The past few months have been dark times for the crypto industry. Between April and June, Bitcoin’s value more than halved, from just over $45,000 to around $20,000; other coins have fallen even more. The Terra-UST ecosystem, which paired a crypto coin with one designed to be pegged to the dollar, collapsed in May, wiping out $60 billion worth of value and leading to cascading failures among crypto lenders. Established companies like Coinbase, a popular crypto exchange, have announced layoffs.
Amidst the turmoil, crypto skeptics have doubled down on their critiques, often with a focus on the speculative excess, and argued that the crash has revealed crypto as a Ponzi scheme. As evidence, some cite the extreme volatility. How could crypto live up to the hype if participation feels like a rollercoaster — one whose operator is opposed to safety inspections? While some of the criticism is well deserved, the focus on price volatility isn’t as strong an argument as critics might think. Rather, it reveals a misunderstanding of what different crypto assets represent.
Crypto is a young industry. Most projects are barely five years old. Eventually, different coins are meant to serve different functions, but today they all more or less act as startup equity with the distinctive properties of having liquidity and price discovery from the start. This unique attribute — enabled by the novelty of the underlying infrastructure — leads to a more benign…
