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May 31, 2021 @ 14:04 +03:00
It’s not about the price decline per se. It’s that, after a period when the outside world – the “mainstream” – seemed finally to get crypto, those outsiders are now having second thoughts, as they did during the Crypto Winter of 2018. Crypto people might not like to admit it, but they crave acceptance – more so, perhaps, than adoption. They want to be understood. This time, the rejection flows from a rising narrative, one that’s proving extremely difficult for the community to contain, about the supposedly negative environmental impact of crypto generally and bitcoin specifically.
The price-destroying impact of Elon Musk’s negative turn on bitcoin two weeks ago had nothing to do with the immaterial monetary impact of Tesla no longer accepting bitcoin payments. It reflected the realization that even Musk, once a crypto-booster, felt compelled by forces bigger than his giant ego to fall in line with the bitcoin-is-bad-for-the-planet narrative. Large financial institutions are rapidly becoming sustainability-conscious, with investment committees that demand compliance with ESG objectives. That means anyone in need of capital, including Tesla, has to signal that they are, too.
Given that bitcoin’s price rallies this year were fueled by Wall Street institutions buying it as a hedge against fiat monetary expansion, the idea that those same institutions are now more reluctant to do so on ESG grounds will weigh on the bitcoin price, possibly for some time. That shift from mainstream support to mainstream disapproval offers an echo of Crypto Winter I, when the collapse of the initial coin offering bubble left newby retail investors burned and disillusioned with that era’s crypto promise of fast token riches. On the other hand, the runup before this collapse seemed more legitimate than that one, as the entrance of institutional investors was founded on a solid assessment of bitcoin’s value proposition in the context of a challenging macroeconomic outlook.
But even if the circumstances are different, the first Crypto Winter offers lessons in how a quieter period in markets might, ironically, enable the development of the technology. As with that previous lull period, developers of crypto projects are now presented with an opportunity to focus on “building” – or BUIDLing, as the meme went back then.
Money Reimagined: Crypto Winter Again? Time to Regroup, CoinDesk, May 31