Crypto collapse 2022: Digital coins lose their key points of difference

The reasons why people piled into cryptocurrencies such as bitcoin appear to be drying up, so do they have a future?

Warning: the following figures may be disturbing for some viewers.

In the past seven months the value of bitcoin – the world’s biggest cryptocurrency – has tumbled 54 per cent.

For the number two crypto, Ethereum, it’s even worse, chalking up a 62 per cent fall since early November. And countless other digital currencies have suffered similar savage falls.

Dogecoin, famously celebrated on Twitter in early 2021 by billionaire Elon Musk after surging 60 times in value in just four months, has dropped by 71 per cent.

If you, like me, jumped on the cryptocurrency bandwagon about a year ago, you’ll be understandably annoyed. Or if you bought earlier this year hoping to capitalise on short-term weakness, you’ll be doubly disappointed.

Bitcoin believers will say we’ve seen this all before. It famously collapsed after its 2017 boom, only to bounce back stronger and better after what the industry calls a “crypto winter”.

Despite the recent weakness, bitcoin is trading at the same value – around $42,000 – that it was a year ago, and is still almost twice as expensive as its 2017 peak.

Thousands more cryptocurrencies have been created from thin air in recent years, and there are now more than 18,000 of them. It’s been estimated that 1000 have failed so far.

El Salvador President Nayib Bukele adopted bitcoin as an official currency, but few have followed him. Picture: Marvin Recinos/AFP

Bitcoin itself doesn’t appear doomed, because the blockchain technology behind crypto has a bright future, but experts believe a majority of the smaller digital currencies will eventually become worthless.

The worrying thing about crypto’s latest weakness is that it seems to be losing reasons for existence – those points of difference that would make it stand out from the crowd.
A NEW FORM OF CASH: We were told bitcoin and other cryptocurrencies would replace cash as an independent store of wealth, free from the greedy mitts of governments and banks. However, a tiny proportion of people transact with it, with many put off by its insane volatility.
DIGITAL GOLD: Bitcoin was promoted as the modern version of gold, an investment to buy in turbulent times and to protect against inflation.

But when Russia invaded Ukraine earlier this year, gold surged but bitcoin went nowhere.
ALTERNATIVE INVESTMENT: Everyone likes a nice new asset class, especially if it behaves differently to other assets. Crypto was supposed to bring something new to the investment table, trading independently from stocks. But as shares have fallen in recent months, crypto has fallen further.

Amid this uncertainty, you’d be brave to become a big buyer right now. But fortune favours the brave – as movie star Matt Damon told us when plugging crypto on our TV screens recently.

I’m old fashioned and would rather invest money in something that is not created out of thin air on the promise it’s the future of money.

I bought some small parcels of various cryptocurrencies in April 2021, not because I was a believer, but because I hoped the greed and fear (of missing out) that drove its spectacular gains would continue until my money at least doubled again.

It didn’t. It fell sharply, but I’ll hold onto my small investment, mainly as an experiment and partly because it’s not worth that much anymore.

Cryptocurrency isn’t losing its will to live, but continued weakness will mean it won’t be long until more and more owners lose their will to own it.

Until, of course, the next big boom. If that happens.