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.
SAN FRANCISCO — Bitcoin was conceived more than a decade ago as “digital gold,” a long-term store of value that would resist broader economic trends and provide a hedge against inflation.
But Bitcoin’s crashing price over the last month shows that vision is a long way from reality. Instead, traders are increasingly treating the cryptocurrency like just another speculative tech investment.
Since the start of this year, Bitcoin’s price movement has closely mirrored that of the Nasdaq, a benchmark that’s heavily weighted toward technology stocks, according to an analysis by the data firm Arcane Research. That means that as Bitcoin’s price dropped more than 25 percent over the last month, to under $30,000 on Wednesday — less than half its November peak — the plunge came in near lock step with a broader collapse of tech stocks as investors grappled with higher interest rates and the war in Ukraine.
The growing correlation helps explain why those who bought the cryptocurrency last year, hoping it would grow more valuable, have seen their investment crater. And while Bitcoin has always been volatile, its increasing resemblance to risky tech stocks starkly shows that its promise as a transformative asset remains unfulfilled.
institutional investors like hedge funds, endowments and family offices that have poured money into the cryptocurrency market.
declining revenue and a loss of $430 million in the first quarter. The company’s stock has fallen more than 75 percent overall this year.
The Nasdaq is already in bear-market territory, having ended Wednesday down 29 percent from its mid-November record. November was also when Bitcoin’s price hit a peak of nearly $70,000. The crash has been a reality check for Bitcoin evangelists.
Ukrainian counteroffensive near Kharkiv appears to have contributed to sharply reduced Russian shelling in the eastern city. But Moscow’s forces are making advances along other parts of the front line.
American aid. The House voted 368 to 57 in favor of a $39.8 billion aid package for Ukraine, which would bring the total U.S. financial commitment to roughly $53 billion over two months. The Senate still needs to vote on the proposal.
Russian oil embargo. European Union ambassadors again failed to reach an agreement to ban Russian oil, because Hungary has resisted the adoption of the embargo. The country is preventing the bloc from presenting a united front against Moscow.
Bitcoin has rebounded from major losses before, and its long-term growth remains impressive. Before the pandemic boom in crypto prices, its value hovered well below $10,000. True believers, who call themselves Bitcoin maximalists, remain adamant that the cryptocurrency will eventually break from its correlation with risk assets.
Michael Saylor, the chief executive of the business-intelligence company MicroStrategy, has spent billions of his firm’s money on Bitcoin, building up a stockpile of more than 125,000 coins. As the price of Bitcoin has cratered, the company’s stock has dropped roughly 75 percent since November.
In an email, Mr. Saylor blamed the crash on “traders and technocrats” who don’t appreciate Bitcoin’s long-term potential to transform the global financial system.
“In the near term, the market will be dominated by those with less appreciation of the virtues of Bitcoin,” he said. “Over the long term, the maximalists will be proven correct, because billions of people need this solution, and awareness is spreading to millions more each month.”
The cryptocurrency exchange Coinbase said on Thursday that its quarterly profit soared by more than 20 times from a year earlier as its revenue skyrocketed, in a sign of how enthusiasm for digital currencies has gone mainstream in the pandemic.
Coinbase said it brought in $1.8 billion in revenue during the first three months of the year, up from $191 million in the same period a year ago. Profits jumped to $771 million from $32 million. It was the company’s first earnings report since it went public last month.
But Coinbase also offered a cautionary note, saying that rivals were swarming the market and increasing competition. The company has been spending heavily on marketing and development to keep ahead of its competitors.
“The rapid expansion of the cryptoeconomy also creates challenges for Coinbase,” it said in a letter to shareholders. “We also have to continue to move quickly to address them, and that inspires us toward action and growth.”
a wave of market manias have gripped the financial world during the pandemic. That surge has also driven growth and profits for Coinbase. It said Thursday that 56 million people were verified on its platform, up from 34 million a year earlier.
But Coinbase’s share price has dropped as cryptocurrencies have fallen from their highs and its market capitalization now stands at $53 billion. On Wednesday, Elon Musk, chief executive of Tesla and a vocal cryptocurrency supporter, tweeted that Tesla would stop accepting Bitcoin as payment for cars, citing environmental reasons, and Bitcoin’s value dropped. One Bitcoin was worth under $50,000 on Thursday, down from more than $63,000 in mid-April.
Coinbase has also faced criticism as it has grown. Customers have said the company has ignored their pleas for help when their digital fortunes were stolen or when they were locked out of their accounts. Current and former employees have also said Coinbase has treated Black and women employees unfairly.
This week, Coinbase said it was increasing compensation for its employees as it tried to stay competitive and reduce uncertainty. Employees will no longer negotiate for salaries when starting at the company, which “can disproportionately leave women and underrepresented minorities behind,” it said in a blog post.
started as a joke, would be available to trade on Coinbase in six to eight weeks.
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.
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?
Mr. Gelzinis said Mr. Gensler would probably draw on his familiarity with the subject matter — he taught classes on blockchain technology at the Massachusetts Institute of Technology — to approach regulation around digital currencies more strategically. That would be a departure from his predecessor Jay Clayton, who favored enforcement actions against initial coin offerings without providing much regulatory guidance, he added.
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Paul Grewal, chief counsel of Coinbase, the cryptocurrency exchange that went public last week, said the industry was “hopeful” about Mr. Gensler, noting that he is fluent in its language. Mr. Grewal said the industry wanted Mr. Gensler to provide clarity on how securities regulators decide when a digital asset is considered a security and subject to S.E.C. review, as opposed to a currency that is largely free from S.E.C. oversight.
The question grew in importance after the S.E.C. sued the San Francisco company Ripple Labs in December over the sale of its popular digital tokens to the public. The S.E.C. said the company was selling unregistered securities, while Ripple and others said the tokens should be classified as a digital currency. The enforcement action was one of the last brought before Mr. Clayton stepped down as chairman in the waning days of the Trump administration.
More recently, a brokerage affiliated with Sustainable Holdings, a financial technology company, asked the S.E.C. to weigh in on whether nonfungible tokens, which are being used to create digital art, are securities that require registration. The company, in its letter, asked the S.E.C. “to engage in a meaningful discussion of how to regulate fintech companies and individuals that are creating NFTs that may be deemed digital asset securities.”
Mr. Gensler, while teaching at M.I.T., acknowledged that regulators had struggled with how to treat digital assets. In a 2018 interview, he said digital assets could at times appear to be both a commodity and a security. At his Senate confirmation hearing, Mr. Gensler spoke strongly for heightened requirements for companies to disclose climate risks and diversity efforts.
“Diversity in boards and senior leadership benefits decision-making,” he said.
Mr. Gensler declined to be interviewed.
One thing the past three months have shown is that the stock and bond markets have a way of quickly writing the agenda for anyone who leads the S.E.C. That means SPACs will almost certainly be scrutinized. In particular, Mr. Gensler will have to determine whether these blank-check companies are a good market innovation for taking fledgling companies public or an investment vehicle that has the potential to harm retail investors, Mr. Hawke of Arnold & Porter said.
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.
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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.
Heavy trading volume greeted the highly anticipated market debut of Coinbase on Wednesday, which ended the day worth some $86 billion. The cryptocurrency company’s coming-out party made some insiders very rich, opened up new possibilities for cementing its position in the blockchain economy and blazed a trail for other crypto companies to follow its lead onto the public markets, the DealBook newsletter writes.
The stake held by Brian Armstrong, Coinbase’s co-founder and chief executive, is now worth roughly $13 billion. Shares held by its other co-founder, Fred Ehrsam, are worth about $6.7 billion. (Andreessen Horowitz’s stake is worth $11.2 billion, while Union Square Ventures’ holding is worth $5.3 billion.) Other investors who stand to collect big paper profits — if they held on to their shares — include the National Basketball Association star Kevin Durant, the rapper Nas and Alexis Ohanian, a co-founder of Reddit.
The market listing makes it easier for Coinbase to negotiate mergers and acquisitions. “We want to be able to have a public mark on our stock price because it helps us do more and more M.&A.,” Emilie Choi, the company’s chief operating officer, told the technology site Protocol. “There’s so much innovation happening in the crypto ecosystem, and we can’t possibly do it all in-house.” But the listing also brings more scrutiny of the company’s internal culture, which has included accusations of unfair treatment of Black and female employees and poor customer service.
Coinbase could lead the way for others. The tech investor Ron Conway called Coinbase “the Google for the crypto economy.” As crypto goes mainstream, others with similarly big ambitions may follow Coinbase onto the public markets, including rival markets like Binance, the biggest crypto exchange, and Gemini, the company founded by the Winklevoss twins. Exchange-traded funds that hold Bitcoin and other cryptocurrencies directly also haven’t yet been approved by the S.E.C., but proponents believe that could happen soon.
original Hacker News post from March 2012 looking for a co-founder for his crypto venture, which drew dismissive comments like, “Because bitcoin worked out so well. Have fun with that, dude.” Bitcoin was worth about $5 then; it’s more than $60,000 now.
Shares in Coinbase, the first major cryptocurrency company to list its shares on a U.S. stock exchange, jumped in their market debut on Wednesday, showing that investors are hungry to get a piece of the hot market for digital currencies.
Coinbase began trading on Wednesday afternoon at $381 a share, a 52 percent increase over a $250 reference price set by Nasdaq on Tuesday. (A reference price is set by a stock exchange based on expectations for where the stock will open.)
The stock swung as low as $310 and as high as $429 in a volatile day of trading that reflected the unpredictable nature of cryptocurrency prices. Coinbase ended the day at $328.28, valuing the company at $85.7 billion counting all of its outstanding shares — more than 10 times its last valuation as a private company.
prices to new highs.
avoid political discussions, a stance that has caused controversy. Some of the company’s former Black and female employees have also spoken out against unfair treatment and were found to have been underpaid in a company report.
SAN FRANCISCO — Digital currency, once mocked as a tool for criminals and reckless speculators, is sliding into the mainstream.
Traditional banks are helping investors put their money into cryptocurrency funds. Companies like Tesla and Square are hoarding Bitcoin. And celebrities are leading the way in a digital-art spending spree using a technology called an NFT.
On Wednesday, digital or cryptocurrencies will take their biggest step yet toward wider acceptance when Coinbase, a start-up that allows people to buy and sell cryptocurrencies, goes public on Nasdaq. Coinbase shares received a reference price of $250 each on Tuesday evening, which would value the company at $65 billion based on all its outstanding shares.
Call it crypto’s coming-out party. Coinbase, founded in San Francisco, is the first major cryptocurrency start-up to go public on a U.S. stock market. It is doing so at a valuation that tops that of Capital One Financial Corporation or Moody’s, the ratings agency.
plan to “create an open financial system for the world” and “increase economic freedom.”
But so far, cryptocurrency is mostly a vehicle for financial speculation and trading. Few people want to use Bitcoin for everyday purchases like coffee because its price is so volatile. Many early buyers have become wildly rich by simply holding their crypto or “buying the dip” when prices fall. Others ruefully relay tales of the sushi dinner they bought with Bitcoin years ago that would be worth $200,000 today or the million-dollar pizza.
Coinbase eases that trading by acting as a central exchange. Before it and similar services were created, people had to set up their own digital wallets and wire money.
“Can it be anything more than an asset class?” Mr. Tusk asked. “That’s still very much up in the air.”
Silk Road, a marketplace for buying and selling drugs and weapons with Bitcoin until the federal authorities shut it down, and Mt. Gox, a crypto exchange that collapsed under accusations of theft and embezzlement, further tarnished the young industry.
Coinbase tried to change that. The company joined Y Combinator, a prestigious start-up program, and raised money from top venture capital firms including Union Square Ventures and Andreessen Horowitz.
Mr. Armstrong was one of the few people in the industry who seemed prepared to comply with inevitable regulations, rather than cut corners to avoid them, said Nick Tomaino, who dropped out of business school to join Coinbase in 2013.
Coinbase also persuaded well-known retailers to accept Bitcoin. “It was good for credibility when people saw you could actually use a Bitcoin to buy a mattress at Overstock,” Mr. Tomaino, who left in 2016, said. Coinbase earned money on transaction fees.
But Bitcoin’s wildly volatile price and a slow computer network that managed it made transactions difficult, and people began to see the currency as an investment. In 2015, Ethereum, a cryptocurrency network with more tech abilities, was introduced, enticing enthusiasts to build companies and funds around the technology.
Soon after, a flood of “initial coin offerings,” where companies sold tokens on the promise of the technology they planned to build, created a new boom in cryptocurrency trading. But it quickly deflated after many projects were found to be frauds andU.S. regulators deemed the offerings to be securities, requiring that they comply with financial rules.
Tesla to buy $1.5 billion worth of Bitcoin and the payments company Square to spend $170 million. In March, Morgan Stanley began offering its wealthy clients access to three Bitcoin funds, and Goldman announced that it would soon offer similar access. The mayor of Miami has proposed that the city accept tax payments in Bitcoin and invest city funds in the asset.
The stock trading app Robinhood announced that 9.5 million of its customers had traded cryptocurrency in the first three months of the year — up more than fivefold from the previous three months. Venture funding for crypto-related start-ups surged to its highest-ever level in the first quarter to $3 billion, according to PitchBook.
PayPal recently added a crypto trading and shopping feature for its customers in the United States. The company was motivated by consumer interest and advances in the technology that made transactions faster. It plans to quickly expand the offering to customers around the world.
“It feels like the time is right,” said Jose Fernandez da Ponte, head of PayPal’s blockchain, crypto and digital currencies group. “We think this has the potential to revolutionize payments and financial systems in general.”
Still, the so-called revolution faces some challenges. Coinbase has sometimes struggled to keep up with demand, with some customers who lost access to their accounts complaining that the company has been unresponsive. It has also received criticism for its treatment of female and Black employees.
Treasury Secretary Janet L. Yellen has threatened harsher regulation of the currencies, including limiting their use.
And a big drop in prices could again send speculators fleeing. In its financial prospectus, Coinbase warned that its business results would fluctuate with the volatility of crypto assets, “many of which are unpredictable and in certain instances are outside of our control.”
The industry’s biggest issue — fulfilling the promise that the technology is more than just a place to park money — could take another decade to play out.
“There’s no doubt we’re in the latest boom, and I don’t know if that’s going to turn tomorrow or two years from now,” Mr. Tomaino said. “But the busts and booms are always higher than the last.”