Why Crypto was Doomed to Crash

Was cryptocurrency just another bubble waiting to be popped?

To say the world of cryptocurrency is a volatile one would be an understatement. From its humble beginnings in 2009 when 10,000 BTC could buy you two pizzas to 2021 where Bitcoin peaked at $65,000 the cryptocurrency market has been wrought with speculation, scheming and utter senselessness.

What started as a system for a more streamlined and secure means of transaction has become one of the most controversial assets in the modern investment industry. A stream of disasters in 2022 — such as the collapse of stablecoin and the demise of the crypto exchange, FTX — have spurred numerous bankruptcies, dismantling the foundations of digital currencies.

But should we really consider these events to be shocking? And has the crypto market come to its final crash? The answer to both of those questions — no.

Let me explain…

The events of 2022 have discarded any hopes that crypto could be the new gold, offering refuge in times of economic uncertainty — bringing with it fortunes amidst the failure of other financial assets. Those with the conviction that the asset had become mainstream and embraced the wave of crypto — from sophisticated pension and fund managers to your average retail investor — have been met by shocks and implications from risks that they had even been assured they were not exposed to. The 2021 crypto boom had been built on such an unstable foundation, wrought with speculation, high leverage and lack of regulation, that the implications of one failure carry a ripple effect across the crypto market that causes catastrophe.

Most notably, we witness this with the fall of TerraUSD, a ‘stablecoin’ pegged to the US dollar via a parallel currency; Luna. Anchor, a decentralised finance platform, offered users interest rates of 20% for TerraUSD deposits. However, given that Terra was an algorithmic stablecoin, its success was inherent in elements out of the creator’s control; investor demand, arbitrageurs who will stabilise prices and reliable price information. Thus, a sudden withdrawal from Anchor kicked the system out of balance triggering mass market panic and Terra’s value…

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