The cryptocurrency sell-off has gotten so bad in recent weeks that simply referring to it as a “crash” no longer suffices. Instead, as Binance CEO Changpeng Zhao tweeted early Wednesday morning, “it’s a bloodbath out there.” The total market cap of all cryptocurrencies has fallen by more than $2 trillion since the peak last fall, with flagship cryptocurrency Bitcoin now down nearly 70% from its all-time high, and down more than 30% in just ten days, to around $21,000.
Of course, crypto market sell-offs are nothing new. There was a mini-crash last spring, and Bitcoin’s value has dropped by more than 70% several times in its history, though never from such lofty heights. This crash, however, is notable and significant because it occurs during a period of high inflation, a period that was ostensibly designed for crypto, and particularly Bitcoin, to shine relative to other investments. Instead, the value of Bitcoin has plummeted, shattering the myth that it is “digital gold.”
The original promise of Bitcoin was that it would be a digital currency, a true alternative to fiat money, allowing people to conduct trustless transactions without the need for an intermediary. But that Bitcoin vision quickly faded.
While it is still useful for purchasing illegal goods and evading capital controls, it has never gained traction as a medium of exchange for everyday transactions. Some of this is due to logistics—it still takes too long to conduct Bitcoin transactions—and some is due to the currency’s structure, which has a permanently limited supply of coins, an attribute that encourages people to hoard Bitcoin rather than use it. On top of that, Bitcoin is simply too volatile for most people to rely on as a medium of exchange; why sell you a car for a Bitcoin today if it could be worth 15% less tomorrow?