The current hype cycle may be winding down.
Bitcoin is currently down about $500, or nearly 17%, from its June 12th peak of $3,000 per coin. Essentially every other major cryptocurrency, including Ethereum and Litecoin, has seen similar declines. There have been fluctuations since the peak, but the overall trend has been steadily downhill for weeks.
While it can seem odd to apply old-school securities terms to newfangled digital money, that means the crypto market is nearing the conventional 20% decline that defines bear territory.
Few insiders — or regular Fortune readers — are likely surprised by this. “Bubble” was maybe the single word most consistently spoken by expert panelists at the Consensus conference in late May. Our Robert Hackett diagnosed a speculative bubble two weeks before the peak.
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Recent weeks’ losses weren’t the one-day implosion often associated with a bubble. But the more important feature of bubbles – delirious optimism ungrounded in reality – has been swirling for months. Investment Strategist Matt Prusak, writing at Coindesk, has rounded up some novel examples of “dumb money” (his term) rushing into cryptocurrency. Many of them are quite entertaining if you aren’t among those taking losses right now.
Prusak points out, for instance, this account of amateurs rushing into the market as it peaked:
The tweet is particularly notable, of course, because Dmitry Buterin is the father of Vitalik Buterin – creator of #2 cryptocurrency Ethereum. Dmitry, like most insiders, has been watching for a correction for weeks.
Prusak also points out this doubly amusing post from BroBible, titled “What is The Etherum [sic] Cyrptocurrency [sic] and How Will It Make You Rich AF?” It was posted, misspellings and all, as the market was already heading down.
Prusak dives into several other dimensions of crypto-mania, but I’ll cite just one more that’s particularly illuminating. Through the entire course of the runup, the value of Ethereum (ETH) has been tracked closely by the value of Ethereum Classic (ETC). While Ethereum may be the cryptocurrency with the broadest real-world adoption, Ethereum Classic is a so-called fork, completely distinct from Ethereum and with barely a fraction of Ethereum’s adoption.
Prusak says it is “highly likely the price [of ETC] has been driven significantly higher by uninformed investors simply not understanding the difference between the two – similar to how adding “.com” to a company’s name in 1999 sent stock prices up on average 74%.”
To be clear, calling the cryptocurrency market in a given month a hype-driven bubble is not the same thing as deriding the technology. This is revolutionary stuff with huge long-term potential, and for some, declining prices will mean a buying opportunity. But it’s an extremely volatile, high-risk asset, and there’s every chance that any particular coin – even Bitcoin itself – could end up being worth nothing at all.