Crypto Winter Is Here and We Only Have Ourselves to Blame

Last year's mania perpetuated a narrative that making speculative gains was bitcoin’s core value proposition, writes Michael J. Casey.

AccessTimeIconDec 3, 2018 at 9:00 a.m. UTC
Updated Sep 13, 2021 at 8:38 a.m. UTC

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


I have a friend who has made a significant fortune out of bitcoin. He is one of those enthusiasts who happily hands out the cryptocurrency to others in the interest of spreading adoption.

All of that is good. However, one thing has always infuriated me: his boasts, especially last year, that he was spreading belief in bitcoin because the small amount he’d distributed to random people over the years was now worth X times more in dollar terms. He loved it, he said, when they’d call to thank him.

Why on earth would I have an issue with this generosity of spirit? Because it perpetuated a narrative that speculative gains, measured in fiat currency terms, was bitcoin’s core value proposition for the world.

Implicitly, the story my friend told to these people was not that, as a model for censorship-resistant, disintermediated money, bitcoin has the potential to enable peer-to-peer exchange without rent-seeking financial institutions dictating the terms.

Nor was it that we now have the makings of digital cash, a means of transferring value from anyone anywhere to anyone anywhere that doesn’t require a bank account or the approval of some authority.

The underlying message was not that bitcoin is the first digital asset, a representation of value that can live on the Internet without risk of replication or counterfeiting. Neither was it that we now have an ostensibly immutable, consensus-based record-keeping system, the first in history that cannot be changed by someone in power.

No, his story was quite simply that if you hang onto this thing – never mind understanding it – you too can get rich like me.

My friend is not alone, of course. Last year, as an insane market bubble, not only in bitcoin but also in countless other crypto assets, fostered a collective mania around the world, the “to the moon” language and “when Lambo?” mindset permeated everything. It even found its way into the mainstream public.

I’ll never forget a relative who’d paid no attention to crypto beforehand asking me what coin she should buy. After warning her that she really shouldn’t do this, I nonetheless started explaining why I had an intellectual, non-investor interest in ASIC-resistant coins. She replied, “I don’t understand any of that, just tell me what to buy.”

This mania was the making of crypto enthusiasts everywhere. They fostered a blind faith in the Midas touch of their industry. Remember, this was a time when an iced tea producer’s executives briefly showed that they could produce a miraculous share price increase simply by adding the word “blockchain” to the corporate name.

For a community that likes to declare that you can trust crypto because, unlike fiat money, it’s backed, not by wishy-washy people, but by rock-solid math, this encouragement of magical thinking was pretty hypocritical. Now that the bubble has well and truly burst, it is time to banish the voodoo mentality.

The adoption challenge

Some view cryptocurrency solely as a tool of the rich, as a way for the privileged few to keep their property away from the prying hands of the state. If I eventually discover that they’re right, that that’s all it can be, I’ll quit.

For now, though, I still see this technology as a tool of the people, and therefore believe it can only succeed with mass adoption. I don’t care how it gets there – whether by widespread retail usage or by the back-office use of public blockchain architectures to foster a new, decentralized economy – the goal must be to positively impact lives everywhere.

Sadly, I think we’ve set that objective back drastically. We’ve managed to do great harm to the public’s acceptance of and trust in the technology. It’s not irreparable, but it’s fair to say we have a problem when the mainstream now equates crypto with bubbles, scams and losses.

To be sure, this price correction might yet imitate that which followed the late-2013 bubble – a two-year hiatus followed by a revival rally in 2016 that took us to ever higher highs in 2017. But the risk is that the 2018 downturn has produced more lasting damage to public confidence than that of 2014. This time it was the Regular Joes who lost their shirts, not the basement-dwelling bitcoin mining hobbyists.

The blow to confidence is so great that I now regret writing last year that the surge of mainstream interest in crypto was constructive. I’d argued that although many people would lose a lot of money, the surge of buying had sparked a curiosity among a much wider group of people, such that a host of new ventures would be launched by these newcomers. These were the people, I argued, who would build the decentralized economy of the future.

Now, while I’m encouraged to find that many of newly activated innovators are still at it, I don’t think I fairly accounted for the lasting societal effect of so many others losing their shirts.

The angry posts that someone with the Twitter handle @CandleHater compiled into this useful thread are, quite likely, representative of the masses’ feelings.


Rebuilding confidence

Bitcoin is now down roughly 75% from its highs, ether is off about 90% and the overall token market capitalization is 80% lower. Such a brutal meltdown will do great damage to confidence in the sector.

What are the consequences of that loss of confidence?

It means that a hardline critic like Nouriel Roubini is now, in people’s minds, legitimized, regardless of his simplistic, static view of the technology’s ongoing development.

And it means that government regulators, whose obligations are to those same mainstream constituents, will take a more wary view of the technology and, quite likely, a harder line in regulating it. For crypto startups, this will further exclude them from markets, make it even harder to get bank accounts and impose even greater compliance burdens on them.

The good news is that the glare of public opinion will eventually dissipate and that as the spotlight diminishes, real developers will find themselves in a healthier environment within which to do the work needed to unlock this technology’s potential. We saw a similar period of constructive building during the 2014-2016 hiatus.

But whatever new products are produced, they will now have a harder time struggling with acceptance. Whether we like it or not, message and image are important.

Sadly, the Crypto Winter is here. If we are to extract ourselves from it there needs to be more than a sleeves-rolled-up commitment to technical development. The leaders of the community – those of us who have a mouthpiece in social media and elsewhere – also have an obligation to change the message.

The message must be one of education. It must openly address the technology’s cons along with its pros, as well as the formidable obstacles it faces in terms of scaling, efficiency and security.

Let’s quit this ugly obsession with price. After all, it simply validates the notion that the benchmark that matters is not bitcoin or some other cryptocurrency but the U.S. dollar.

We made this mess. It’s up to us to clean it up.

Winter image via Shutterstock


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