By Misyrlena Egkolfopoulou
This was before the bottom fell out, before crypto fortunes collapsed.
This was all of five weeks ago, when Bitcoin 2022, a hype-fest of all things cryptocurrency, swaggered into Miami for fun and profit. Among the thousands who turned up there was billionaire Michael Novogratz, who bragged about a tattoo to a rapt audience. It was a wolf howling to the moon – a nod to Luna, the token behind TerraUST, a “stablecoin” that was supposedly safely pegged at $1.
That was then. Thirty-odd days later, Luna and Terra have collapsed and their very futures are in doubt. And, from Bitcoin down, a selloff in digital money appears to be accelerating, part of a broader wipeout of more than $200 billion from the cryptocurrency market.
To crypto’s doubters, this looks like a shakeout that’s long overdue, and one that mirrors the wider troubles in financial markets. With stocks down and interest rates up, weak links in crypto are giving way. In peril are parts of a vast, global ecosystem of crypto minters, promoters, traders, exchanges – players who’ve been lured, and lured others, into the crypto universe.
As of late Wednesday, Do Kwon, chief executive officer of Terraform Labs, the developer behind the Terra blockchain, was struggling to line up a rescue. Representatives for Kwon didn’t respond to a request for comment. Representatives for Novogratz didn’t have an immediate comment.
To crypto’s believers, times like this are just part of the game. Many amateur day traders who piled into digital tokens and racy meme stocks during the early days of the pandemic have come to expect wild price swings. Many have even learned to grin and bear losses, waiting for the next surge or shifting their bets to other corners of crypto.
“Let me look at the hilarious chart,” Gigi De Vries, a freelance marketing consultant in Dubai, said Wednesday as Luna and Terra melted down. The graph on her screen showed her $10,000 investment in Luna had collapsed to $200.
“It’s a lot of money to me, but I also know that I can’t do anything,” said De Vries, 30. “At this point, I just have to laugh. What else can you do?”
Looking back, De Vries says she wished she’d placed a stop-loss order. And looking ahead, she’s set her sights on supposedly safer, “blue-chip’’ coins like Bitcoin and Ethereum. For now, however, she’s stopped looking at her portfolio and calculating losses. She’ll take a peek if, as she believes, prices bounce back.
Down in Perth, Australia, Emmanuel Deligeorges is tallying losses too. Deligeorges, a 40-year-old blockchain consultant, says he’s been investing in crypto since 2012 – eons in crypto time. But he never expected a coin as well-established as Luna to collapse the way it did. He said the plunge has the hallmarks of a “rug-pull” involving flighty cryptocurrency known as shitcoins, which operate on the fringes of so-called decentralized finance.
He first heard about the tokens from an Internet crypto influencer. Now, the parts of his portfolio that were exposed to these tokens were “wrecked.” He declined to say how much he’s lost.
“This was a top 50 project, it was considered to be blue-chip,” Deligeorges says of Luna/Terra.
In British Columbia, Graham Anderson told his wife he’d had a bad day in the markets on Wednesday as the couple was settling into bed. A very bad day, in fact. Luna made up about 40% of his portfolio.
Since September, Anderson, a salesman, had put about $40,000 in Luna. As the token tanked, he got out with about $6,000. He left some coins sitting in his portfolio, as well as 40 NFTs on the Terra marketplace that he didn’t feel were worth selling.
Anderson, 36, says that, for better and worse, this is crypto.
“That’s the space we’re playing in, that’s the space we’re investing in,” Anderson said. “People had pegged it as a fairly safe bet, but I don’t think anything in crypto is a safe bet. If your money is in crypto, it shouldn’t be money you’re counting on to survive.”
The recent troubles have hit another big player hard. Coinbase Global Inc., the exchange that only 13 months ago became the first major crypto exchange to go public in the US, has been upended too.
CEO Brian Armstrong has watched his personal fortune plunge. As recently as November, his net worth stood at $13.7 billion, following the company’s much ballyhooed initial offering on the Nasdaq Stock Market. Now, after a drastic decline in Coinbase’s share price, Armstrong’s fortune has dwindled to $2.3 billion.
It’s a remarkable turnabout from Bitcoin 2022, just a few weeks ago, when the crypto world gathered to party in Miami.
“I’m probably the only guy in the world that’s got both a Bitcoin tattoo and a Luna tattoo,” Novogratz told the conference goers. In a keynote address, he sized up Kwon’s plan at the time to use Bitcoin as a sort of reserve currency for Terra.
“It’s not without risk, right?” Novogratz said. “He’s in this transition right now.”
He said Kwon planned to buy $10 billion of Bitcoin.
“That’s all good as long as there’s not a run on the bank,” Novogratz said.
More stories like this are available on bloomberg.com.