Why?

If you're in cryptocurrencies it's more likely than not that you've been losing a lot of money these past few days and weeks. This short post will not explain the technical reasons behind this recent dump, but I would like to shortly share my opinion about the behavioral reasons.

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Why indeed. I was tempted to title this post "Bitconnect at scale," but then I thought "no, Bitconnect was a scam." That's not what's happening right now because the cryptocurrency market as a whole isn't a scam. But the current dump is caused by the same behavior. You see, and it pains me to say so, cryptocurrencies are seen as a away to get rich quick by a substantial part of the participants, if not a majority. This dump is quite severe as we've now reached a price for bitcoin we've not seen since the 2017 rally to almost 20,000 dollar; as I'm typing these words bitcoin stands at slightly above 19,000 dollar. All the gains over the past years have been lost in a couple of weeks.

Bitcoin was invented by Satoshi Nakamoto as a reaction to the 2008 financial crisis caused by the traditional banking system. Traditional banks, central banks and governments colluded in the casino-like space of funny money to inflate prices and gamble with our money. With bitcoin we were given our own money back. Money that isn't based on debts, because we, regular everyday people, always end up paying for the debts created for the benefit of the traditional gamblers. Bitcoin was our way out of that toxic and rigged game. That's why it's so painful to have to say that cryptocurrency markets have evolved to a place where all the shenanigans of the traditional casino have been replicated.

The current dump, like all big dumps, has been caused by liquidations of leveraged trading positions. If you don't know what it is, let me just summarize by saying that trading with leverage equals trading with money you don't have. Or rather betting with money you don't have. You take a position, a bet, that a certain coin or token will reach a certain price. And if it reaches that price, you'll get paid a multiple of your original amount. But if it doesn't and the price of the token goes in the opposite direction, you'll lose a multiple of the original amount if the token reaches the liquidation price. If you take a position for $50 you'll win or lose $500 at 10x leverage. That's what I meant to say when I wanted to put Bitconnect in the title of this post; it's the get rich quick psychology all over again... Needless to say that this dump is like all others, and that large leveraged positions have been liquidated.

Then came DeFi, or Decentralized Finance. While bitcoin is decentralized, very few cryptocurrencies since are, really. They all have founders, CEOs, marketing strategies and every other aspect we've come to know from traditional businesses and markets. Nowhere is this so aparent than in the DeFi market. Let me give you a quote from the founder and CEO of Celcius:

Banks are not your friends, we all know that. And we decided to create a replacement for the banking system, right? Something that acts in your best interest, a place where you can actually have your money work for you, not just you work for your money. And basically three years since we launched the product, we've paid a billion dollars back to the community... - Alex Mashinsky, Celcius CEO

Again, money you don't have is Celcius's business model. This quote contains all the problematic principles adopted from traditional banking. And then turbo-charges them. These DeFi products are now tumbling down one by one after having lured in millions of people with promises of 10 to 20 percent yearly interest rates; "have your money work for you, not just you work for your money." That may be the most telling part of this quote. You see, we normal folks think it's unfair that a billionaire can sit back and have his money do all the work for him. And now we can too! Instead of doing away with this dumb idea, we want it for ourselves. I've said it so many times; this world is being destroyed by the idea that money can be made without actually producing anything with real use value. Money's supposed to be a means of exchange, a measure of value, and nothing more. The world is now flooded with money for which nothing has been produced and we complain about the subsequent inflation rates. But as soon as we get the chance, many of us will behave the same way the billionaire does.

"Greed is good, greed works," said Gordon Gecko in the brilliant 1987 film "Wall Street." Ayn Rand's books "The Fountainhead" and "Atlas Shrugged" have become mandatory reading for those who believe Gordon Gecko. Rand has a whole philosophy about "rational self interest," objectivism, that elevates greed above every other aspect of the human condition and declares capitalism as the only viable economic system founded on that basic principle. Her books and Gordon Gecko's attitude are revered among the libertarians who are the core of the cryptocurrency movement. Will they ever learn? I'd like to say "let this dump be a lesson," but by now I know it'll fall on deaf ears. Which leaves me wondering: why?

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