Crypto Crashed and Everyone's In Jail. Investors Think It's Coming Back Anyway.

You would be forgiven for thinking that the whole crypto thing is finally over, a dubious chapter in financial history ignominiously closed. After all, most NFTs are worthless, shitcoins are still in the toilet, and the biggest names from crypto’s recent bubble are all in jail. But some investors aren’t seeing it that way—denizens of the crypto world are currently debating whether they are, in fact, so back. 

Cryptocurrencies had a breakout moment during the pandemic, with the price of Bitcoin skyrocketing from under $10,000 in April 2019 to $60,000 in April 2020. This rising tide lifted all boats, regardless of seaworthiness, and an explosion of tokens ranging from doge-themed memecoins to so-called “decentralized finance” coins that promised huge returns based on risky mechanisms followed. Millionaires and billionaires were newly-minted—at least on paper—and a genuine craze took hold. Celebrities promoted the idea that JPEGs were the future of investing. A disheveled Sam Bankman-Fried pitched himself as a benevolent savior using profits from his crypto exchange, FTX. Matt Damon told Super Bowl viewers that investing in speculative internet money was the bravest thing anyone could do. 

It didn’t last. In 2022, dominoes fell one after the other as “stable” crypto protocols imploded, “safe” coins crashed, and budding empires crumbled over night. The fallout was severe. Investors lost a lot of money, and fraud charges quickly followed. The list of former crypto paragons currently in jail or facing criminal charges is staggering: FTX’s Sam Bankman-Fried was found guilty on all fraud charges; Alex Machinsky (CEO of felled crypto bank Celsius) was arrested and charged with fraud; the chief figures behind the popular SafeMoon crypto project have also been arrested and charged with fraud; TerraLuna’s Do Kwon is sitting in a Montenegro jail cell and faces fraud charges in the U.S.; Su Zhu, co-founder of the cratered Three Arrows Capital crypto hedge fund, was arrested and jailed for not cooperating with liquidators. His partner, Kyle Davies, renounced his U.S. citizenship and his location is reportedly unknown. 

Where can crypto possibly go from here? According to remaining hopefuls: Up. 

The emerging narrative around crypto, after a brief and puzzling tangent into AI hype, is that traditional finance will soon lend the industry some much-needed legitimacy. In mid-October, a Morgan Stanley strategist named Danny Gelindo wrote a blog post declaring that “crypto winter” might already be over. This was widely covered by crypto news outlets. Numerous articles have also predicted that the Securities and Exchange Commission (SEC) will soon approve a spot ETF—a fund holding Bitcoin or other cryptocurrencies that lets investors buy shares that track the price—based on scraps of information. For example, an anonymous source claimed that Grayscale Investments is in contact with the SEC after a court decided that the regulator’s previous denial of its ETF was “arbitrary and capricious.” Reports that BlackRock, which is also seeking approval for a Bitcoin spot ETF, registered a corporate entity called “iShares Ethereum Trust,” similarly excited investors. 

These bits of news, and their supposed implications, have boosted cryptocurrency prices. Bitcoin is currently sitting at $37,000, and Ethereum is over $2,000. There’s a sense of desperation to all of this—after the endless waves of fraud charges, collapsed houses of cards, and wrecked futures, institutional sign-off may well be the final bid for crypto’s acceptance back into the mainstream. Case in point: A viral tweet from a popular cryptocurrency news outlet claiming that BlackRock’s ETF had been approved sent Bitcoin’s price soaring for about 20 minutes, before it was proven to be false. 

Can crypto really mount a true comeback, outside of a niche subset of risk-taking investors? It seems unlikely, even if regulators approve an ETF. All of the building excitement may be nothing but vapor, leaving the industry in search of a new narrative to fuel the hype cycle. But for now, despite all of crypto’s anti-establishment posturing over the years, the financial system crypto was once destined to disrupt is what believers think can save it.