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NEW YORK – The wealth-generating hot streak for Bitcoin and other cryptocurrencies has cooled brutally.

As prices fall, companies collapse and skepticism rises, fortunes and jobs disappear overnight, and investor speculation has been replaced by icy calculations that industry leaders have dubbed the “crypto winter.”

It is a dizzying event for investments and companies, appearing at its financial and cultural peak at the beginning of 2022. Crypto-herald companies ran ads during the Super Bowl and spent heavily to sponsor sports fields and baseball teams. The combined assets of the industry were estimated at more than $3 trillion; today, these assets are worth less than a third of that. Maybe.

On Monday, bitcoin was trading at $20,097, more than 70% below its November peak of around $69,000. Ethereum, another leading cryptocurrency, was worth around $4,800 at its peak in November; now it’s worth less than $1000.

Bitcoin and other cryptocurrency prices have been falling all year, a drop accelerated as the Federal Reserve signals interest rates will rise further to curb inflation. What happened to crypto is partly an extreme version of what happened to stocks, as investors are selling riskier assets at a time of heightened risk of recession.

But experts say crypto sales are more than that; It points to a growing concern on Wall Street and Main Street about the fundamentals of the industry that are currently looking shaky.

“There was this irrational outburst,” said Mark Hays at Americans for Financial Reform, a consumer advocacy group. “They did similar things up until the 2008 crisis: market these products aggressively, promise unreasonable returns, ignore risks, and dismiss critics as people who don’t yet understand.”

Hays and others also draw comparisons to the 2008 housing market crash because the crash in bitcoin and other digital currencies coincided with crypto industry releases of bank operations and a lack of regulatory oversight that sparked fears about how bad the damage could be. .

Unlike housing, cryptocurrency isn’t an industry big enough to trigger nearly turmoil across the wider economy or financial system.

However, recent events have still shaken the confidence of many investors:

– The so-called stablecoin Terra collapsed in a matter of days in May, wiping out $40 billion in investor wealth. In crypto markets, stablecoins are typically pegged to a traditional financial instrument such as the US dollar. Terra instead relied on an algorithm to keep its price stable around $1, and was partially backed by bitcoin.

– A company called Celsius Network, which works like a bank for crypto holders, froze the accounts of 1.7 million customers last week. Celsius has taken deposits, paid interest, and made loans and other investments in cryptocurrencies of its clients that were once worth close to $10 billion. Unlike a real bank, these customers have no federal insurance to back their deposits.

– Shortly after Celsius froze accounts, the founder of Arrows Capital, a Singapore-based hedge fund specializing in cryptocurrencies, addressed the imminent collapse rumors in a mysterious tweet: “We are in the process of communicating with the relevant parties and are fully committed to resolving this. “

Long periods of pessimism for stocks are called bear markets. In the crypto world, heavy sales bouts refer to the HBO series “Game of Thrones,” which popularized the ominous warning: “winter is coming.”

Last week, the CEO and co-founder of Coinbase, one of the largest crypto exchanges, announced that the company will lay off about 18% of its employees, saying a wider recession could worsen the industry’s problems. “A recession could lead to another crypto winter and last for a long time,” CEO Brian Armstrong said.

This isn’t the first crypto winter. In 2018, bitcoin dropped from $20,000 to just under $4,000. But analysts say it feels different this time around.

Hilary Allen, a law professor who studies cryptocurrencies at American University, said she is not worried about the latest industry turmoil spreading to the wider economy. However, problems may be brewing beneath the surface among crypto investors.

“For example, there are hedge funds with bank loans that are betting on crypto,” he said.

And whenever investors borrow money to increase the size of their bets – something known in the financial world as “leverage” – the concern is that losses can accumulate quickly.

“People try to do analytics, but there is a lack of transparency and it’s hard to understand how much leverage there is in the system,” said Stefan Coolican, a former investment banker and now an advisory board member at Ether Capital.

For this and other reasons, there is pressure in Washington to regulate the crypto industry more closely, and it is an effort that is gaining momentum.

“We believe the recent turmoil only highlights the urgent need for regulatory frameworks that mitigate the risks posed by digital assets,” the Treasury Department said in a statement. Said.

Despite all the cold warnings, the hope is still endless for some crypto investors.

Jake Greenbaum, 31, known on Twitter as the Crypto King, said he recently lost at least $1 million in crypto investments – “it’s a nice piece of my portfolio.” While she believes things could get worse before they get better, she’s not throwing in the towel.

Things look bad now, he said, “so this is where you want to start repositioning.”