From a wave of high profile Super Bowl Super Bowl ads to a full on
crypto crash in less than a year. Crypto or digital currencies have
now lost $2 trillion in value after peaking at $3 Trillion in November,
2021
On Wednesday, the company Celsius became the third major crypto firm
in two weeks to file for bankruptcy. This past week. I spoke with
Andrew Chang to unpack what's behind this latest crypto crash. He's
a crypto consultant and former CEO of Pack Sosa, New York based financial
firm and technology company.
For the unfamiliar. I think it might be instructive if you first
explain what crypto is and why it's been such an attractive investment
vehicle. For so many people. Crypto currencies is a new type of financial
asset.
That's powered by Blockchain Technologies, and it's a way to store
and move value on a decentralized network. Now why people are super
excited and have been investing in crypto currencies as a financial
assets is because they believe that technology is interesting and
valuable.
And as the value of the network increases, So does the price of the
currency that powers it. So what accounts for this crash? I mean,
as I understand it, there was a crash back in 2018, where the largest
Crypto currency Bitcoin lost about 80% of its value. This crash is
different in terms of magnitude and the cause. What's the deal? It's
important to paint the picture over the last couple of years where
the price has risen a lot. You had apps like Robin Hood and PayPal.
Enable people to invest in Cryptocurrencies. You had a greater awareness
of Cryptocurrency and then a greater availability of capital through
stimulus checks or low interest rates. That's what led up to the
price being so high what led to the downfall in this recent crash?
Is
partly due to the greater economic downturn. And then secondarily,
you've seen a number of crypto companies that have recently filed
for bankruptcy. Many of these crypto companies took on too much risk,
and that risk led to them imploding as the price went down. I always
understood it. The value proposition of crypto was that it was supposed
to be
Insulated from the broader economic trends. This crash would suggest
that that's not the case.
Yeah, I think it's not realistic to think that crypto currency or
any other type of alternative asset is immune to being completely
divorced from the broader economic
Picture. When you have a long enough economic downturn or big enough
economic downturn, you're going to see that affect not only traditional
financial assets.
But financial assets like Cryptocurrencies and frankly, all parts
of our lives, So that has been the hope for many people that you
could operate a different financial network.
But the reality is it's all intertwined As you mentioned novice traders.
Amateur traders have suffered seismic losses. Some people losing
it all they put in a ton of money because they were looking for,
you know, quick, sizable returns.
And the timing of it, You know, it just meant that they lost a lot
of money, and they lost it quickly. I think with any investment strategy,
it's important for people to consider their current financial situation
and their goals. But anytime you're investing in new technology
A more volatile asset. You're gonna see greater risks with greater
returns. And so some folks have been looking for greater returns,
but they ignored the greater risks.
But what about people who say that Crypto is a scam? And this latest
crash just proves it. You have companies like Celsius
which declared bankruptcy. They won't let people withdraw their funds.
I mean, you know you've spent a lot of time in this world is crypto
legit.
Yeah, I think Crypto is going through the same things. New technologies
go through at the start, just like the Internet went through a lot
of innovation cycles where there were in an Internet companies that
tried different business models that didn't work out.
And so it's not that crypto itself is a scam. It's going through
the growing pains of any new technology, and you see regulators finding
different ways to regulate and finding new problems.
With the way that people are interfacing with the technology that
technology itself is in a scam. When you talk about regulation, President
Biden as you know, Back in March, he signed an executive order calling
on the federal government to examine the risks and benefits.
Of crypto currency is more regulation. The answer. Do you think I
think it's inevitable? Um
You know, if you think about what regulation is is regulation comes,
went to protect consumers. And when you have situations like you've
had in the past couple of months where companies have taken on too
much risk or haven't been playing
By the rules. That's when regulators come in to try to help establish
rules. So I don't think regulation is the answer. Per se as you had
have companies that do operate.
Um, in a way that is good for consumers. There's no need for regulation.
So, um, you know, given the current hiccups in with some of the companies,
you're going to see more regulation coming in
To help provide guardrails for companies. Andrew Chang, Thanks so