A process of sorting is taking place as the dodgiest parts of the crypto world are exposed, while other parts prove more resilient
Save time by listening to our audio articles as you multitaskhas been brutal. In November the market value of cryptocurrencies was almost $3trn. That fell to $2trn by mid-April before plunging by another 35% to just $1.3trn now. Bitcoin has briefly dipped below $29,000, its lowest since late 2020. Crypto’s detractors have long argued that it is useless—unless you are a money-launderer or con-artist—and predicted its demise. The crash will convince many that they are right.
is forcing central banks to tighten monetary policy, triggering a sell-off in riskier or long-dated assets. After a heavy sell-off on May 18th, the tech-heavyHowever crypto is top of the list of speculative assets receiving a drubbing. The sell-off has exposed glaring weaknesses. Consider terra, an “algorithmic”, whose value is backed by another asset, supposedly making it dependable.
Investors are now doing what they are supposed to: penalising instruments that are fundamentally flawed or issued by organisations that are badly run. Yet the sell-off has sparked renewed calls for the government to step in. Consumers are in danger of being ripped off. And volatility could yet spill over into the conventional financial system.
Some critics would like the crypto system banned; others would like it heavily regulated, just as banks are; still others want regulation but fear that this might be interpreted as an official endorsement. The trouble is that a draconian crackdown would put at risk the benefits that crypto eventually promises, including new financial products that bypass stodgy banks; innovations in property rights; and the possibility of a less centralised financial system.
So what should governments do? The best path would be to accelerate the process of sorting that is under way. Key to this is more reliable information so that retail users and institutions can guard more effectively against fraud. In particular, stablecoins should be forced to disclose their backing—what the assets are, where they are held and who controls them.
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