Why this is the coldest crypto winter yet

Subscribe to enjoy similar stories. Chill winds have been battering America’s eastern seaboard for weeks, driving temperatures in places to their lowest in decades. But that has nothing on the deep freeze into which investors have shoved crypto assets.

The value of a bitcoin has dropped from $124,000 in early October to around $70,000 today, and the market value of all cryptocurrencies has dropped by more than $2trn. Though the asset class has slumped before, its boosters now seem more despondent than ever. The extent of their misery is, in some ways, puzzling.

Bitcoin’s 45% plunge is by no means the deepest on record: from a peak in late 2021 its price fell by a whopping 77%. It took around three years for the crypto industry’s market value to reach a new high. Today’s bear market is barely four months old.

But look at how much better other asset classes are doing. In 2022 crypto investors could take comfort from the fact that plenty of others were nursing their own losses. From peak to trough, the tech-heavy NASDAQ 100 index fell by over a third that year.

Now it is not even 4% below the record high it set a few weeks ago (though some software firms have been battered). Crypto fans are sad because they are lonely. The forces driving such a volatile and speculative market are always somewhat mysterious.

It is clear, however, that leverage and liquidation are playing important roles. At the end of September, just before the plunge began, measurable borrowing against crypto assets amounted to some $74bn—and had more than doubled over the previous 12 months, surpassing its level in late 2021. Then, starting on October 10th, around $19bn-worth of leveraged bets on crypto were quickly liquidated after falling deep into the