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Last November, crypto enthusiasts were ecstatic. Bitcoin hit an all-time high of $69,006. The little more than a decade old market for digital assets had roughly quadrupled from its 2020 year-end value to more than $3 trillion. Venture capitalists were signing six-figure checks to blockchain startups left and right, minting unicorns at a break-neck speed.
Today, cryptocurrencies are collectively worth $853 billion. Virtually all top tokens, including bitcoin and ether, have lost more than half of their value since January.
Coinbase, the largest and only public crypto exchange in the U.S., has seen its shares plummet by 81%, from $251 on January 3 to $46.92. Publicly traded bitcoin miners including Marathon Digital Holdings and Riot Blockchain are also in a squeeze, with their stocks down roughly 80%.
Stocks of publicly traded crypto mining companies
Sales of non-fungible tokens, which amassed over $23 billion in trades last year, dropped below the $1 billion mark this month—for the first time since June 2021, according to data tracker DappRadar. The JPG NFT Index (JPG), which tracks blue-chip NFT collections, is down by 75% since its launch in April.
What started as a “risk-off” selling fueled by inflation fears and geopolitical tensions snowballed into crypto’s new “winter” when the $16 billion stablecoin TerraUSD (UST) and its sister token LUNA, which boasted a $40 billion market capitalization, collapsed to $0 virtually overnight.
Soon afterward, the dominoes began to fall. Earlier this month, Celsius Network, one of crypto’s biggest lenders, found itself on the brink of bankruptcy. A few days later, Three Arrows Capital, a Singapore-based hedge fund which had roughly $3 billion in assets under management as of April, failed to meet margin calls. The firm had held about $200 million in Luna and reportedly placed an overleveraged bet on the Grayscale Bitcoin Trust (GBTC) to arbitrage the difference between the value of the trust and bitcoin. GBTC shares have been trading at a discount to the trust’s net asset value since February 2021, which recently widened to approximately 30%, according to YCharts.
BlockFi, another crypto lender exposed to Three Arrows’ bad debt, is reportedly being acquired by billionaire Sam Bankman-Fried’s crypto exchange FTX for $25 million. A year ago, the company was seeking additional funding at a $5 billion valuation.
Throughout its short history, crypto has gone through multiple major resets. However “it’s the first time that crypto and Web3 have existed in a macroeconomic bear-market environment, where there’s potentially a recession happening next year,” Avichal Garg, a managing partner at Electrical Capital, a crypto investment fund with more than $1 billion in assets, told Forbes.
Garg and a few other top investors think the current bear market could last two years. In the meantime, the industry will learn a few more lessons.
