Crypto Mayhem of June: a difficult month for cryptocurrencies

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June has been a tough month for the cryptocurrency world, with the last week having been particularly tough. It is difficult to identify a single and specific cause behind the pullback, as a variety of new and nagging concerns about the viability of cryptocurrencies continue to mount.

When it comes to price action, Bitcoin fell like a rock below $ 30,000 last week, less than half of its high last year. The Dogecoin meme cryptocurrency has lost over 60% of its value, down to $ 0.24 from a high of $ 0.72 earlier this year. Etherium has been halved, as have many other cryptocurrencies. The NFT market, whose enthusiasm has benefited from the cryptocurrency craze, has also declined. NFT’s sales volume fell by more than 90% compared to its activity in the previous month.

So why the fall?

First, the enthusiasm slows down. Even as cryptocurrencies are becoming a more common household word, their use for real, non-illicit transactions is practically nil. The viability of cryptocurrencies to replace assets is increasingly questioned, because despite the global attention given to them, they still do not represent a meaningful use of currency.

Second, doubts about the legitimacy of the Bitcoin markets themselves have increased. Making headlines, a pair of South African brethren disappeared, taking with them a massive treasure of other Bitcoin peoples worth over $ 3 billion. As we have already noted, Bitcoin security actually works against ordinary users, who have to rely on third parties to transact on their behalf.

Beyond individual bad players, there is growing concern about the general functioning of the Bitcoin market. All currencies, including Bitcoin, trade with what are known as trading pairs. In other words, since it is always money for money, the question is not how much Bitcoin costs in absolute value, but how much it costs compared to other currencies. Bitcoin transaction with hard currencies is much more difficult than transaction with other cryptocurrencies. This has led to the growth of stablecoins, which are cryptocurrencies tied to the value of a specific underlying currency. The idea behind stablecoins is that they are almost 100% backed by the given currency, and therefore can be freely used / interchanged with.

The most popular of the stablecoins is Tether, the dollar denominated tether with the symbol USDT. However, questions regarding Tether’s governance and the extent to which USDT is backed by real dollars have grown over the years. Much of Bitcoin’s meteoric rise in 2017 was tied to the production of Tether tokens, with evidence that these were produced without a corresponding influx of supporting dollars.

Although the questions around Tether are old news, they have multiplied. This year, Bitfinex, a technically separate company, but heavily linked to Tether, was sued by the New York attorney general for (a) misleading investors about the amount of support from Tether, and (b) mismanaging funds for cover massive losses in the business. They settled an $ 18.5 million fine that did not require a confession of wrongdoing. Additionally, the SEC has become increasingly involved in cryptocurrency oversight, and rumors are circulating that Tether may be the next target.

The question then arises, if the rise of Bitcoin (and other cryptocurrencies) is denominated in Tether instead of dollars, but Tether is not actually fully backed by dollars, then to what extent is Bitcoin selling? it really priced? These questions have caused a lot of uncertainty as to the extent to which Bitcoin prices actually reflect market conditions.

In addition, several big names have been strong against cryptocurrencies in recent days. NN Taleb, author of Antifragile, published an article critical of modern cryptocurrencies (including Bitcoin) titled Bitcoin, Currencies, and Bubbles. In the paper, Taleb criticizes Bitcoin for a variety of flaws, claiming that since Bitcoin does not function as a long-term store of value or as a medium of exchange, that Bitcoin’s current value is effectively zero. Likewise, Michael Burry, made famous in the book and movie The Big Short for correctly predicting the 2008 stock market crash, said he believes cryptocurrencies are preparing the market for the mother of all crashes.

On the bright side, El Salvador recently voted to make Bitcoin legal tender in the country, and Paraguay is in the process of drafting similar legislation for itself. Whether or not Bitcoin becomes official as a payment method will lead to wider adoption of transactions remains unclear.

In short, this week cryptocurrencies have faced various headwinds, indicating that some of the enthusiasm of the past few years has dried up. Whether the price goes up or down, the intrigue and questions surrounding the first wave of digital currencies don’t seem to be easing.

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