Cryptocurrency started in 2009 with idealistic dreams of a new economy built on libertarian principles and freedom from the fiat currency system that had just crashed. But in 2022, cryptocurrency trading is all about the dollars. And the 2008 financial crisis has just repeated in absurd miniature.
In the lead-up to the 2008 financial crisis, the economy was running hot. Companies were making stupendous amounts of money and had to put it somewhere. There was such a huge demand for safe dollar-equivalent assets that supplies of Treasurys and other such superstable assets were running low. Financial engineers synthesized “safe” dollar-equivalent products to meet the demand—backed by assets such as real estate, or by securities backed by real estate, or by bets on securities backed by real estate. This worked until the housing market had the slightest downturn, at which point the chain of leveraged bets unwound and threatened to take the wider economy with them.
The same pattern has just taken place in crypto—except without any asset as solid as housing at the bottom of it. Cryptocurrency traders work entirely in U.S. dollars. Ordinary cryptocurrencies are notoriously volatile—bitcoin regularly goes up or down 10 percent in a day, making speed crucial. So the industry created “stablecoins”: blockchain tokens worth precisely one dollar that can be traded as stable dollar-equivalents at the speed of the blockchain, without the need to wait for banks. As an added bonus, stablecoins save their users all that tedious red tape of financial regulation, compliance with anti-money-laundering laws, or being a known and named entity with a bank account.