How big is the crypto crash?
Hackers hit U.S. crypto firm Harmony yesterday and got away with $100 million in assets. Hacks like this has happened so often that it barely gets noticed anymore.
Thefts have long plagued companies in the crypto sector, with blockchain bridges increasingly targeted. Over $1 billion has been stolen from bridges so far in 2022, according to London-based blockchain analytics firm Elliptic.
Unlike in the U.S., where protecting consumers from fraud and theft isn't a priority, China effectively outlawed crypto transactions last year, thus protecting their people from this year's crash.
"Bitcoin is nothing more than a string of digital codes, and its returns mainly come from buying low and selling high," the Economic Daily newspaper wrote, it was reported by the South China Morning Post. "In the future, once investors' confidence collapses or when sovereign countries declare bitcoin illegal, it will return to its original value, which is utterly worthless."
That may be an overstatement, but they aren't the only ones that feel that way. A group of 26 scientists, software engineers, and technologists have released a letter they sent to key members of Congress. The letter pulls no punches.
Blockchain technology cannot, and will not, have transaction reversal mechanisms because they are antithetical to its base design. Similarly, most public blockchain-based financial products are a disaster for financial privacy; the exceptions are a handful of emerging privacy-focused blockchain finance alternatives, and these are a gift to money-launderers. Financial technologies that serve the public must always have mechanisms for fraud mitigation and allow a human-in-the-loop to reverse transactions; blockchain permits neither.
“By its very design, blockchain technology, specifically so-called ‘public blockchains’, are poorly suited for just about every purpose currently touted as a present or potential source of public benefit. From its inception, this technology has been a solution in search of a problem and has now latched onto concepts such as financial inclusion and data transparency to justify its existence, despite far better solutions already in use.
It's important to note that it wasn't just cryptocurrencies that have crashed this year. It's everything associated with them. Crypto exchanges, crypto mining stocks, publicly-traded companies holding large investments in crypto, and crypto ETFs have all been battered.
That's why when they say that the entire market cap for crypto is $889.25 billion (it was $2.7 Trillion last November) they are actually only including part of the problem. That’s just the market value of all of the crypto that trades.
This crash could wind up destabilizing the global financial system...again.
But what about all of the crypto mining stocks that went public and have now lost 70 to 90 percent of investors’ money? What about the loans taken out by the crypto mining companies to buy all of that energy-guzzling computer equipment? What about the billions of dollars in margin loans sitting at federally-insured banks that were made to hedge funds to leverage their crypto bets? What about the bank loans to venture capital firms to invest in hundreds of crypto startup firms?
Estimates are that the real size of the crypto market is more in the range of $10 trillion. Anyone who thinks that a market of that size can implode without “significant macro-economic implications” is likely not an economist.
And then there are the suckers and true believers that, believe it or not, actually bought crypto with their credit cards.
LendEdu reports that its survey showed that “18.15% of Bitcoin investors answered ‘I used a credit card to fund and purchase.’ ”
If you are gasping for breath at the news that U.S. regulators have actually allowed cryptocurrencies (variously called “rat poison squared” and a Ponzi scheme by very smart people) to be purchased on credit cards, you might want to sit down and put aside any cup of hot liquid in your hand while we fill in the rest of the details.
Not only did Visa and Mastercard not discourage their customers from buy crypto with credit, they facilitated it. After all, this is America.
Mastercard responded as follows: “Mastercard is working with over 60 crypto leading wallets and platforms. We continue to launch a range of products and services with these players, including the 24 crypto card programs that have been publicly announced. Consumers can buy crypto using their Mastercard card to instantly convert their crypto holding into fiat and spend wherever Mastercard is accepted at more than 90 million merchants worldwide. Only fiat currency enters Mastercard’s network. Mastercard is leading in innovation through programs like our recent partnership with Nexo and the launch of the Gemini Card with a simple mission — to deliver people new and one-of-a-kind choices in how they pay and to make crypto more accessible across the ecosystem. We also have partnerships with Bakkt and Uphold to make crypto card spend more accessible.