Blockchain (Technology)

Cryptocurrencies Melt Down in a ‘Perfect Storm’ of Fear and Panic

Cryptocurrency prices also dropped precipitously. The price of Bitcoin fell as low as $26,000 on Thursday, down 60 percent from its peak in November, before rising somewhat. Since the start of the year, Bitcoin’s price movement has closely mirrored that of the Nasdaq, a benchmark that’s heavily weighted toward technology stocks, suggesting that investors are treating it like any other risk asset.

The price of Ether plunged, too, losing more than 30 percent of its value over the last week. Other cryptocurrencies, like Solana and Cardano, are also down.

Any panic might be overblown, some analysts said. A study by Mizuho showed that the average Bitcoin owner on Coinbase would not lose money until the digital currency’s price sank below $21,000. That, according to Mr. Dolev, is where a true death spiral could occur.

“Bitcoin was working as long as no one lost money,” he said. “Once it gets back to those levels, that’s sort of the ‘Oh, my God’ moment.”

Professional investors who have weathered past crypto volatility also stayed calm. Hunter Horsley, chief executive of Bitwise Asset Management, which provides crypto investing services to 1,000 financial advisers, met with more than 70 of them this week to discuss the market. Many were not selling, he said, because every other asset was down, too. Some were even trying to capitalize on the drop.

“Their standpoint is, ‘This is no fun, but there is nowhere to hide,’” he said.

Still, the plummeting prices have rattled crypto traders. Just a few months ago, blockchain proponents were predicting that Bitcoin’s price could rise as high as $100,000 this year.

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As Scrutiny of Cryptocurrency Grows, the Industry Turns to K Street

The board of advisers at the digital chamber is stuffed with former federal regulators, including a former member of Congress and a recent chairman of the Commodity Futures Trading Commission, J. Christopher Giancarlo, who was named to the board of BlockFi, a financial services company that tries to link cryptocurrencies with traditional wealth managers.

Max Baucus, the Democratic former chairman of the Senate Finance Committee, and Jim Messina, a former top Obama adviser, also have recently been named to senior industry posts.

Lobbying disclosure records show that at least 65 contracts as of early 2021 addressed industry matters such as digital currency, cryptocurrency or blockchain, up from about 20 in 2019. Some of the biggest spenders on lobbying include Ripple, Coinbase — the largest cryptocurrency exchange in the United States — and trade groups like the Blockchain Association.

The lobbying burst is one of several recent signs nationwide that the industry is becoming a bigger presence in the economy. FTX, the cryptocurrency trading firm, is spending $135 million to secure the naming rights to the home arena of the Miami Heat.

The billionaire Elon Musk, who hosted “Saturday Night Live” this weekend, was asked about Dogecoin, a cryptocurrency featuring the face of a Shiba Inu dog that was created as a joke but has recently surged in value. “It’s the future of currency. It’s an unstoppable financial vehicle that’s going to take over the world,” Mr. Musk said, before adding, “Yeah, it’s a hustle.” The price of Dogecoin plunged nearly 35 percent in the hours after the show aired.

With the industry’s hires of recent government officials, claims of conflicts of interest are already starting to emerge.

Jay Clayton, who was the S.E.C. chairman until December, is now a paid adviser to the hedge fund One River Digital Asset Management, which invests hundreds of millions in Bitcoin and Ether, two cryptocurrencies, for its clients. Mr. Clayton declined to comment.

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We’re All Crypto People Now

All the while, the true believers and veterans of the 12-year-old digital currency industry insist that the underlying tech is real and transformative and finally — finally! — ready to upend nothing less than the global financial system and internet as we know it.

Everyone seems to be getting rich or selling a token or predicting a revolution. Digital currencies are volatile, risky and prone to bubbles; countless fortunes have already been made and lost. In some cases, many people are already using blockchains — the underlying technology of cryptocurrencies — without realizing it or understanding how, exactly, they work.

“Bitcoin mania is not a fad,” Daniel Ives, an equities analyst at Wedbush Securities, wrote in a recent note to clients, “but rather the start of a new age on the digital currency front.”

Short of that, cryptocurrency is, at the very least, now seen as a good place to park some cash. Everyone has read the stories of teenage crypto millionaires — or the pizza bought with Bitcoin that would now be worth millions. To not get involved is, in crypto-speak, to “have fun staying poor.” In other words: We are all crypto people now. Gulp.

‘Is this a bad dream?’

It’s hard to sit by, watching our index funds and 401(k)s passively, predictably, responsibly tick upward, while an art-world outsider named Beeple sells an NFT of a digital collage for $69 million. For many, news of this transaction raised a simple question: Why not me?

Mark Greenberg, a photographer, had that thought in March when he auctioned off an NFT of a previously unpublished portrait he’d taken of Andy Warhol in 1985. Watching the bids climb to $100,000, he was elated. He hadn’t been able to work much in the pandemic, and this money could help with his daughter’s upcoming wedding and the house he’d just bought. But then he started to worry.

His sale’s bounty was stored in a digital account that only he had access to. What would happen to it if he, a 69-year-old with some health issues, suddenly dropped dead?

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LVMH, Richemont and Prada unite behind a blockchain consortium.

Three rival names in the European luxury sector have established a new blockchain consortium that will allow shoppers to track the provenance of their purchases and authenticate goods.

LVMH Moët Hennessy Louis Vuitton, which first unveiled plans for a global blockchain-based system in 2019, will be joined by Prada Group and Compagnie Financière Richemont in the Aura Blockchain Consortium, a nonprofit group that will promote the use of a single blockchain solution open to all luxury brands worldwide.

Many sectors are looking at the possibility of using blockchain, the distributed ledger system that underpins Bitcoin and other cryptocurrencies. Because blockchains are unchangeable and decentralized, the data stored on them is trustworthy and secure.

In this case, each product will be given a unique digital code during the manufacturing process that will be recorded on the Aura ledger. When customers make a purchase, they will be given login details to a platform that will provide the history of the product, including its origin, components, environmental and ethical information, proof of ownership, a warranty and care instructions.

Bulgari, Cartier, Hublot, Louis Vuitton and Prada are already using the system, with “advanced conversations” being held with a number of other luxury brands, according to a statement released Tuesday. Participating luxury brands pay an annual licensing fee and a volume fee. Aura, based in Geneva, was developed in partnership with Microsoft and ConsenSys, a blockchain software technology company in New York.

“The Aura Consortium represents an unprecedented cooperation in the luxury industry,” said Cartier’s chief executive, Cyrille Vigneron, adding that he invited “the entire profession” to join the consortium.

“The luxury industry creates timeless pieces and must ensure that these rigorous standards will endure and remain in trustworthy hands,” he said.

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Coinbase’s Washington Debut

Players, observers, lobbyists and the lobbied alike consider this a critical moment for crypto and its influencers. Succeeding or failing to persuade officials now will determine whether regulation allows the digital gold rush to accelerate or slows it to a sputter.

What’s at stake?

Here are four of the big issues keeping crypto lobbyists busy:

Reputation. The impression that crypto facilitates crime is voiced with some frequency by lawmakers and regulators, and it remains a significant hurdle to legitimacy. The Crypto Council’s first commissioned publication is an analysis of Bitcoin’s illicit use, and it concludes that concerns are “significantly overstated” and that blockchain technology could be better used by law enforcement to stop crime and collect intelligence.

Reporting requirements. New anti-money-laundering rules passed this year will significantly expand disclosures for digital currencies. The Treasury has also proposed rules that would require detailed reporting for transactions over $3,000 involving “unhosted wallets,” or digital wallets that are not associated with a third-party financial institution, and require institutions handling cryptocurrencies to process more data. The Financial Action Task Force, an intergovernmental watchdog and standards body, recently provided draft guidance on virtual assets that would require service providers to hand over further information.

Securities insecurities. When is a digital asset a security and when is it a commodity? Not technically a riddle, this question has puzzled regulators and innovators for some time. Bitcoin and other cryptocurrencies that are released via a decentralized network generally qualify as commodities and are less heavily regulated than securities, which represent a stake in a venture. Tokens released by people and companies are more likely to be characterized as securities because they more often represent a stake in the issuer’s project.

The Securities and Exchange Commission sued Ripple Labs in December, accusing it of selling unregistered securities in the form of a token called XRP. Ripple insists that XRP is a commodity. A decision in this case may prove to be a watershed for determining how to properly characterize cryptocurrencies in the future.
This week, an S.E.C. commissioner, Hester Peirce, published an updated “safe harbor” proposal that would give developers a grace period to issue a token without fear of mischaracterization and to keep regulators informed. “The idea is to give people a three-year runway,” Ms. Peirce said.

Catching up with China. The Chinese government is already experimenting with a central bank digital currency, a digital yuan. China would be the first country to create a virtual currency, but many are considering it. Some crypto advocates worry that China’s alacrity in the space threatens the dollar, national security and American competitiveness.

For more, see our previous weekend edition about the future of crypto regulation.

Meet me in the lobby

“With any new industry, figuring out Washington isn’t easy,” said Ms. Peirce, the S.E.C. commissioner. Entering a heavily regulated industry like finance and talking about technology that few officials understand only compound the difficulty for the crypto crowd.

Since joining the S.E.C. in 2018, Ms. Peirce has been a vocal supporter of blockchain both in the halls of power and in crypto insider circles, sharing her thoughts on hot topics like when there will finally be a Bitcoin exchange-traded fund in the United States. (Not soon enough, in her view, but perhaps soonish.)

As the sector matures, some things will get easier even while the landscape of players gets more complex. Blockchain businesses will increasingly speak to regulators who understand their language, Ms. Peirce said, like the new S.E.C. chair, Gary Gensler, a former M.I.T. professor who taught crypto classes and was coincidentally confirmed on the day that Coinbase listed.

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Are NFT Purchases Real? The Dollars Are.

Is his art real, I asked? He said he provides his buyers with physical screens with his works on them, so that’s kind of real, maybe.

Then he held up his phone and showed me an app that summarized his personal financial assets: At that moment, they included $56,635,781.41 in cash. He had received his payment in cryptocurrency, and immediately converted it into what I still think of as real money. The digital artist had transformed most of his new wealth into something I could understand: U.S. dollars.

But those dollars on his screen are a digital representation, too! “It’s not like I have 56 million dollar bills in my house,” he said, waving his hands to show the lack of stacks of bills. “I just have a number; you and I know this number is as real as anything else.”

In the world of modern art, it’s common for people to look at an abstract piece and say, “My kid could do that!” But, he said, “I’m pretty sure a kid couldn’t do what I do,” and showed me one of his pieces. It depicted a big sphere, and the image also contained a mountain and, by the way, a goat, among other elements, that he used digital trickery to manipulate, resize and juggle. The process was playful, but it also had something more, a guiding sensibility. Something that felt like — I might as well say it — art.

Besides, he asked me, what’s the inherent value of a baseball card? “You paid this much money for a little piece of cardboard?” he asked. “Even a painting. It’s just a piece of stretched fabric with some splotches of paint on it. Why would you pay for that?”

Did I mention that an NFT of a cat with a Pop-Tart body that leaves a trail of rainbows recently sold for nearly $600,000?

He had me wondering whether anything is real, and whether we’re not all just living in a consensual illusion.

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¿Por qué alguien pagó 560.000 dólares por una imagen de mi columna?

“A las personas de mi generación, que crecieron en la década de 1970, les encantará coleccionar libros de primera edición, novelas como el Ulises de James Joyce”, escribió en un correo electrónico. “Lo que las cripto y los NFT abrieron es la propiedad de los derechos para decir que uno posee tal cosa, ya sea tangible o intangible, en una forma que miles, si no es que millones, pueden ver y rastrear en tiempo real, en cualquier parte del mundo”.

André Allen Anjos, un artista de música electrónica de Portland, Oregón, que ofreció 5,69 etheres (cerca de 9200 dólares) por el NFT, me dijo en una entrevista telefónica que pujar por el token tal vez se podría considerar como un gesto simbólico de agradecimiento hacia mí y el Times de parte de la criptocomunidad por, sobre todo, tomarlos con la suficiente seriedad como para hacer un experimento con nuestra propia venta de tokens.

“Es como si una publicación convencional intentara interactuar con nosotros como comunidad de una manera real y sincera”, señaló. “Yo quería dar a entender que esto es fabuloso, que están planteando las preguntas correctas”.

Anjos mencionó que había crecido en la era de Napster, cuando los músicos se dieron cuenta de que internet podría destruir su modo de subsistencia al facilitar la reproducción de canciones de manera gratuita. Comentó que la tecnología de cadenas de bloques había cambiado eso al poder crear objetos coleccionables de edición limitada timbrados con el sello digital de su procedencia. Anjos mencionó que la idea de coleccionar los NFT no era tanto poseer las piezas en sí (la mayoría de las cuales pueden descargarse de manera gratuita de internet, pero sin las firmas criptográficas especiales), sino más bien demostrar confianza en este nuevo modelo de adquisición.

“No voy a llamarlo protesta, pero es una declaración”, afirmó. “Este es el criptomundo intentando probar que existimos; nos interesa revolucionar este modelo y estamos dispuestos a invertir nuestro dinero en eso”.

No todos los motivos de los postores eran tan nobles. Sterling Crispin, investigador de Apple que tiene otro trabajo como artista de NFT, mencionó que había ofrecido 4125 etheres (cerca de 6700 dólares) por mi token porque tenía en puerta una presentación virtual y esperaba que la puja atrajera algo de publicidad.

“Dije, bueno, estoy a punto de emitir un NFT para esta presentación en solitario”, comentó. “Valdría muchísimo la pena que aparecieran cuatro etheres en el Times”.

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Why Did Someone Pay $560,000 for a Picture of My Column?

$98,000.

$143,000.

$277,000.

After more than 30 bids, the auction ended at 12:32 p.m. Eastern time, with a winning bid of 350 Ether, or about $560,000. A few minutes later, after the auction platform had taken its cut, nearly $500,000 in cryptocurrency landed in my digital wallet. I was stunned. Congratulatory texts and media requests started pouring in. My colleagues joked about stiffing the charity and slipping off to the Cayman Islands. My editor said I shouldn’t expect a raise.

The whole ordeal was surreal, and it raised the question: Why would anyone spend the price of a high-end Lamborghini on a picture of my words? After all, the NFT was just a cryptographic signature linked to an image of a column that anyone could read on The Times’s website, albeit with a few bonus perks. (I also stipulated that I would feature the winner’s name and photo in a follow-up column, and Michael Barbaro, the host of “The Daily,” gamely agreed to throw in a voice message for the winner.)

The winner, whose handle on the auction site was @3fmusic, appeared to be a prominent NFT collector. The profile on the site was linked to a Twitter profile belonging to a Dubai-based music production company, and to an Instagram account identified as that of Farzin Fardin Fard, the company’s chief executive. The user’s NFT collection included a variety of other expensive digital works, including a $14,000 “emoji portrait” of the musician Billie Eilish and a $8,000 piece titled “Jumping Spider enjoying coffee in the morning.”

I reached out to @3fmusic to offer my congratulations on the purchase and to discuss the bid. They (it’s not clear if the winner is Mr. Fard or some other individual or multiple people) declined to be named — and, because of the pseudonymous nature of blockchain-based transactions, there’s no easy way for me to identify them beyond the information they volunteered — but they sent me a statement over Twitter direct message that read:

“We are already involved in art and media for a long time now,” the message read. “Our management team is always in cooperation with some highly knowledgeable and experienced art advisers who believe that we must grow with technological movements that help us to not only promote our business but also to support artists and the art market. Thus, we have proudly decided to dedicate sufficient funds and resources to invest in NFT as pioneers of this industry.”

They also gave me permission to include an image of their music studio’s logo in this column.

Jiannan Ouyang, an NFT collector who dropped out of the auction after a high bid of 290 Ether (about $469,000), told me that he had decided to bid on my NFT for both personal and professional reasons. He’s a former Facebook research scientist who is now a blockchain entrepreneur, and he’s married to a journalist.

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