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The owners of cryptocurrencies have had a rough few weeks. Bitcoin and Ethereum have lost more than half their value since their peak last November, a slide that has outpaced the broader markets’ decline. Earlier this month, a so-called algorithmic stablecoin, Terra, which supposedly had a fixed value of $1, started plummeting in value. That’s because it was backed by another crypto token, Luna, which was also tanking. To try to pump Terra back up, its creators sold a bunch of bitcoins, which in turn caused Bitcoin’s price to crash as well.
The whole thing looked like precisely the kind of crisis in confidence that could cause a crypto bubble to burst. And yet by historical standards, the prices of Bitcoin, Ethereum, and many other tokens are still sky-high. The crypto market has crashed twice in the past, only to return bigger and richer than before. Which raises the question: Is this time any different?
David Gerard is a vocal crypto critic and the author of Attack of the 50-Foot Blockchain. He spoke to WIRED about why he thinks crypto is all a scam—and why that’s actually the key to its longevity.
WIRED: A lot of people in my Twitter bubble are gloating that crypto’s finally dead—that this is, as I call it, the cryptocalypse. It reminds me of how, during the Trump presidency, every time Trump would have a new scandal, some people would be like, “All right, this time he’s finally going down.”
David Gerard: It’s a bit like that. I think that if the market is not regulated much harder than it is—and it needs to be—it’ll take about three to five years for a new, fresh crop of suckers to grow back. Because some people really want a get-rich-quick scheme. Frankly, if you just advertise, “I’ve got a scheme where you can get rich for free,” you’ll have people queuing up to give you money. They’ll tell their friends to give you money.
I sometimes say that the best book on Bitcoin is Extraordinary Popular Delusions by Charles Mackay. That was published in 1841. It’s the book that popularized the Dutch tulip bubble and talked about the South Sea Bubble and various other enthusiasms over the years, various asset bubbles and scams and schemes.
You can totally make a fortune in crypto. I would never say you can’t, but you are betting that you are going to be a better shark than all the sharks that built the shark pool.
The Nasdaq, which is the heavily tech stock index, is down 28 percent since mid-November. And up until the Luna thing happened, Bitcoin was down 33 percent over the same time period, so a bit more than the Nasdaq, but not dramatically so. But now Bitcoin is down 47 percent. So it looks like it’s both following the market and got a pretty significant extra kick down the slippery slope by the Luna meltdown.
People have forgotten what unregulated markets are like. We’ve had 90 years of the SEC and reasonably regulated, well-behaved stock markets. And it turned out really well. People can trade in some sort of confidence that there are rules and so on. And people talk about crypto and Bitcoin and so forth as if this is a well-behaved, high-volume market where someone checking that nobody is just lying about everything. And none of that’s the case.
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