Expensive digital images of monkeys have caused huge changes in the world. What is the underlying reason why cryptocurrencies continue to plummet?

Cryptocurrency (English: Cryptocurrency, often used in the plural Cryptocurrencies, also translated as cryptographic currency, cryptographic currency) is a medium of exchange that uses cryptographic principles to ensure transaction security and control the creation of transaction units. Cryptocurrency is a type of digital currency (or virtual currency). Bitcoin became the first decentralized cryptocurrency in 2009, after which the term cryptocurrency often refers to this type of design. Since then, several similar cryptocurrencies have been created, which are usually called altcoins. Cryptocurrency is based on a decentralized consensus mechanism, as opposed to a banking and financial system that relies on a centralized regulatory system. The decentralized nature stems from the blockchain technology that uses a distributed ledger. On May 26, 2021, it was reported that the Philippine Star website published an article entitled "Rumors of the "Death of Cryptocurrency" are exaggerated". The article believes that cryptocurrency will definitely not disappear and analyzes the problems it faces.

Recently, more and more cryptocurrencies have plummeted in price. The price of Bitcoin has fallen by nearly $10,000 in half a month, falling to a low of around $21,000, and the price of Ethereum is approaching the $1,000 mark. Some cryptocurrencies that have only appeared in the past two years, such as UST coin, have even collapsed. According to Coingecko statistics, the total market value of global cryptocurrencies has fallen below $1 trillion, the first time since January 2021.

In this regard, the industry generally believes that the rampant inflation has triggered a tighter monetary policy in the United States, which has driven the decline in cryptocurrency prices. On June 15, the Federal Reserve announced a 75 basis point interest rate hike, the largest rate hike since 1994. Recently, the yield on the 10-year U.S. Treasury bond has also approached 3.5%. The U.S. dollar is still the world's main trading and circulation currency and the anchor of global risk assets. The increase in the Fed's interest rate hike expectations means that global liquidity will tighten rapidly, bringing about a revaluation of global risk asset prices. Global risk asset prices, mainly in the U.S. stock market, have fallen significantly recently. As a high-risk financial asset, a sharp drop in the price of cryptocurrency is inevitable. Moreover, the volatility of cryptocurrency is significantly higher than that of other assets, and it can be regarded as a leading indicator of the price trend of risk assets.

In fact, since the birth of cryptocurrency, there has been constant controversy over its attributes. Many cryptocurrency founders believe that cryptocurrency uses blockchain technology and achieves decentralization, has the functions of circulation and storage, and is an out-and-out currency. However, this conclusion obviously cannot withstand serious scrutiny, because the issuance mechanism of modern currency has been gradually perfected after hundreds of years, and cryptocurrency has only appeared for more than ten years.

Generally speaking, the basis for a country's currency issuance lies in its ability to repay its national debt or the level of its overall fiscal revenue. The greater the fiscal revenue, the stronger the purchasing power of the country's currency, and vice versa. In contrast, the issuance of cryptocurrencies does not have corresponding collateral as an effective support for stabilizing its currency value. It only controls the number of issuances. Even for the newly emerging cryptocurrencies anchored to a country's legal currency, there is no corresponding mechanism to guarantee its currency value. It can only rely on the continuous purchase of investors to maintain its currency value. The only thing that can barely be said to be able to stabilize its currency value is the cost of electricity used for cryptocurrency "mining" and the purchase of equipment. However, due to the low cost of "producing" cryptocurrencies in the early stage, once the market trend reverses, early low-cost holders will sell in large quantities, causing the market to plummet.

The market performance of cryptocurrencies also fully illustrates this point. Taking Bitcoin, which has a relatively high degree of recognition, as an example, the price of Bitcoin shows a significant negative correlation with the yield of the US 10-year Treasury bond. Before the outbreak of the new crown pneumonia epidemic, the highest price of Bitcoin was US$10,000. After the Federal Reserve lowered the actual interest rate to below zero, the price of Bitcoin showed a rapid upward trend, and it rose to a maximum of US$67,965 at the end of 2021. As the expectations of the Federal Reserve's interest rate hike heat up, the price of Bitcoin has been in a rapid downward trend, and the current price has fallen by 70% from the highest price. The trend of other cryptocurrencies is basically similar to that of Bitcoin. The difference is that due to the lower market recognition than Bitcoin, the volatility of many cryptocurrencies is stronger than that of Bitcoin. They may rise by more than 10,000 times during the boom period, and they may collapse quickly once the boom is over.

Cryptocurrency supporter and American billionaire Mark Cuban said some companies could face an existential crisis during a downturn in cryptocurrencies.

“In both the stock and cryptocurrency space, companies that are sustained by cheap, easily available capital but don’t have a valid business vision, they will disappear,” Cuban said.

The Dallas Mavericks owner quoted Berkshire Hathaway Chairman Warren Buffett in an interview: "When the tide goes out, you discover who's been swimming naked."

However, Cuban believes that despite the gloomy situation, disruptive applications and technologies will always find a market, whether in the stock market or cryptocurrency.

Cuban also pointed out the correlation between the Nasdaq and cryptocurrencies.

So far in 2022, the Nasdaq has fallen 29.27%, while Bitcoin, Ethereum, and Dogecoin have fallen 56.9%, 71.3%, and 67.7%, respectively.

Last month, Cuban commented on the cryptocurrency downturn, comparing it to the downturn the internet experienced in the 2000s.

“Chains that copy other people’s chains will fail. We don’t need NFTs or DeFi on every chain,” he said at the time.

Microsoft co-founder Bill Gates said he believes cryptocurrencies and NFTs are 100% scams based on the "greater fool theory."

The “greater fool theory” refers to the idea that overvalued assets will continue to rise because enough people are willing to pay a high price. Bill Gates, 66, the former world’s richest man, joked:

“Obviously, expensive digital images of monkeys are going to cause a world of change.”

Note: “Expensive Monkey Digital Avatar” refers to the Bored Ape NFT (BAYC), which is built on the Ethereum (ETH) blockchain and its current price is $91,781 (76ETH)/NFT.

Bill Gates has been relentless in his criticism of cryptocurrencies for years. On June 14, at a TechCrunch event in Berkeley, California, Bill Gates pointed out that people buy cryptocurrencies and NFTs with the idea that no matter what the current price is, it can be sold again for a higher price because "there will always be someone willing to pay more than me."

Bill Gates said he has never been involved in the cryptocurrency world, either long-term or short-term. Other world-renowned investors and company executives, including Warren Buffett and Jamie Dimon (CEO of JPMorgan Chase), are also skeptical of cryptocurrencies. Buffett once compared Bitcoin to "rat poison squared" in 2018.

NFTs, or Non-Fungible Tokens, are digital certificates for purchasing blockchain-based goods such as artwork, digital music and sneakers. After a surge in popularity, demand for NFTs seems to have stagnated recently. The Federal Reserve's aggressive rate hikes have crushed high-risk bets across the financial market, and NFTs, one of the most speculative products, are doomed.

When talking about NFTs, Gates seemed to single out the monkey NFT from the Bored Ape NFT series.

Bill Gates says he prefers concrete assets, like farms that produce output, or companies that make products.

Bill Gates made the above remarks as Bitcoin and other cryptocurrencies fell sharply as global markets trembled, wiping out most of their gains since the outbreak of the new coronavirus.

On June 15, the price of Bitcoin nearly fell below $20,000. Since hitting an all-time high in November 2021, the price of Bitcoin has fallen by more than two-thirds. The cryptocurrency is experiencing the fourth major sell-off in its 13-year history.

Cryptocurrency companies that have risen to fame due to the cryptocurrency investment boom have also suffered setbacks. Cryptocurrency exchange Coinbase Global Inc. announced that it would lay off only 20% of its employees; on the evening of June 12, Celsius Network LLC, one of the world's largest cryptocurrency lenders, told users that it was suspending all withdrawals, swaps and transfers between accounts due to extreme market conditions. Celsius has also hired a law firm to study its restructuring plan.

In a recent interview on Jacobin Radio’s podcast The Dig, host Daniel Denvir spoke with Edward Ongweso Jr, a technology reporter for Vice Motherboard and co-host of the podcast This Machine Kills, and Jacob Silverman, a writer at The New Republic. Together, they answered why cryptocurrency remains so attractive despite its crude and profitable nature. The English transcript (“Crypto Is Making Everything Worse”) has been edited for length and clarity. The following names are abbreviated. The Chinese translation has been abridged. Due to its length, it is published in two parts, the first of which is the first.

Crypto DD: Before we get started, let's cover some basics. What is cryptocurrency and is it actually money?EO: A simple way to look at cryptocurrency is that it is a digital token that is just a storehouse of value in some cases and some other complex initiatives around digital assets or projects. But, at its core, it is just a digital token that has some value in some way.