We were just in much more of a financial boom and a crypto boom, specifically. Even in that period, the market prices of various cryptocurrencies were moving up and down—massive swings—30 percent swings within a week, sometimes. I advise a bunch of entrepreneurs and the feeling of many at the time was that it was very difficult to be building in that environment because things were changing so rapidly, and there was so much attention and pressure from the boom cycle.
That means there has been lost value—there have been losses for the entrepreneurs; there are losses for the investors. And that percolates back to retail investors, as well. But at the same time, the entrepreneurs who are still out there swinging are getting a lot done and creating a lot of value. And remember: not all crypto products are purely financial.
For example, many are more consumer-facing products like systems for coordinating group decisions or managing event tickets. The long-run view is that there is real fundamental technological value here, and so what really matters for the market is whether we can realize that value through entrepreneurship and supporting regulation.
And I think the current environment is one in which we have a lot of potential to do that. Gazette: The flurry of bad news involving high-profile firms like Bitcoin, Terra, and Celsius has renewed calls for regulators to protect consumers from fly-by-night currency operators, scammers, and theft. How vulnerable are crypto investors, particularly the retail-level amateur investors? There needs to be more transparency and not just transparency at the abstract level, but the technology needs to be made transparent for consumers in ways that they can understand.
Highlight it in the same way that we provide information about other asset classes and products. How is this wave of regulation going to affect the market? Kominers: Some regulation is probably good for the industry because in order for crypto to reach mainstream adoption and use, it needs to be in a market and technology context where the consumer can gain access and do so in a way that is valuable and much lower risk than today.
So, some degree of improved structure and framework-building is good. Geoff Bennett: As you mentioned, novice traders, amateur traders have suffered seismic losses, some people losing it all they put in a ton of money, because they were looking for, you know, quick sizable returns, and the timing of it.
So, you know, this meant that they lost a lot of money and they lost it quickly. Andrew Chang: Yes, I think with any investment strategy, it's important for people to consider their current financial situation and their goals. But anytime you're investing in new technology, a more volatile asset, you're going to see greater risks with greater returns. And so some folks have been looking for greater returns. But they ignored the greater risks. Geoff Bennett: But what about people who say that crypto is a scam?
And this latest crash just proves that. You have companies like Celsius, which declared bankruptcy. They won't let people withdraw their funds. I mean, you've spent a lot of time in this world is crypto legit? Andrew Chang: Yes, I think crypto is going through the same things new technologies go through at the start, just like the internet went through a lot of innovation cycles, where there were internet companies that tried different business models that didn't work out.
And so it's not that crypto itself is a scam. It's going through the growing pains of any new technology. And you see regulators finding different ways to regulate and finding new problems with the way that people are interfacing with the technology. The technology itself isn't a scam. Geoff Bennett: When you talk about regulation, President Biden as you know, back in March, he signed an executive order calling on the federal government to examine the risks and benefits of cryptocurrency is more regulation, the answer, do you think?
Andrew Chang: I think it's inevitable. You know, if you think about what regulation is regulation comes went to protect consumers. And when you have situations like you've had in the past couple of months, where companies have taken on too much risk or haven't been playing by the rules, that's when regulators come in to try to help establish rules. So, I don't think regulation is the answer, per se, as you had have companies that do operate in a way that is good for consumers.
There's no need for regulation. So you know, given the current hiccups in with some of the companies, you're going to see more regulation coming in to help provide guardrails for companies. Geoff Bennett: Andrew Chang, thanks so much for your time and for your insights.
Another factor weighing down crypto is its correlation to the stock market, which itself has tumbled recently. Although long-touted by supporters as an inflation hedge , Bitcoin is behaving more like a risk asset, Bank of America analysts wrote earlier this month. Because crypto moves much more like a tech stock than it does an inflation hedge, when tech stocks tank, so do digital assets.
The so-called algorithmic stablecoin cratered the broader crypto market when it fell well below its theoretically fixed peg to the U. The point of the stablecoin, and others like it, was to offer a safe haven for investors seeking to avoid the fluctuations in other cryptocurrencies like Bitcoin and Ether, by holding a constant value, no matter market conditions. In this case, UST lost that peg and traded as low as 13 cents on Friday after a week of turbulence.
As investors saw the stablecoin dropping, they rushed to withdraw their money, causing what some analysts have called a death spiral. Major crypto exchanges ultimately delisted both Luna and UST to protect consumers. To deal with inflation, the Fed is tightening monetary policy, pushing investors away from speculative bets like cryptocurrencies to safer assets like bonds.
Article continues below advertisement Source: CoinMarketCap Investors taking profits may be another factor behind the crypto selloff. In , cryptocurrencies soared to record highs, and the investors who benefited from that may be taking out some money to cover taxes, pay student loans , or fund retirement savings accounts. Some may even be selling at a loss to exploit the wash sale tax loophole in cryptocurrencies while it still exists.
Russia has signaled that it may join China in closing its market to cryptocurrencies, and Americans are also bracing tighter crypto regulations. Shiba Inu and Dogecoin are about 80 percent off their peaks, and the race to find the next crypto to explode may pull them down more. Will cryptos rebound?
Inspired by the likes of Crypto Kaleo and CryptoWeatherMan , investors have come to believe that cryptocurrencies can make you rich quickly, and buying low is usually a great deal. Therefore, you can expect a rush to buy once prices come down.