Bitcoin tumbled Monday to its lowest level since December 2020, signaling yet again that cryptocurrencies aren’t the effective hedge against inflation that enthusiasts have claimed.
In recent months, the crypto crowd has been telling investors to forget gold, forget silver — and park your money in crypto during tough economic times.
Not so much, and there’s a reason for that.
Most cryptocurrencies have no inherent value. They’re worth basically what owners say they’re worth, which is a prime example of what’s known in the financial world as the “Greater Fool Theory.”
That’s not to say you won’t make money gambling on crypto, but it’s just that: gambling, not investing.
Bitcoin fell Monday to as low as $22,611, according to CoinDesk. That’s down more than 20% from Friday and a 67% decline from its November high of $68,991.
What we’re talking about here is roughly $2 trillion being erased from the crypto market since late last year. Since Saturday alone, about $200 billion has disappeared.
Things weren’t helped by news that cryptocurrency-lending platform Celsius Network paused withdrawals Monday “due to extreme market conditions.” The company appeared worried about a run on the bank.
Celsius paused all withdrawals and transfers between accounts in order to “honor, over time, withdrawal obligations.” Celsius, with roughly 1.7 million customers and more than $10 billion in assets, gave no indication in its announcement when it would allow users to access their funds.
In exchange for customers’ deposits, the company pays out extremely generous yields, upwards of 19% on some accounts. Celsius takes those deposits and lends them out to generate a return.
Lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support. Critics have likened them to Ponzi schemes.
The recent crypto fiasco is the second notable collapse in the cryptocurrency universe in less than two months. The stablecoin Terra imploded in early May, erasing tens of billions of dollars in a matter of hours. Stablecoins have been seen as relatively safe, because they’re supposed to be backed by hard assets, such as a currency or gold.
The Associated Press contributed to this report.