Is crypto really worth the hype once the cost of crashing exchanges, mining, and scams is calculated?

The massive Bitcoin surge from $1,100 to $20,000 in 2017 turned many young investors into millionaires overnight, as they were seen flaunting sports cars and expensive gadgets that they bagged during the blockchain boom. The development turned cryptocurrencies into a serious investment vehicle, from an online asset, which had been largely forgotten for a decade after its inception. Almost immune to counterfeiting and not regulated by any central bank, the hype around crypto attracts millennials and GenZs, while it evokes concern among policy makers.

Secure assets in a turbulent market

As secure as the blockchain-based encrypted virtual coins may be, they are still being traded in a volatile market, where a single tweet by a Twitter obsessed billionaire can turn a meme coin into a valuable asset. At the same time, the lack of solid assets to draw value from, also wipes out value from the market when even ironically named stablecoins collapse. This year, the Terra-Luna crash marked the failure of crypto assets which were linked to the US dollar, while the FTX debacle brought the spotlight on how young, unconventional founders aren’t always the geniuses they look like.

The big three crypto fiascos

The Terra-Luna crash, set off when its native token lost parity with the US dollar in value, wiped off $200 billion from the crypto market. It turned out that the algorithmic stablecoin, which stands on a stablecoin and a cryptocurrency backing it, wasn’t standing on any solid foundation and tumbled 99.9 per cent in value.

As crypto exchanges started shutting shop in months after the Terra disaster, 3AC or 3 Arrows Capital, collapsed from a valuation of $10 billion to zero, hitting value of cryptocurrencies and wiping off investor wealth further.

But that was just a prelude to the FTX fiasco, where one of the world’s top three crypto exchanges fell like a house of cards in a matter of days. The crash caused by a sell off of Sam Bankman-Fried’s native token FTT, robbed the market of $150 billion in value.

High stakes for India in the crypto game

Going by this, investors in the cryptocurrency market have lost at least $300 to $400 billion in value, because of the three major crypto crashes in 2022 alone. With 115 million out of the world’s 320 million crypto owners, India is bound to be affected by these developments. For instance, among millions, 2.3 lakh Indian investors also lost money due to the Terra bloodbath.

Scams and the climate question

Add to this the $1 billion that were simply siphoned off from 46,000 people by fake crypto exchanges and scammers, between 2021 and 2022 alone. Then there are cases like that of the Bulgarian Crypto Queen Ruja Ignatova, who robbed investors of $4 billion and vanished without a trace in 2017.

Then there’s the environmental cost of crypto mining, at a time when major firms are investing to achieve net-zero targets. Between 2016 and 2021, mining of the digital asset done through massive networks of computers consuming power, caused climate damages worth $12 billion. In Iran, some crypto mining operations even had to be shut down, because they were causing power outages in parts of the country.

Do the math and see for yourself

In the face of all that instability, chaos, massive losses and policy muddles such as India’s tax on crypto without any clarity on its legality, the digital asset has fetched investors $163 billion in profits for 2021, that too after a five-fold surge from the previous year. Compare $163 billion in profits to more than $400 billion in loss, and ask yourself if cryptocurrencies, with their mystical appeal, can actually live up to the hype.