So why are cryptocurrencies crashing? It is important to remember that in this last cycle, crypto assets are not alone. The stock market has also been experiencing a recession, as U.S. policymakers seek to control inflation by tightening the money supply and raising interest rates. Cryptocurrency markets are volatile, so buying cryptocurrency at any price, let alone a decline that could become a long-term trend, is risky.
While prices could return to previous levels, they could also fall even lower, leaving your investment underwater. Not only does Coinbase record fewer transactions, but cryptocurrency prices have fallen to their lowest levels this year. This “fall in cryptocurrencies” has reinforced the perception of critics that digital currency markets are primarily used as an investment vehicle, since it is not widely accepted, since payment for goods and services is little more than global casinos that operate with virtually no rules or liability. Harvard Business School professor Scott Duke Kominers spoke to the Harvard Gazette about why the cryptocurrency market has plummeted in recent months and how the wave of upcoming international regulation could affect the market.
The interview has been edited for clarity and length. Cryptoassets are highly volatile, partly because there is a lot of uncertainty about which cryptographic technologies are the most useful in the long term, for example, which ones the market can coordinate for media of exchange, and many of the applications are technological in nature and novel (or at least haven't been proven). The exchange said it hasn't been harmed by cryptocurrency companies seeking protection against bankruptcy. Crypto bank Celsius abruptly halted its withdrawals in recent weeks due to “extreme conditions” in the market, and cryptocurrency hedge fund Three Arrows Capital could be in the process of being liquidated.
Therefore, cryptocurrency prices are usually quoted in dollars, most crypto transactions involve stable currencies linked to dollars, and stable currencies linked to the dollar are widely used as secure collateral for cryptocurrency loans. The challenge, of course, is that these cryptocurrencies and other crypto assets are often simultaneously financial assets and technological platforms, which means that we have to think about two different categories of regulation that work together. The crypto ecosystem has firmly adhered to the traditional financial system, and the dollar dominates cryptocurrency markets just as it does with traditional financial markets. The co-founder of the automated cryptocurrency trading platform Coinrule, Oleg Giberstein, believes that cryptocurrencies are suffering the same tensions as other parts of the economy, leading to falling prices.