Crypto crash wipes out over $1 trillion in wealth, forcing everyday investors to reckon

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By the end of last year, the value of Hasten Carter’s cryptocurrency holdings had soared to around $250,000. He moved to a nicer apartment, bought a new truck, and started thinking about pursuing his dream of a full-time career in game development.

But over the past two months, the value of cryptocurrencies has plummeted, taking with it much of Carter’s digital nest egg, a mix of Ethereum, the second most popular cryptocurrency, and a number of coins. more obscure.

“It got out of control to the point where I’m not sure I’m comfortable keeping my money,” said Carter, 30, who kept her day job at a sign-making company in Nashville. Of his hopes for a new career, he said, “I don’t know if it’s such a wise move.”

Thousands of Americans who jumped into crypto investing over the past two years hoping for a surge to instant wealth now face a similar reckoning: cryptocurrency prices – from relative mainstays such as bitcoin and ethereum to more exotic tokens – have cratered since they all hit – highs in early November, wiping out an astonishing $1.35 trillion in value worldwide, or almost half of the total market, according to CoinMarketCap.

The slide accelerated over the past week as investors fled riskier bets for safer havens. The “crypto crash” has put pressure on regulators in Washington to impose stricter rules on the industry – and raised new questions about the dangers of cryptocurrency for the average investor.

“You’re going to see more and more people calling their elected representatives, generally unhappy with crypto or thinking they’ve been wronged in some way,” said Ian Katz, managing director of Capital Alpha Partners. , a Washington-based policy analysis firm. “All regulators and members of Congress want to appear alert behind the wheel, and if it turns out to be a continued bloodbath, that increases the impetus for action.”

The crypto price plunge followed a stock market selloff that saw the broad-based S&P 500 lose around 8% of its value this year, as investors brace for interest rate hikes from the Federal Reserve and to potentially disappointing corporate earnings.

Still, the crypto and equity markets are trying to recoup some of their recent losses. Bitcoin, which was trading below $33,000 on Monday morning, rallied back to around $37,000 on Tuesday afternoon. And after two days of wild swings, the S&P 500 and the Dow Jones Industrial Average held steady at their early week levels.

In the meantime, the crypto swoon is hitting celebrities and everyday investors alike. A number of star athletes have entered into promotional deals with crypto companies that involve converting at least a portion of their salaries into digital assets. Los Angeles Rams wide receiver Odell Beckham Jr. announced in late November that he would convert $750,000 of his 2021 salary into bitcoin as part of a deal with payment service Cash App.

If Beckham converted that amount into a lump sum at the time, it could be worth as little as $35,000 now, after taking into account bitcoin’s decline and its tax burden on the initial payment, according to the Action analyst. NetworkDarren Rovell.

The rise of the industry has attracted a wider circle of Americans: one in 6 now say they have invested in, traded in, or otherwise used cryptocurrency, according to a recent Pew Research Center study. And this pool is increasingly diversified. Forty-four percent of those who have bought or traded crypto in the past year are non-white, and 35% have an annual household income of less than $60,000, according to a survey conducted this summer by NORC at the ‘University of Chicago.

Many crypto holders are undeterred. Relative veterans point to their experience of holding through a price crash in late 2017 and early 2018 that investors are now calling “crypto winter” — and the dramatic rally that followed. They say recent price swings haven’t shaken their faith in the tech’s long-term value, bidding farewell to new investors with a sort of “so long, there’s more left for the rest of us” lan. we “.

“Goodbye to all non-believers,” Bankless co-owner David Hoffman tweeted on Saturday as prices continued to fall.

In an interview with The Post, Hoffman, whose company hosts a crypto newsletter, podcast and Discord group, said his circle of friends, which formed during the crash four years ago, felt almost more comfortable in a down cycle.

“We were all born in the bear market, so we’re finally back home,” he said, noting that Ethereum is now worth $2,400, “and last time it was worth $80.”

“Obviously, no one is happy to see their portfolio shrink by 40% in seven days, but it’s really a question of: Do you believe crypto is going to be the dominant financial platform of the future?” said Hoffmann.

Similarly, newly wealthy crypto holders who moved to Puerto Rico in the past year to take advantage of tax breaks on crypto investments haven’t seen much impact from recent price swings, George said. Burke, a tax break recipient who moved to the island last May.

“The cryptocurrencies here are likely long-term holders. Many, like me, have been in the space for years and have seen multiple price cycles. None of us need to panic to sell. We’ve seen it before,” said Burke, co-founder and chief marketing officer of Portal, a Delaware-incorporated peer-to-peer cryptocurrency trading platform.

Portal took market movements into account when deciding whether to go ahead with its planned public sale because “public opinion and investor input” are closely tied to bitcoin’s price, said Burke, whose company has four members. team based on the island. Eventually, they decided to move on.

“I personally think this crisis is very temporary,” he said.

Nonetheless, the crash resonates in Washington, where White House officials are scrambling to better coordinate what has been a fractured approach to crypto by federal agencies haggling over how to regulate the new asset class.

White House officials plan to release a memorandum this month that people familiar with the matter say would cover many cryptocurrency-related topics. These include White House guidelines for a central bank digital currency, a form of digital money that would be backed by the Federal Reserve and could compete with some privately-issued cryptocurrencies. The White House is also expected to weigh in on the impact of crypto on financial market stability and the need to synchronize digital currency regulations with other countries that may have different approaches.

The White House effort — underway since last summer but first made public in a Bloomberg News report — is not expected to contain any significant policy recommendations. But it is likely to designate further action to parts of the federal government, including the Treasury Department and the Securities and Exchange Commission. The White House memorandum is expected to be produced by the National Security Council.

“The White House wants to send a clear message that it favors a coordinated approach related to cryptocurrencies rather than a dispersed approach by regulatory agencies,” said a person familiar with the matter, speaking on condition of anonymity. discuss an administrative matter not yet made public. “They’re going to use the document to put in place a framework for different agencies to start working on different assets that are important to both financial stability and national security.”

But industry-focused regulators are not waiting to move forward. Securities and Exchange Commission Chairman Gary Gensler, arguably the administration’s most aggressive advocate for tighter oversight, said last week that his agency was considering new rules for crypto trading platforms. Without them in place, “it would be another year of public vulnerability,” he said during a virtual roundtable with reporters.

The SEC has taken 97 enforcement actions against industry players since 2013, including 24 last year, according to Cornerstone Research.

Jose Santana Torres, a taxi driver who started trading cryptocurrency around 2018 after accepting payment for rides in bitcoin, said he felt insulated from volatile market changes because he had moved valuable bitcoin and Ether holdings into Tether, a “stablecoin” that claimed to be backed by an equivalent amount of US dollars. The company was ordered to pay a $41 million fine to the US Commodity Futures Trading Commission in October to settle allegations that the claim was misleading.

“Always hold it for the next bull run. … It doesn’t matter to me,” he said.

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Chris Alcantara of The Washington Post contributed to this report.

This story originally appeared on washingtonpost.com. Read it here.

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