Trillions of Dollars Lost, Lives Ruined: Inside Crypto’s ‘Lehman Brothers’

Even if you don’t know anything about crypto, Bitcoin baffles you and you thought Ethereum was a Marvel character, which isn’t hard to fathom is that a crypto crash caused investors to lose money. huge sums of money and in some cases all they had. The crash was so spectacular that some people call it the Lehman Brothers of the crypto world. The market value of cryptocurrencies, nearly $3 trillion in November, is down to just $1.3 trillion.

The largest crypto-trading platform in the United States, Coinbase, lost half its value in a week and warned users that they could lose their money if the company goes bankrupt. Founder Brian Armstrong saw $11 billion disappear from his personal fortune. He is just one of the “crypto bros” who lost huge sums. A trader with 288,000 Bitcoin lost $800 million in one day after the price crashed, while Elon Musk saw his $1.5 billion investment in Bitcoin drop by $300 million.

Elon Musk saw his $1.5 billion investment in Bitcoin drop by $300 million in the recent crypto crash

/ TED, LLC/AFP Talks via Get

For the uninitiated, cryptocurrency is a “virtual currency” which is decentralized and therefore does not require an intermediary, i.e. a bank. It’s touted as a fairer way of doing finance, but it’s completely unregulated and can be very difficult to predict.

This was shown on May 11 when one coin, Luna, fell in value, which had a ripple effect on other coins. The fall has been so catastrophic that questions arise about the future of the industry. Some say investors are so scared it marks the start of a long “crypto-winter,” while others have dubbed it an “ice age.” With one in five young Londoners (18-34) investing in crypto, what will this mean for the capital, the crypto-hype hub of the UK? Has the Bitcoin bubble finally burst?

Terra (Luna) called itself a “stablecoin”, but it turned out to be anything but. It lost over 99% of its value in 24 hours. The industry panicked, investors rushed to move their money, and desperate Luna losers posted online how they would lose their homes.

The reason for the accident is debated among interested parties. Some say it was due to a general fall in the financial markets. “It’s not just crypto, it’s everything,” says Oleg Giberstein, co-founder of London-based crypto trading startup Coinrule. “Netflix is ​​down, tax values ​​are down. Markets are depressed. Crypto is a risky asset class, so it’s the hardest hit. Oleg, who started Coinrule three years ago, says that Luna was also “an absolute disaster. “I know a lot of people who know the industry well and lost a lot of money. It looked like a solid project but used unsustainable mechanisms. It was considered stable and secure. but I never touched it because I thought the risks were minimized There was an element of false advertising and people who didn’t know anything about crypto went into it because they thought it was relatively safe risk.

Brian Armstrong, CEO of Coinbase

/ Ethan Pins

Over the past couple of years, the crypto hype has again peaked. Professor of financial economics at Loughborough University, Alistair Milne says this was due to the pandemic. “There were a lot of people who had time off during lockdown and with some spare money. People felt more confident and huddled together.

For Professor Milne, this cycle of interest and crash is an inevitable part of something as volatile as cryptography. “That’s what you should expect with crypto,” he says. “There is no underlying value that determines prices, it’s short-term speculation – the news, what people think, what celebrities are advertising it. When people feel more concerned, they withdraw their money and the price drops a lot.External factors such as the war in Ukraine and rising inflation have made investors more risk averse.

This is not the first time the industry has collapsed. In 2017, the value of Bitcoin rose from £20,000 to £3,000. “Everyone thought it was the end and wondered if the bubble had burst,” says Oleg. “But it will come back. It’s a cycle. There’s a big run-up and then a crash every two or three years. With each new cycle, we take bigger steps forward. Susannah Streeter, senior investment analyst and markets at Hargreaves Lansdown, isn’t so sure.” A chill has descended on the crypto market and I don’t think it’s going to be washed away anytime soon. I really think this is all part of a rush into risky assets. During the pandemic, crypto fans have been lured into a false sense of security. Now they face a rude awakening. So many people will have lost money this time. They wanted to make some quick money but had no idea what they were investing in.

Reuters

Susannah thinks regulation is needed immediately and “stablecoins” will be targeted first. “It’s dangerous,” she said. “It says it all that there are suicide warnings on some of the trades.”

What also struck her was that she had noticed that crypto had become a topic of conversation in the playground. “I hear moms talking about how their crypto wallets are pumping and I think, do you have any idea what you invested your money in?

“It’s a bet,” she adds. “You are betting on a game of which you do not know the rules. They have not yet been drafted. Don’t invest unless you have money you don’t mind losing.

A Londoner learned the hard way. In the recent crash he lost £9,000. He has lost 50% of his investment and a third of his savings is locked in crypto, with his hopes of buying a house now out of reach. The 27-year-old, who wished to remain anonymous, said: “I try not to associate too much emotion with it. It’s easy to say now that I regret investing so much money, but I don’t I didn’t say that when it was going up. I went into it knowing it was high risk and high reward.

For him, that was part of the call. “Buying a house is so inaccessible that things like this are becoming more attractive.” He started there a year and a half ago and now has eight different cryptocurrencies. However, the accident caused him to be re-evaluated. “I’m not going to get more involved for a while,” he says. “The worst thing I can do is panic and take it off, so I’ll just be indifferent and in the meantime look for safer options. It’s a lot of money and it really cost me, but I made peace with it.

He’s not the only one trying to accept defeat. Rapper and YouTube star KSI tweeted that he had lost nearly £3million. The Luna he bought for $2.8 million dropped to $1,000, leading him to tell his fans that he was “packing” his crypto habit. “It’s okay because I’m not dead,” he wrote. “I still have my family, my friends and my work ethic.”

Rapper and YouTube star KSI tweeted that he had lost nearly £3million.

/ AFP via Getty Images

However, for some it has ruined life. One Reddit user said, “I lost over $450,000, can’t pay the bank. I will soon lose my house. I will become homeless. Suicide is the only way out for me.

Another, who said he became a millionaire at 20 thanks to crypto, lost his fortune and his girlfriend. “I was looking for good long-term holds,” he adds. “My cousin told me about Luna. I was really intrigued by what he told me, so intrigued that I decided my money would be safe there. Foolishly I bought more 55,000 Luna at $80+ during the drop. Now it’s worth less than $500 and when he broke the news to his girlfriend, she dumped him. “I wish I could go back in time,” he says .

Cashing out involves using an exchange service, exchanging your crypto for pounds or euros and withdrawing it from your bank – although this is no longer an option for those who had Luna.

Oleg is optimistic this is not the end for crypto and thinks London will continue to feel its buzz. “In 2017 and 2018 you could barely attend crypto events in London due to the interest. It crashed and everything got more comfortable, but it rebuilt itself and it will happen this time.

Sam Kopelman, UK Country Manager of Luno, a crypto exchange, agrees. “London has always been at the forefront of financial services, and the next step is to lead the world in crypto innovation. Our research suggests that almost one in five young Londoners are now investing in crypto, in part because they are disappointed with the returns of the traditional financial system. After a slow start, the Treasury announced plans to make the UK a “global crypto hub” last month, and the city will be home to the architects of UK crypto success.

Whether you think crypto is the future or just another way to play, defenders aren’t ready to give it up yet.

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