What you are speculating on is just illusions, but what you lose is real money.
In June 2015, the A-share market crashed, thousands of stocks hit the limit, and everything was green. This year, many people lost so much money because they used high leverage to realize their dream of getting rich overnight. The same is true in the cryptocurrency circle. In 2021, the price of cryptocurrencies skyrocketed, and Bitcoin became the world's highest-yielding asset. Many people leveraged and entered the market. But prosperity is followed by decline. In 2022, the wind direction changed dramatically, and the price of cryptocurrencies plummeted. While the speculators lost all their money, the cryptocurrency circle also ushered in a major shock.
On December 20, US time, SBF, the founder of FTX, a cryptocurrency exchange that went bankrupt due to a "thunderstorm", was charged with eight counts by US prosecutors. If all the charges are proven, he will face up to 115 years in prison. Coincidentally, on the same day, a group of lawyers for French cryptocurrency investors said they had filed a criminal lawsuit against Binance, the world's largest cryptocurrency trading platform, accusing it of misleading the public and promoting its services before the law allowed it to provide legal services. Binance's founder, Zhao Changpeng, the former richest Chinese, is also facing unprecedented pressure.
On December 23, in response to news such as "the exchange suspended withdrawals of USDC (a fully collateralized stablecoin pegged to the US dollar)" and "refusing to disclose financial information", although Binance responded on its official website, external doubts have not dissipated.
Lost 2.5 million in six days
Although my country has begun to put out the "false fire" of virtual currency speculation since 2017 and put "protection locks" on investors' wallets, the "wealth-making myth" of the currency circle still attracted many investors to enter. Zhang Qi from Shenzhen is one of them.
At the end of 2019, Bitcoin was the first to recover, and then it started a round of sharp decline. Zhang Qi, who saw the opportunity, began to buy cryptocurrencies, including Bitcoin. In the ups and downs of the market, Zhang Qi also made some losses and some gains.
It was not until 2020, when the COVID-19 pandemic hit and the United States began to increase its money supply, that Bitcoin broke through several 10,000-yuan mark in March of that year, and finally broke through the 60,000-dollar mark in April. It was also in anticipation of "Bitcoin's expected rise to more than 100,000 U.S. dollars" that Zhang Qi bought more cryptocurrencies.
Taking advantage of this round of boom, he raised his original 300,000 yuan to "nearly 10 million yuan". However, the market changes are always unexpected. On May 19, 2021, the price of Bitcoin plunged rapidly, from around $43,000 to $29,000, with the highest single-day drop of 34%. Another virtual currency, Ethereum, was almost halved.
From that day on, Zhang Qi's investment profits began to be lost, and by the end of 2021, they had been cut by about 70%. On days when the market fell by 40%-50% a day, Zhang Qi was restless, "I felt like eating stupidly, I was so tired." It was also this time when he almost lost all his money that made Zhang Qi calm down and take a rest, "It's unpredictable and full of risks. It feels like the biggest casino in the world."
Zhang Qi, who stopped trading, luckily avoided the great turmoil in the cryptocurrency circle in 2022, but Hu Yao, a post-90s in Japan, was not so lucky. He started buying cryptocurrencies in January 2021 after seeing some short essays on social platforms about "making 10 million in 2 days by speculating in cryptocurrencies". It was also at the beginning of 2021, during the crazy rise of cryptocurrencies, that Hu Yao's 120,000 yuan investment in Ethereum quadrupled to 500,000 yuan.
Having tasted the sweetness of "getting rich overnight", Hu Yao invested almost all of his money in Bitcoin and Ethereum in 2022. However, since November 2021, the cryptocurrency market has ushered in a long winter. Especially after entering 2022, the flash crash of LUNA coin, the "Moutai of the cryptocurrency circle", in May, triggered a major earthquake in the cryptocurrency circle, which reached its peak on November 11 due to the bankruptcy of FTX.
From November 6 to November 11, in just six days, "I lost 2.5 million. During these days, Bitcoin fell by more than 20%." On December 19, Hu Yao told Shijie, "Bitcoin mining is now a loss-making business, and the mined coins are not enough to cover the electricity costs." On the other hand, Song Feng's life has indeed changed since he wanted to "change his fate" by speculating in cryptocurrencies.
Before that, although he didn’t make much money, he slept well every day and his life was quite fulfilling. After entering the virtual currency market in May last year, Song Feng became extremely miserable. He couldn’t sleep well because he had to watch the market every day. “My heart couldn’t stand the big market fluctuations.” Even if he made 50,000 yuan one night, Song Feng was not happy. Instead, he was panicked. “I know very well that this is the behavior of a gambler, but I feel trapped and don’t want to stop.”
Soon, reality dealt Song Feng a heavy blow. In December 2022, amid the continued volatility in the cryptocurrency market, the Euro-Italian exchange where he bought cryptocurrency experienced a flash crash, and the cryptocurrency he held could not be sold. After experiencing the extreme pain of being on the verge of a liquidation, Song Feng lost all the money he earned from watching the market for a year, including the 50,000 yuan he earned that night and more than 10,000 yuan in savings. Now, facing the mess, Song Feng regrets it very much, "If I start over again, I will definitely not touch virtual currency. There is no future."
This is just the tip of the iceberg in the cryptocurrency world. On May 19, 2021, nearly 600,000 people lost their positions, and more than 44 billion yuan of funds were wiped out. Since 2022, the cryptocurrency world has continued to intensify its position. Glassnode data shows that as of mid-December 2022, global Bitcoin investors have lost a total of US$195 billion, or about RMB 1,359.7 billion. Most holders sold their Bitcoins at a loss.
What happened to the cryptocurrency world that was once so popular?
Behind the turmoil in the cryptocurrency world
As glorious as the cryptocurrency world was in the past, it is as turbulent now.
There is a widely circulated story in the cryptocurrency circle. In May 2010, someone on a Bitcoin forum bought a pizza worth $25 using 10,000 Bitcoins. This was the first fair exchange rate for Bitcoin, corresponding to a price of $0.0025 per Bitcoin.
At the end of 2017, the price of Bitcoin rose to about $16,000; in April 2021, the price of Bitcoin once exceeded $64,000. In other words, Bitcoin has increased more than 25 million times in eleven years. If someone invested one yuan that year, it would become 25 million yuan, and 10 yuan would appreciate to 250 million yuan.
However, the cryptocurrency world is not just about getting rich quickly. In 2022, the cryptocurrency world experienced an unprecedented earthquake, which wiped out a huge amount of wealth. This "earthquake" began with the flash crash of the cryptocurrency LUNA coin. On May 9, the LUNA coin, which had a market value of up to $41 billion, plummeted without any warning. In just a few days, its price fell from nearly $90 to less than $0.00015.
The collapse of the market value of LUNA coins worth tens of billions of dollars not only caused countless investors to lose all their money, but also caused thousands of coins in the cryptocurrency circle to fall. Taking Bitcoin as an example, from the early morning of May 10, Bitcoin plummeted by more than 10% in 15 minutes, and many investors were liquidated during the trading session. According to the data from the currency world, on May 14th, Beijing time alone, more than 160,000 users of virtual currency contracts on the entire network were liquidated, with the liquidation amount reaching 2.12 billion yuan.
The domino effect has erupted. Most leading companies in the virtual currency industry have "survived the winter" by laying off employees. According to CoinDesk statistics, as of November 30, the virtual currency industry has lost more than 26,000 jobs. Many financial institutions were reported to be unable to repay user assets and went bankrupt, including the leading hedge fund Three Arrows Capital.
This is a turbulent time for the cryptocurrency industry. From the end of October to the end of November, three cryptocurrency leaders died suddenly in succession. As FTX filed for bankruptcy on November 11, its founder SBF was charged with eight counts by the US prosecutors. If all charges are proven, SBF could be sentenced to up to 115 years in prison.
Why is the cryptocurrency market so turbulent? We have to start with its origin. The name of virtual currency comes from the contrast with physical currency. The earliest virtual currency is Bitcoin, which is a peer-to-peer and decentralized digital asset proposed by Japanese Satoshi Nakamoto in 2008. Because it uses cryptographic principles for transactions, Bitcoin has also become one of the earliest types of cryptocurrency. Other cryptocurrencies issued with Bitcoin as a reference include Ethereum, Litecoin, Dogecoin, Quarkcoin, etc.
The rise and fall of cryptocurrencies are directly related to the Federal Reserve's loose monetary policy.
Mark Mobius, a legendary American investor and the "Godfather of Emerging Markets", believes that the U.S. dollar money supply has increased by more than 40% in the past few years, which has given investors enough cash to speculate on cryptocurrencies. From 2022 to December, the Federal Reserve has raised interest rates seven times. The interest rate hike has reduced the money available for investment in the market. As cryptocurrency prices fell along with the U.S. market, some network stablecoins (a type of cryptocurrency with an "anchor" attribute) that promised to be pegged to fiat currencies such as the U.S. dollar but had inherent flaws were detonated, which in turn affected financing institutions that provide leverage for cryptocurrencies, including exchanges like FTX.
But the root cause of the cryptocurrency turmoil can only be traced back to the controversy over whether it has value. Taking Bitcoin as an example, since it has no direct connection with the real industry, its price fluctuations are out of the real world's industrial restrictions and the control of traditional methods. It is also because of this that various cryptocurrency scams emerge one after another as the price of Bitcoin continues to rise.
More importantly, "the huge transaction volume in the cryptocurrency market is affecting the real currency markets of major institutions and even various countries, thus bringing new problems of giant influence and national control." Deng Feng from the Research Institute of Fudan University once mentioned. For example, Musk once hyped Dogecoin, which has a very weak technical foundation, and caused its price to soar.
In addition, the reason why FTX, which was in trouble this time, was accused of money laundering and fraud by the US prosecutors was because there was a huge gap of $8 billion on the FTX balance sheet. The US Securities and Exchange Commission (SEC) stated: "SBF misappropriated billions of dollars of customer funds from the trading platform for his own personal interests and to help develop his cryptocurrency empire."
"The punishment of cryptocurrencies has just begun," said SEC Chairman Gensler.