After once seeming as if it might threaten to remake the entire financial system, crypto has gone through a spectacular decline
ago everyone wanted to be us. Now everyone hates us,” laments a 24-year-old crypto founder at a gathering in New York. After once seeming as if it might threaten to remake the entire financial system, crypto has gone through a spectacular decline. The market value of all cryptocurrencies ballooned from $250bn at the start of 2020 to $3trn by late 2021. But it has since fallen back to just $1.3trn.
Pockets of hope remain. The price of bitcoin is up almost 70% this year, including a surge after the collapse of Silicon Valley Bank. There is some evidence to suggest that cryptocurrencies win more adherents in weak countries that are afflicted by high inflation or currency depreciation, such as Argentina and Nigeria. That points to a deeper truth, which is that the strongest arguments for using crypto have always been where the alternatives are worse.
As regulation comes for crypto, it will make transactions more expensive. Mr Poon of Hong Kong Polytechnic University says much of the cost of financial transactions comes from complying with regulations like know-your-customer and anti-money-laundering laws. Yet friendlier regulation could help the industry. Binance and other crypto firms are in Dubai precisely because of the regulatory cover it provides.
Another commonly cited case is cross-border payments, particularly for illiquid currency pairs. “Globalisation today has been capped at $10,000,” says Navin Gupta, a banker who is now at Ripple, a crypto firm that does international payments. Cross-border fees take a greater share of value for smaller payments because of high fixed fees, which deter some transactions entirely. Ripple’s network allows cryptocurrencies to intermediate trades between traditional currencies, reducing costs.
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