Crypto Winter Is Here. The Weak Will Die, and the Strong Will Eat Their Bones

But there are also immense positives to a crypto downturn. The products failing – particularly Luna and Celsius – were substantially illusory all along, driven by inflated, unsustainable returns. It’s now becoming clear that the “profits” depositors in these systems received were essentially a game of musical chairs using venture capital money.

Coinbase, meanwhile, has admitted that it made a major strategic mistake by hiring too fast despite, as I pointed out when it went public in 2021, the brutally cyclical nature of the exchange business. And Three Arrows, a highly influential venture firm, appears to have been heavily invested in some of the most speculative and risky projects on the market.

I know it’s a terrible cliché, but it’s nonetheless true: All of this carnage is, in fact, the good news.

While we’ll certainly see more unwinds, withdrawal freezes and mysterious silences over the next few weeks or even months, the market crash will be hardest on companies and investors who have made poor decisions. As crypto expanded and hype built over the past two years, fundamentally worthless projects proliferated, minting their own ephemeral tokens and convincing uninformed retail traders and high-profile veteran hedge fund managers alike that they had value.

This sort of garbage has crept into crypto during every expansion cycle. The current downturn is the holy cleansing flame that will eliminate it, in the same way that an old-growth forest needs a good fire every once in a while to renew itself. Getting rid of fake trash built on hype and a cult of personality means that, while there may be less money sloshing around for the next year or so, a much higher proportion of that will go to credible projects.