In the past six weeks, $1 trillion in cryptocurrency value has evaporated—yes, trillion. Since there was nothing of economic value driving up crypto prices, only mass delusion, there hasn’t been much to cushion their descent. It’s as if a giant bellows has been blowing hot air into bitcoin and others, and it suddenly stopped working. Fanboys yelling “store of value” and “fiat hedge” can’t seem to explain why bitcoin is falling as inflation rages.
This column noted a few weeks ago the risks of “algorithmic stablecoin” Terra, backed by the Luna token. Terra was designed to stay at $1, and Luna tokens would be issued to buy Terra if it dropped below $1. Well, it did last week, dropping to below 20 cents. So many Luna tokens needed to be issued that Luna’s price dropped more than 99% in 24 hours and it is now worth 3/100ths of a cent, down from $60 seven days ago. Ouch. Things happen fast. Remember the initial public offering last year for Coinbase, the crypto exchange, which traded at close to a $100 billion valuation? It’s now $18 billion. Too many momentum investors late to the crypto party traded real money for fake currency and lost.
The same thing is playing out in stocks, which are at least backed by future earnings. The market selloff has been nasty—down, down, down for seven weeks in a row. And it’s not only the hyped, memed, freshly IPOed and SPACed, like DraftKings and Beyond Meat, it’s real stuff. Facebook is running out of new customers. Netflix, PayPal, Lyft—all are enduring relentless stock sell-offs. It’s certainly less bubblicious out there, but is it over?
I asked an old Wall Street buddy when we’d know the selling is over, and I thought I heard him say, “After we seek redemption.” I suppose he’s right, so I asked, “You mean a spiritual awakening, atonement for the guilt of overpaying for Rivian and Carvana, deliverance for the sin of thinking NFTs were real? For . . .” “No,” he interrupted, “what I said is the selling stops after we see redemptions.” Oh.
We need to see capitulation. That’s when those newbie investors who bought crypto and stocks via Robinhood or piled into Cathie Wood’s ARK Innovation exchange-traded fund, ARKK—and “held on for dear life” with “laser eyes” and “diamond hands,” to use some Reddit lingo—finally dump what they own and swear to the almighty Elon Musk never to buy crypto or stocks again. It’s coming. By the way, Robinhood stock is down 85% from its August peak; ARKK is down 74% from its February 2021 peak.
In Wall Street speak, it’s known as the puke.
