Have the Crypto Bosses Learned Anything At All?

The crash should have been a humbling moment for the industry. Instead, companies are doubling down.

An image of a clown with the Bitcoin logo in its eyes
The Atlantic; Getty

Last Monday marked one of the biggest TV events of June—Game 5 of the NBA finals. So naturally the crypto exchange Coinbase used the opportunity to air an ad poking fun at crypto’s more enthusiastic doomsayers. A series of tweets declaring “Crypto is dead”—some new, others nearly a decade old—fades in and out over a rendition of Chopin’s funeral march. Then a new slogan rises up in a harsh blue font: “Long live crypto.”

The very next day, Coinbase laid off 1,100 employees, about a fifth of its workforce. Maybe the doomsayers were onto something: The prices of bitcoin and Ethereum, the two most popular coins, have tumbled more than 70 percent from pandemic highs; the NFT market has cratered; and optimism is in short supply. Everywhere you look, the dominoes are falling: One prominent firm, Three Arrows Capital, is reportedly approaching collapse, while other companies are desperately seeking bailouts to stay afloat. In the past three months, the crypto market has shed more than $1 trillion. (A spokesperson for Coinbase explained the ad’s timing by saying it was “part of a prearranged package that came with our sponsorship of the NBA.”)

And yet the overwhelming sentiment among many of these companies, even as they’re bleeding out, is that crypto isn’t really dead at all. All across the industry, you can spot the rhetorical gesture of that Coinbase ad—an insistence on the idea that the investors and onlookers are all taking the recent downtrends a little too seriously. You would think that a crash of this magnitude—the first since crypto has fully entered the mainstream—would be a humbling moment for the industry, one that would compel some of the movement’s biggest proponents to hunker down and build sturdier systems. But at this point, many crypto kings are refusing to reflect at all.

Not coincidentally, the companies doing the least reflecting are the ones with their hands deepest in the cookie jar. Part of what spurred on the current crash was a cryptocurrency called TerraUSD, a type of so-called stablecoin designed to more or less equal the value of the U.S. dollar. The whole point of stablecoins is that they’re supposed to be less volatile than other cryptocurrencies, a way of protecting your money while still keeping your chips in the casino. That was the idea, at least: TerraUSD was tied to another cryptocurrency called Luna, and when its value plummeted in early May, investors promptly dumped their TerraUSD. Tokens meant to sell for $1 a pop were suddenly trading for almost nothing, and, according to Bloomberg, $60 billion of investors’ money was zapped away.

Do Kwon, the 30-year-old co-founder of the company that created Terra, responded to the chaos with a simple proposition: Terra 2.0. It would be like if Bear Stearns launched “Bear Stearns 2.0” in 2008, an act of hubris so extreme that it almost defies belief. Kwon, who didn’t respond to a request for comment, relaunched the new tokens with a slightly tweaked battle plan, and Luna holders approved the reboot. While the rest of the world awaits more concrete answers about that $60 billion, Kwon has been doubling down on Terra 2.0 with a series of Twitter threads. But of course the trust isn’t there—after an initial upswing, the price has been in a steady decline.

As the wider crypto market has tanked in the weeks since the Terra collapse, other flailing companies have been similarly unwilling to publicly reflect on the damage. The crypto lender Celsius Network made it big by promising yields much higher than those of traditional bank accounts. That approach generated gobs of money when crypto was booming, but apparently it hasn’t fared so well during the downturn. As rumors began to circulate about Celsius’s financial issues, the company’s founder, Alex Mashinsky, dismissed it all as “FUD,” crypto shorthand for “fear, uncertainty, and doubt.” “Do you know even one person who has a problem withdrawing from Celsius?” he tweeted. Just over 24 hours later, the company put a freeze on all withdrawals, locking customers out of their accounts. (The freeze remains in place almost two weeks later.)

Mashinsky, whose Twitter profile picture depicts him as a Roman emperor, laurel wreath and all, has gone dark on social media, and paused the company’s regularly scheduled “ask me anything” sessions. A note from the company, released a week ago, shed little light on the situation: No word on the whereabouts of investors’ funds, or on the ongoing investigations into the company’s operations from regulators in at least five states. (Celsius and Mashinksy did not respond to a request for comment.)

Though the company now displays a somber banner on its website referencing the freeze and has released a short FAQ about it, Celsius also still touts a product with “military-grade security, next-level transparency, and a do-it-all app designed to help you reach your financial goals—whether you’re HODLing long-term or swapping daily.” (HODL is an intentionally misspelled call to “hold” your coins, even if the value of your investment drops.) The implicit message is that customers should continue to put their faith in Celsius, even as the walls begin to close in.

Throughout the industry, there’s a sense from the biggest players in crypto that if we all just keep the faith, traders can effectively spend their way out of the crisis. Cameron Winklevoss, the billionaire co-founder of the crypto exchange Gemini, recently tweeted that the bitcoin dip feels “irrational,” because “the underlying fundamentals, adoption, and infrastructure have never been stronger.” It’s not a question of fundamentals, though; asking people to look more closely at the tech will not somehow end the bear market. A few days ago, Michael Saylor, whose software company, MicroStrategy, has spent billions of dollars acquiring bitcoin, called the cryptocurrency “a lifeboat, tossed on a stormy sea, offering hope to anyone in the world that needs to get off their sinking ship.” But right now, bitcoin is the sinking ship.

I don’t claim to know how best to respond to a situation like this, but if you’re an executive hoping to recover your reputation after losing billions of dollars of other people’s money, it’s probably ideal to drop the notion that everything’s going to be okay. No one is expecting crypto companies to critique crypto—but the most culpable actors could at least tone down that “buy the dip” ethos as everyone’s portfolios start to crumble. Sometimes, it’s actually prudent to admit defeat; at least in 2008 we weren’t subjected to a barrage of defensive Twitter antics from the bankers asleep at the wheel.

These aren’t just numbers on a screen, after all. It’s easy to feel smug about the crypto crash if you’ve been wary of the whole subculture, but a sort of mental-health crisis has been unfolding on crypto-centric Reddit forums, as traders find community in commiseration. (Suicide hotlines were at one point pinned to the top of a forum for Terra enthusiasts.) People who took out loans from Celsius are on the brink of losing their homes. And as the contagion begins to infect other firms, like the crumbling Three Arrows Capital, those with the least to lose will be the hardest hit.

But even if the doubling down is an awkward move, it fits squarely within the larger free-market libertarianism that stretches back to the origin of bitcoin: the idea that market corrections should help shake out the fraudsters and give investors more robust options in the future. It’s up to traders to “DYOR” (“Do your own research”) and make cautious investments, the thinking goes; the government shouldn’t have to bail you out if things go south. It doesn’t help that the industry still feels like it has a chip on its shoulder, Rohan Grey, a law professor at Willamette University who studies crypto, told me, in part because of its historically uneasy relationship with the traditional banking system. Crypto companies are “always trying to prove that not only are you pro-market and pro-profit, all those things that the rest of Wall Street loves,” he said, “but you’re also doing it with this big middle finger up to the traditional elites.”

And yet people like Kwon and Mashinsky are the elites. The industry’s riches are creating a new set of rules in real time: Newly minted crypto billionaires are already pouring money into media and politics, with an eye toward creating new institutions more friendly to their ambitions. The project of crypto is, in some sense, about avoiding the protections and guardrails we’ve come to associate with traditional finance. Maybe that worked in 2013, when bitcoin was more of a niche curiosity—but it’s different now that crypto has grown by leaps and bounds. When the numbers go up again (and they will almost certainly go up again), you can expect a fair amount of I-told-you-so’s from this same crowd. But if there’s no sense of responsibility on the part of these giant firms, we could end up right back where we started.