There was a mini rally in crypto prices over the past week or so of about 20%, which is a little amusing given everything and all. Whether the beginning of a new bull market or a forgettable blip is hard to discern, but after the bad weather around crypto over the last little while, it was a nice warm breeze.

The beginning of the cold front arrived suddenly in May 2022, when a crypto initiative called Terra Luna collapsed spectacularly, wiping out $50-billion in value in a matter of days. Whether this was a Ponzi scheme or simply an economically unsound and high-risk project is a matter of worldview.

It was to be the first in a long series of mega-collapses. Some of them, entangled with the project, drowned under the weight of Terra Luna’s devaluation, and some, like FTX, created horror stories all on their own.

The list of failures in the wake of all of this is long and storied, and has reached well beyond crypto into companies that are only crypto-proximal, like general investment companies or exchanges that take your real dollars and allow you to purchase crypto-tokens.

Most of the major players in the space had their hands deep into one another’s pockets — loaning, staking, borrowing, providing liquidity. And with the many billions sloshing around (nearly $3-trillion at one point), the crashes have been loud and hard.

$2-trillion vanishing act

When all the pieces were picked up, the market had lost well over $2-trillion in value. What this means, for lack of any suitable metaphor, is that there were hundreds of thousands of people who once thought they owned a total of $2-trillion, and then it was gone in a mere eight months. Not rich people (although there are those), but moms and pops and college funds and home loans too.

A number of face slaps have resounded in the wake of all of this. Most major media have jumped gleefully on these stories, thrilled by the big numbers and the many falls from grace.

Regulators’ reactions have ranged from concern to urgency to downright idiocy (India’s Central Bank has just called for a ban on all cryptocurrency trading, a nadir in myopic overreaction).

Then there is damage done to public trust in the industry — no small matter.

Crypto — how to heist $47m in seconds and walk away, scot-free

And finally, the realisation that there are a truly extraordinary number of people willing to take what is not theirs when there is no policeman on duty (seriously dinging my naïve trust in the goodness of my fellow humans in the process — crypto theft was often seen as a badge of pride on social media).

And this last point is perhaps the most ironic of all. 

The entire crypto project was meant to take humans out of the trust equation. Clearly, we are not there yet, although the big legacy blockchains and completely decentralised projects have stolidly marched on, unaffected by the noise.

But the brutal truth was that most crypto-catalysed projects still had at least one person at the tiller. The few that were entirely algorithmic and bug-free mostly escaped the carnage and kept on trucking.

What drove the rally?

So why this rally, which, while modest, has gone on for nearly two weeks, one of the longest in crypto history?

So here’s the convergence-of-many-things theory.

First, there are many hardened believers in the underlying promise of this technology for both financial and non-financial applications. These people simply held fast while everything around them started to fall apart, knowing that the bear market — like most bear markets — would eventually turn when all the sissies had fled and the mood changed.

Then there is the continual firehose of new applications everywhere — NFTs, Web 3, Metaverse, DAOs. They keep arriving, daily. The developers and builders, who are the core intellectual fuel of the business, have not suddenly gone off to look for greener pastures.

Much of this stuff is happening away from the headlines — some is entirely unconnected to cryptocurrencies, but all of it is built on similar cryptographic math. 

Bitcoin hash rates are at an all-time high. NFTs are selling again, heavily funded, and the innovative metaverse swarms, with Ethereum about to do (another) critical upgrade.

Add that regulation is now solidifying, including the good kind, like those laws that are shaping up in the UK — cautious, clarifying, bullish, carefully considered. Financial institutions don’t like to mess around in unregulated markets.

And, of course, there are signs of life in the inflation fight — in the US at least. 

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There is cautious financial optimism among those with the big wallets. This is releasing funds back into investments — even those carrying premium risk like crypto.

Most importantly, those who sat on the sidelines while parts of crypto self-destructed and wondered whether this was the end of the road for crypto, are now realising that the collapse was muted compared with everyone’s worst (and sometimes gleeful) expectations.

And, certainly, no worse than Tesla or Peloton or a host of other shiny tech brands. Some of them are dipping their toes back in the water, as shown by increasing volumes of trade.

Perhaps my optimism is premature, and a large meal of humble pie awaits, which I have gagged on before.

Sure, there will be more dominoes — smaller ones, with less noise. But it feels like the bottom is in sight. DM

Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg. He is the author of seven books.