers, educators and dreamers has become voluminous and adamant. There are hundreds of thousands of them and new ideas and experiments pour out daily, most of them utterly unconnected to the world of cryptocurrencies and the token prices which so consume the news cycle. 

The price of Bitcoin or Ether or any other crypto asset will be of transient consequence to these people with their heads down building new worlds and better, fairer services. At worst, less investment will pour into the sector for a brief period. At best, pretenders and grifters and dodgy projects will disappear. 

So the stuff happening deep in the bowels of the cryptoverse is largely unconcerned with the price of Bitcoin. There is simply no chance of this wave ending; these are fertile plains of abundant innovation in myriad matters of human interaction. 

In any event, markets have a short memory. A much more serious bear market occurred at the end of 2017 — with many tokens up to 80% down from highs. Prior to that, a number of other crashes dating back to 2013, also more merciless and eye-popping than this one. The crypto market recovered quickly from all of them, as I expect it will do from this one.

More importantly, it is important to retain perspective and context here. Most tech stocks, including giants like Netflix, are down more than 50% off their highs. Even those stocks in unrelated sectors like real estate and insurance are growling like bears. So the question that needs to be asked: is crypto crashing because crypto is ‘toxic kryptonite’ (in the words of one of richest men in the world), or is crypto crashing because everything is crashing?

Institutional money started pouring into crypto in the last 18 months as it became evident that the asset class was not a bubble. This means that it has started to get caught in the net of big money’s ‘risk-on/risk-off’ calculations. So when money flees from high-risk bets to low-risk safe harbours, it will flee from emerging markets, high-growth stocks, fancy derivatives. And it will flee from crypto, now sadly correlated with everything else in traditional finance. Crypto is crashing mostly because everything is crashing, save for a few terrible bloopers like the Terra stablecoin of which I have previously written. 

Meanwhile, it is indeed painful to watch. 

I submit that no one remembers the crypto crash of 2017 because it was simply swamped by the subsequent value of crypto-fueled inventions that came in its wake, and the growth of the industry wiped memories clean. 

And I submit that is what will happen again this time, sooner rather than later. DM

Steven Boykey Sidley (Professor of Practice, JBS, University of Johannesburg)