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The Crypto Crash

Since early May, more than 700 billion USD of value has disappeared from the cryptocurrency market. Companies like Gemini, which is a platform for trading cryptocurrencies owned by the Winklevoss twins (of Facebook fame), have laid off 10 per cent of their workforce in recent weeks. The curious aspect of cryptocurrencies is that they have been championed as democratizing. These new currencies do not have the restrictions placed on them by stodgy old governments, central banks, and federal reserves. The idea is that people are playing a fair contest, one that is certainly fairer than the stacked decks of the stock market. These people have better chances to build wealth, proponents say, than they do in old-school financial systems. But as layoffs come and normal people start to lose significant – more than they would ever lose in a typical stock market crash – people are beginning to wonder how fair crypto really is.

The Bigger They Are

The harder they are supposed to fall, right? That has not yet been the case in crypto so far. While there are countless layoffs and everyday investors facing financial ruin, crypto executives seem to be doing just fine. Part of the reason is that these big players got into the game early, and they left others holding the bag. They have a considerable cushion because they bought into Bitcoin and other currencies years ago, back when prices were small, sometimes very small, fractions of what they have been recently. As these prices spiked over the last two years, these investors sold their investments and put their money into other ventures. They bought low, then sold high, which is investing 101. A lot of amateur investors, however, came into the market only recently. They started trading crypto during the pandemic, when there were great hopes of prices going “to the moon”. Many of these investors did pretty well for themselves, but the vast majority did not get out in time. The most compelling critique of crypto I have seen over the years is that it is a zero-sum game. No matter how you play it, someone at the end of the day will be left holding the bag.

But even the billionaires have suffered some. According to Forbes, the net worths of the world’s richest cryptobillionaires was at an astounding 135 billion USD back in March. That number has fallen to 76 billion this week. That said, most of the losses came from a single person, Changpeng Zhao, the CEO of Binance, a crypto exchange, who lost almost 50 billion from that exchange’s recent woes. Still, the top has been mostly unscathed (the Winklevoss twins each had net worths of about 4 billion USD, with declines down to 3.3 billion more recently). Coinbase, a company that recently went public, laid off 18% of its staff, some 1,100 workers. Yet six of the company’s top executives sold shares worth a total of more than 850 million USD. The company used to trade at 357 USD back in 2021, but that number now sits at 51.

They have tried to tell us for years that the rich only get richer. Crypto was supposed to be a more egalitarian alternative to traditional finance, but it has been far from fair to ordinary people.