Crypto has crashed – can it bounce back?

theguardian.com:

Even if you don’t live and breathe cryptocurrency, you’ve probably noticed some turmoil in the sector. Eye-catching headlines about missing apes and collapsing stablecoins are indicative of the chaos, but what’s really going on?

Like so many things: gradually, then all at once. Take bitcoin, the original cryptocurrency, which is responsible for about a third of the value of the sector. The cost of a single bitcoin has been dropping slowly since the end of March, alongside a broader malaise in the technology sector.

That makes sense: an investment in bitcoin is, in one regard, a bet on the possibility of further technological upheaval, just like the purchase of any other tech stock. With a rise in inflation choking off post-pandemic growth on both sides of the Atlantic, coupled with a vague sense that irrational exuberance had led to an overvaluing of tech in general over the past couple of years, the whole sector began dropping.

And then, in early May, the dam broke. In a week, it dropped further than it had in the preceding month. The immediate cause was contagion from the catastrophic failure of another cryptocurrency project, called terra, which was once valued at more than $50bn and ended the week effectively worthless.

As terra collapsed, so too did other cryptocurrencies. First, similar projects saw their values stumble, as investors feared they would follow; then, the panic gripped the broader sector, and even comparatively blue-chip tokens, including bitcoin itself, tumbled.

It took until mid-May for the crash to stop, but while the market has regained some stability, it shows no sign of returning to anywhere near its highs of last month. We may be, in the words of one chief executive, heading into a “crypto winter”.