The Economist: Falling Below $70,000—This Crypto Winter Is More Despairing Than Ever

Author: The Economist

Translation & Editing: TechFlow

TechFlow Intro: Although Bitcoin’s price remains above $70,000, the cryptocurrency market is enduring an unprecedented “lonely winter.” This article delves into what makes the current downturn distinct from previous ones: the cascading effect of leveraged liquidations; exchange-traded funds (ETFs)—once hailed as a lifeline—now acting as downward pressure points; and, most critically, the loss of “vibe.”

As cryptocurrencies shift from countercultural cool to a mundane asset embraced by elites yet still not genuinely accepted by mainstream finance, their premium is rapidly evaporating.

The author warns that unless this unique sense of enthusiasm is restored, this winter could last unusually long.

The full article follows:

Cold winds have swept across the U.S. East Coast for weeks, dropping temperatures in some areas to multi-decade lows. Yet this pales in comparison to the “deep freeze” investors have plunged crypto assets into. Bitcoin’s price has tumbled from $124,000 in early October to around $70,000 today, and the total market capitalization of all cryptocurrencies has shrunk by over $2 trillion. Though such assets have suffered severe setbacks before, supporters’ frustration now feels more intense than ever.

In some respects, the depth of their anguish seems puzzling. Bitcoin’s 45% decline is far from its worst-ever drop: from its late-2021 peak, its price plunged 77%. Back then, it took the crypto industry roughly three years to restore market value to its prior high. Today’s bear market has lasted just four months.

Yet consider how other asset classes are faring. In 2022, crypto investors could at least console themselves that everyone was losing money: the tech-heavy Nasdaq-100 index fell more than one-third from peak to trough. Now, however, that index stands less than 4% below the record high it reached just weeks ago (though some software firms are struggling). Crypto fans feel sad—not because losses are unprecedented, but because they feel isolated.

The forces driving such a volatile, speculative market are always somewhat mysterious. But one thing is clear: leverage and liquidations are playing a major role. As of late September—just before the crash began—the monitored size of crypto lending stood at approximately $74 billion—more than double its level over the past 12 months and exceeding its end-2021 figure.

Then, starting October 10, leveraged positions worth roughly $19 billion were rapidly liquidated amid massive losses. Since then, a cascade of smaller positions has followed suit. Concerns about Strategy Inc.—a firm that buys Bitcoin using debt and equity issuance—have intensified. Its stock has fallen nearly 70% since July.

The proliferation of crypto products may have exacerbated the decline. The launch of crypto exchange-traded funds (ETFs) in 2024 was meant to bolster prices by expanding the pool of potential buyers—and for a time, it worked. iShares Bitcoin Trust ETF (IBIT) became the fastest-growing ETF in history, amassing nearly $100 billion in assets by October. Now, however, ETFs are dragging prices down. Over the past 80 trading days, IBIT has seen $3.5 billion in outflows—the first sustained wave of redemptions. Most money invested in the fund is now underwater.

The final factor suppressing crypto is the hardest to quantify: the “vibe” is off. For a speculative asset class with no fundamental value or earnings potential, intangible “aura” is everything—and the excitement once surrounding digital assets appears to have vanished.

Part of the reason is that they’ve lost their rebellious edge. If both the U.S. president and his family are deeply involved in an asset class, how countercultural can it really be? Charles Hoskinson, co-founder of the blockchain platform Ethereum, put it bluntly last month: “We’ve basically become part of the system. And you know what systems do when something becomes part of them? They make it uncool.”

For some companies, crypto’s newly acquired “bland” reputation even brings benefits. Institutionalization has aided stablecoin issuers, streamlining digital payments. Yet assets like Bitcoin have gained little in return for shedding their “cool” appeal; they appear to belong to “the system,” yet remain fundamentally unadopted by it. Professional, conservative investors continue to shun crypto. A September survey by Bank of America found that the vast majority of fund managers hold zero crypto exposure. Digital assets account for just 0.4% of respondents’ total portfolio value.

Meanwhile, central banks are buying gold—to shield themselves against inflation, geopolitical threats, and sanctions risk. Digital assets, once touted as alternatives to fiat currency, are now sidelined. Last year, the Czech National Bank became the first central bank to publicly announce a crypto purchase: an experimental—and trivial—$1 million investment in Bitcoin. It has yet to announce any further purchases.

Digital assets have proven far more resilient than many financial columnists—who delight in writing their obituaries—ever suspected. Despite repeated bear markets, they have consistently defied predictions of total collapse. Yet there’s ample reason to believe this crypto winter feels unusually bitter. Unless the vibe improves, don’t expect a thaw.