The past few months have been dark times for the crypto industry. Between April and June, Bitcoin’s value more than halved, from just over $45,000 to around $20,000; other coins have fallen even more. The Terra-UST ecosystem, which paired a crypto coin with one designed to be pegged to the dollar, collapsed in May, wiping out $60 billion worth of value and leading to cascading failures among crypto lenders. Established companies like Coinbase, a popular crypto exchange, have announced layoffs.
What Skeptics Get Wrong About Crypto’s Volatility
Price swings signal important information to investors — and build previously unseen levels of transparency into the system.
July 06, 2022
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Summary.
One of the leading arguments against crypto is its volatility. In the wake of the most recent downturn, critics have doubled down on this point. But the argument misses an important insight about how crypto assets differ from those in traditional finance. While different coins are meant to serve different functions, today they all more or less act as startup equity — and often serve as hybrid assets, treated as commodities, currency, store of value, and incentive for the validators that make a project function. Unlike traditional equity, crypto assets have liquidity and price discovery from the start. This does mean that crypto markets are more sensitive to signals and changes. The overlooked feature of this, however, is that price swings communicate important information to founders and investors, and builds previously unseen levels of transparency into the system.