This story originally appeared in Jacobin Magazine on May 18, 2022. It is shared here with permission.
The values of major cryptocurrencies have been sliding for months, but the crash entered a new phase last week. TerraUSD (or UST) was the third largest stablecoin on the crypto market, while Luna was the fourth most valuable cryptocurrency by market valuation. But now both are virtually worthless—and a lot of people have lost a lot of money.
Posting on the r/terraluna subreddit, one user wrote, “I lost all my life savings.” Another said the same, declaring “I’m out of crypto.” Others posted about the tens and even hundreds of thousands of dollars they’d lost, and how it would mean they wouldn’t be able to buy a house—or could lose their homes altogether. Eventually, moderators restricted new posts and pinned international suicide hotlines to the top of the page as people with huge losses said they saw it as their only way out.
After a year of exuberance, the crypto winter is here, and it’s not clear there will ever be a spring. The promises that coin values would go “to the moon” have given way to a rapid decline, while the slang term “wagmi”—“we’re all going to make it”—seems like a cruel joke. Enthusiasts used to chide critics by telling them to “stay poor,” but now that’s the situation of many of the people who put their money into the digital assets based on the lies of those with much less to lose.
BOOM AND BUST
Crypto values started to rise at the end of 2020, kicking off a mutual reinforcing cycle that kept the line going up. Venture capitalists flooded money into the space, tech workers took jobs at crypto start-ups, and the media was happy to report on all the money changing hands. The headlines about the high returns that a select number of people were making and the conviction of many supporters that crypto could only appreciate convinced a lot of people to risk their money on highly volatile assets.
As usual with the tech industry, cryptocurrencies couldn’t just be sold as a risky investment; they had to be framed as a form of social good. Spike Lee starred in an ad promising crypto would empower marginalized groups, some internet advocacy organizations asserted it was the path to decentralization, and a whole range of groups deployed exploitative blockchain projects in the Global South claiming they would help locals. It wasn’t hard to see that there was nothing to these claims, but many people wanted to believe in the benevolent power of technology.
In November 2021, just weeks after Matt Damon appeared in an ad enticing people to buy into crypto with the slogan “fortune favors the brave,” the values of cryptocurrencies and related products like NFTs started to tank. Bitcoin and Ethereum, the two largest cryptocurrencies, hit respective peaks of around $69,000 and $4,900 that month, but had lost half their value by January. Over that same period, average NFT prices fell by 48 percent, while trading volumes on OpenSea, the biggest NFT marketplace, plummeted by 80 percent. The collapse of UST and Luna, along with the Anchor lending protocol, will further shake people’s confidence in crypto assets.
GOING TO ZERO
Stablecoins are supposed to provide stability for crypto investors by pegging themselves to a fiat currency like a US dollar, thus making it easier for traders to move their money in and out of crypto assets. There have long been questions about the stability of stablecoins, including ongoing concerns about what’s backing Tether, the largest of them all. But UST had no backing beyond other cryptocurrencies.
UST is an algorithmic stablecoin that was supposed to maintain its peg to the US dollar through a complex process of minting and burning Luna tokens, but that all broke down on May 9 when it fell to eighty cents. Terraform Labs tried to restore the peg, but instability in UST caused the price of Luna to crater, making it virtually impossible. Luna traded at over $110 last month, and some enthusiasts used to assert it was going to hit $1,000 in the years to come. But now it’s worth a fraction of a penny, while UST sits below twenty cents.
The collapse of UST and Luna naturally caused the rest of the crypto market to fall with it, though not to such extreme degrees. Bitcoin fell to nearly $25,000, while Ethereum touched $1,700—lows they haven’t seen in many months. To put it in perspective, the total value of digital assets was estimated at $3.2 trillion in November 2021, but had fallen to $1.9 trillion by early May. In the past week, it dipped to $1.3 trillion. In the process, it wiped out the savings of a lot of people who bought into the hype.
SELLING A SCAM
For the past year and a half, it’s hardly been a secret that the crypto market was incredibly shady, if not a giant Ponzi scheme that relied on people buying in so those at the top could cash out with their money. Scammers made off with $14 billion in crypto last year alone, and as of May 9, 40 percent of Bitcoin holders were already estimated to have lost money on their holdings.
When you pair the crypto crash with rising inflation and higher interest rates, it’s likely more people will give up HODLing—meaning “holding on for dear life”—and cash out, continuing the crypto market’s slide and the pain for those who risked too much on crypto investments. The founders, the investors, and the whales—those with large crypto holdings—should shoulder the blame for the devastation being felt by all the people duped into their scams, and if regulators and authorities have any teeth they should be held to account.
But we also shouldn’t forget everyone else who helped them sell their lies: the organizations that took the industry’s money to reframe scams as empowerment; the workers who flooded into the digital Ponzi industry; the journalists who desperately wanted to believe the PR spin; and the celebrities who helped convince their fans to buy in. They should feel ashamed for contributing to the devastation we’re now seeing and convincing more people to enter the crypto market only to have their money stolen by the whales.
There’s a long history of people within the tech industry rebranding themselves as concerned advocates of change once they’ve made their money through exploitative practices they later claim to oppose, but that can’t be allowed to happen this time. All those who helped sell the crypto scam should all wear their participation as a badge of shame—and they should hope and pray their actions have only cost livelihoods, not actual lives.