The crypto crunch: Is it over for digital currencies?

Bitcoin has lost over 33% of its value over the past year.

A seismic shock hit crypto last week, with the terraUSD stablecoin collapse described as a ‘Lehman Brothers moment’ for the sector – that’s to say, it’s not looking good. While this writer still believes thoroughly in the potential for crypto – both as a store of value and as a new way to access and build services – I must admit my faith is shaken.

There’s one big reason why. One of the key use cases often touted by crypto enthusiasts is that digital currencies provide a ‘hedge’ against inflation – in a similar ‘vein’ (no pun intended) to gold. This has proven not to be true. We now live in an environment of high inflation, and crypto is more volatile than ever.

Just how volatile, you ask? Well, Bitcoin has lost 33.05% of its value in the last year as investors flee due to perceived volatility. If crypto truly worked as an inflation hedge, you’d expect to see stable value – or even an increase.

So does this mean you should sell all your crypto? Well in short, it’s hard to say. It’s not hard to be bullish on the future of digital currencies – especially if you’re banking on the blockchain technology that underpins them to take off, as are thousands of crypto enthusiasts across the globe. That being said, what pundits say and what happens in actuality are often two very different things.

I, for one, have taken some substantial losses in the selloff. Does that mean I’m going to join them and trash my crypto reserves? No. As stated earlier, I still believe in the premise of the technology, so I think I’ll hold for now. In the future though? I honestly can’t say – it all depends on which way the wind is blowing.