2022-Q2 Crypto - Innovation Catalyst?

Crypto markets are in turmoil. Cryptocurrencies have crashed, some losing as much as 90%. Bitcoin, a prominent cryptocurrency, has fallen over 70% relative to the U.S. dollar since its peak in November 2021, a period in which both the dollar and gold have enjoyed steady gains (Exhibit 1). Terra, a stablecoin designed to be pegged to the U.S. dollar and its sister coin Luna have fallen to essentially zero, destroying $60 billion in value. Celsius, a prominent crypto lender, and Voyager, a large crypto brokerage, have frozen user accounts and filed for bankruptcy. And crypto hedge fund Three Arrows Capital has defaulted on its obligations, spreading instability throughout a deeply interconnected and opaque market. This Investment Brief considers whether new technologies capable of revolutionizing financial markets might emerge from the crucible of the present tumult.