Quick Thoughts On The Crypto Selloff

Morning Markets: Welcome back from the holiday weekend, America. It wasn’t a festive period for crypto fans.

Over the past few days, the value of cryptocurrencies has fallen sharply. Bitcoin dipped under $4,000 and ether fell as well. Bitcoin hovered around $6,400 in the first half of November, before coming to rest around $4,000 over the weekend. That’s about a 38 percent fall. Ether hit the skids around the same time (mid-November), falling from $210 and change to the mid $110s this morning, including a rough Thanksgiving trading period. That’s a 45 percent decline.

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So it’s been a bad month. And it’s hard to find a consistent narrative about why the declines happened now, and, more importantly, what they mean for crypto’s health as a sector. Given that crypto startups are still raising a lot of money (here are some recent rounds), it matters to the private sector. A lot, really, given that nearly every crypto company out there is still private, and powered by private capital.

Reading far more on the matter than I want to admit over the past few days, I’ll take a stab summarizing various market thoughts for us. Be lovely and write in with your own notes so that I can keep learning.1

But, as you haven’t sent a missive yet, here’s a digest of what other people are saying:

• Reddit Bulls: This is good for bitcoin, or at least good for the real bitcoin fans. The massive drop in the value of cryptos can be thought of as a chaff-culling event, or the de-foaming of a particularly hot latte. And as the declines are bringing prices down, the folks who know that bitcoin et al will one day be worth far more than they ever have been can buy more at depressed prices. 2
• Reddit Bears: Look at you goddamn idiots and your silly coins. $4,000 is just the start. Will you still buy in $3,000 and $2,000 and $1,000?3 Of course those comments aren’t new; what is different among the cryptoforums is that the percentage and prominence of bears are both higher than they have been in other corrections, per my own observations.
• VCs: The venture world has been quieter than I would like concerning crypto. I presume this is due to their investments losing steam, turning red, or becoming less liquid. (VCs tend to chest-thump when their portfolio companies are killing it, so we can read the silence at least somewhat.) Given that most crypto players are suffering (including crypto-focused hedge funds, mining equipment providers, public companies with crypto exposure, mining groups, etc…), sector venture investments are likely not having a very good run either. The best companies (Coinbase gets consistently high marks from investors in my personal experience, for example) will survive and keep raising, as always. The only interesting VC on crypto recently is Fred Wilson, who wrote this meditation that I liked quite a lot. He also wrote this piece, a take on how long it normally takes to create material value and what happens when your magic fizzles. It’s also good.
• Market Watchers: This is the usual mixed bag. Internet hobgoblin and human that I like Ed Zitron is correct that there is too much smarmy self-back-patting going on among the crypto perma-bears (I plead guilty). And you can find the usual optimism among the faithful, especially on Twitter. The only truly interesting thought in the market concerning the impact of the recent declines came from Bloomberg’s Joe Weisenthal. He argued that in light of the correction, claims that developers can now really get to work are silly. That “[b]uilding ‘real value’ is a canard. The most important thing that needs to happen for crypto is for people to think the underlying assets (the coins) have actual monetary worth. Then people can build stuff on top of them[.]” 

I am incredibly interested in what the selloff is doing to crypto-focused startups. Coinbase and Robinhood are fighting about how to price trading, as transaction volumes are down year-over-year. That’s tough. The year’s expected crypto IPO is in tatters after a Q1 profit turned into a Q2 loss. I doubt Bitmain had a better Q3, and Q4 isn’t looking good given that the firm held lots of Bitcoin Cash (which is down about 92 percent this year).

And then there’s the grip of ICOs that raised in crypto and probably held. What will they do? Mostly die, I suspect. But some will make it out and do cool things. Which projects will survive?

Wrapping up as we’re long on a Monday morning, next year is going to be incredibly interesting for crypto companies. In good or bad or middling ways. More as it happens.

Illustration: Li-Anne Dias