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FEATURE Crypto Weekly
Crypto Innovations Must Be Processed, and it Takes Time R
isk assets are taking a hit as a result of rising inflation and the Fed raising interest rates. Crypto markets have been crashing for months due to this. The new technology is just finding its legs, according to El-Erian. "Crypto is going through what most innovations do," El-Erian told the panel in a public interview last week. El-Erian is a chief economic adviser at financial services firm Allianz, and president of Queens College at Cambridge. A current state of overproduction and overconsumption characterizes crypto's development, according to El-Erian. A certain activity becomes more accessible because the barriers to entry are suddenly lowered.
the steam engine, fiber optics, and even the synchronization to 2000, it occurred. "The first round isn't good," he said.
El-Erian said he saw a lot of people entering the crypto space without understanding what it is. According to El-Erian, "They just saw prices going up and assumed they would go forever." Things are changing now. He said, "We're washing all that out. Supply and demand will be washed away. Hopefully, you can rebuild a stronger foundation, as with most innovations."
The algorithmic stablecoin TerraUSD collapsed in May, along with its sister currency Luna, and in June, crypto lender Celsius froze billions of dollars of assets. Babel Finance, another crypto lender, also halted withdrawals, and Three Arrows Capital, a crypto hedge fund, has encountered liquidity problems.
According to El-Erian, the pattern he's observing with crypto has repeated over and over again with innovations. During
As Bitcoin fell below $20,000 for the first time since December 2020, Ether, the secondlargest cryptocurrency, fell below $1,000, its
lowest price since January 2021. Bitcoin has since stabilized and risen above that mark again. Due to the downturn, Coinbase laid off 1,000 employees in June, reducing its shareholder value by $1,000. A "crypto winter" is predicted by some crypto leaders, but it's unclear how long it will last. “Our trading revenue has declined significantly in previous crypto winters,” said Coinbase CEO Brian Armstrong in a blog post on June 14, announcing layoffs at the company. “Our business operates in any environment,” El-Erian explained. “The crash may lead to more stable industries and better technologies,” according to El-Erian. In stocks and crypto, you will see, companies that were sustained by cheap, easy moneybut didn't have valid business prospectswill fail. But disruptive applications and technology released during a bear market will always find a market and succeed. According to El-Erian, crypto is now facing a reckoning that is part of a larger economic paradigm shift. “It's about time we get out of this artificial world of predictable massive liquidity injections, where everyone is used to zero interest rates, where we do foolish things like investing in markets we shouldn't be investing in, or investing in the economy in ways that don't make sense,” he said on CNBC's Squawk Box in mid-March.
July 2022 | Volume 34
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