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The Ledger: Crypto Collapse, TransferWise, Beyond Market Cap

The bad old days are back. Crypto prices are in free fall and no one’s sure where the bottom lies. Even mighty Bitcoin wasn’t spared as prices crashed below the $6,000 mark—regarded by many as an unofficial floor—and then fell further to below $5,000. What’s going on?

Three recent events might explain the current collapse. The first is the SEC’s announcement on Friday that the operators of two “Initial Coin Offerings” (ICOs) broke the law by selling unlicensed securities, and must pay fines and restitution. As others have noted, this is only the beginning: Crypto bros spent most of 2017 poking the SEC bear, and now the bear is awake and ready to mete out a world of punishment. This development might be enough to spook some crypto investors, but it hardly come as a surprise. Anyone paying attention to the regulatory space knew this was coming, and so much of the fallout should have been priced into crypto token prices already.

Likewise, it’s hard to see how last week’s Bitcoin Cash fork—a second possible explanation for the crypto crash—could tank the market so badly. Sure, the fork was messy and created renewed centralization concerns over Bitcoin Cash. This hurt the price of Bitcoin Cash, and possibly spread contagion to the rest of the market. But Bitcoin Cash has always been dodgy and dysfunctional, and the crypto world has weathered forks before, so it’s hard to see how this triggered the crash.

This leaves a third possibility: Crypto investors got spooked by bad news from chip-makers Nvidia and Advanced Micro Devices, which recently reported steep sales declines for cryptocurrency equipment. The sales declines suggest interest in crypto has waned, and is unlikely to pick up anytime soon. This could explain the chill on crypto asset prices, but also raises a chicken-and-egg question: Namely, is the chip makers’ misery a cause of the collapse, or just another symptom of it?

It’s possible, of course, that it was a conflation of all three events that KO’d the crypto markets. That would be welcome news for investors, in a sense, because it would mean individual shocks explain the downturn—and markets recover from shocks.

There is, however, a more existential explanation for the collapse: the whole thing is a bust. This is the position of tech exec Sam Gellman who, in a thoughtful series of tweets, points out that crypto has sucked up $30 billion in ICO money in two years and hasn’t delivered a user base beyond crypto speculators. It’s been ten years since Bitcoin came out, he says, and there is little of value to show for it. Needless to say, plenty of folks are popping up to refute Gellman but, if he’s right, look for investors to keep rushing for the exits.

Thanks as always for reading—lots more tidbits to please Hodlers and haters further below.

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Jeff John Roberts
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How Stablecoins Could Make the Crypto Crackup Worse by Jeff John Roberts

DECENTRALIZED NEWS

To the Moon… Salad unicorn Sweetgreen namechecks blockchain. Switzerland greenlights world’s first crypto ETP. Coindesk has a wonky-but-wonderful crypto explorer tool. Interest in crypto jobs stays strong. Another NY Bit License. Blockchain on the luxury circuit.

…Rekt. Everything. SEC stalks crypto OG over ShapeShift and SALT. Crypto hedge funds are shutting down like crazy. Bitcoin Cash fork may bring tax hell. “Bad crypto headlines making clients nervous” says Deloitte blockchain head.

BALANCING THE LEDGER

Click to watch

This week Jen and Robert welcomed Taavet Hinrikus, the co-founder and chairman of TransferWise, the fast-growing cross-border money transmission service, who shared his views on blockchain and Ripple.

BUBBLE-O-METER

Open for Business. The cryptocurrency markets are in another meltdown, and the FT is again proclaiming the collapse of crypto. It may all look grim but, if you take a broader view, the picture looks brighter—especially in the emerging industry of security tokens. As this graphic from The Block reveals, the security token business has mushroomed into a staggering number of companies providing all sorts of services:

MEMES AND MUMBLES

Staying festive. The recent market carnage has brought wailing and gnashing of teeth, but also some levity. Kudos to Jameson Lopp for his holiday humor:

FOMO NO MO’

Don’t miss out: Market cap is a good way to understand the value of a stock, so the same applies to crytpo, right? Not so fast says market data firm Nomics, which explains why the traditional metric is ill-suited. In a careful essay, the firm also explores the pluses and minuses of other methods proposed to value crypto.

For almost as long as crypto has used market cap as a metric, there have been those who have critiqued its use and pointed out why, at best, it can be misleading, and at worst, it can incentivize a host of unproductive, even damaging behaviors. …

Any full look at the concept of crypto market cap is bound to conclude that it is an imperfect measure at best, and genuinely distracting at worst. In the short term, it seems unlikely that we’ll see the industry move to an alternative. That said, the emergence of alternatives and speed with which they’re being considered and even integrated into coin ranking products is extremely promising for this young asset class.

We hope you enjoyed this edition of The Ledger. Find past editions here, and sign up for other Fortune newsletters here. Question, suggestion, or feedback? Drop us a line.