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Understanding the cryptocurrency crash

Cryptocurrency


This year has been a disaster for many investors in cryptocurrencies. Alex Hern draws the parallels of the spreading panic in the new digital economy with the 2008 financial crisis.

When the global financial system went into meltdown in 2008, banks collapsed and governments around the world were forced to step in to prevent the entire financial system from collapsing. It cost billions of dollars and, as well as that, it proved a pivotal moment: it profoundly shook the confidence that many had in their governments.

As Alex Hern tells Nosheen Iqbal, this period also coincided with the rise of a new technology allowing a new type of currency: one that is not underwritten by governments but instead exists purely online: bitcoin was born. At first it was a novelty, useful for buying illicit goods on the dark web and not much more. But bitcoin grew and grew and despite some significant bumps along the way, it reached a peak of $69,000 per bitcoin. Anyone who’d invested in it, or a swathe of other competing cryptocurrencies, found themselves incredibly rich – in theory anyway.

But this year things took a dramatic turn. As the economies were buffeted by inflation fears and investors headed for safer bets, cryptocurrencies began to drop dramatically in value. Some – like Alex Koh, an investor and YouTube personality, found themselves all but wiped out after sitting on small fortunes. For those who have ridden out the storm so far, there is hope that this year is a blip. But can bitcoin bounce back?

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