Before their price plunged, he intended to cash the bitcoins out to pay down around $30,000 in credit card debt. Robert has two bitcoins stuck on the Celsius network and is afraid he will never see them again. “I couldn’t take my coins out fast enough,” Robert said. He had promised his wife that he would take some time off from watching the markets. On the day that Celsius froze withdrawals, Martin Robert, a day trader in Henderson, Nevada, was preparing to celebrate his 31st birthday. The fortunes of many small investors also began tanking. Five days earlier, a cryptocurrency lender called Celsius Networks that offered high-yield crypto savings accounts halted withdrawals. The death spiral of the two coins tanked the broader digital asset market.īitcoin, worth over $47,000 in March, fell to $19,000 on June 18.

The meltdown began in May when TerraUSD, a cryptocurrency that was supposed to be pegged to the dollar, began to sink, dragged down by the collapse of another currency, Luna, to which it was algorithmically linked. It sat outside the traditional financial system, an alternative space with little regulation and an anything-goes mentality. At its height, the market for digital assets reached $3 trillion - a large number, although no bigger than JPMorgan Chase’s balance sheet. Spurred partly by the frenzy, the cryptocurrency industry blossomed quickly. Sometimes, these investors made investment decisions that were not tied to value, egging on one another using online discussion platforms such as Reddit. They were bombarded by ads from cryptocurrency startups, such as apps that promised investors outsized returns on their crypto holdings or funds that gave them exposure to bitcoin. Many were first-time traders who, stuck at home during the pandemic, also dived into meme stocks like GameStop and AMC Entertainment. Lured by the promise of quick returns, astronomical wealth and an industry that is not controlled by the financial establishment, many retail investors bought newly created digital currencies or stakes in funds that held these assets.

“I really do worry about the retail investors who had very little funds to invest,” Aggarwal said. (Bailouts eventually saved the banks last time.) Collapsing digital asset prices and struggling crypto startups did not contribute much to the recent convulsions in financial markets, and the risk of contagion is low.īut if the crypto meltdown has been a footnote on Wall Street, it is a bruising event for many individual investors who poured their cash into the cryptocurrency market. Unlike their fates in the financial crisis, when the souring of subprime mortgages backed by complex securities took down both banks and regular people, leading to a recession, the fortunes of Wall Street and Main Street have diverged more fully this time. “You hear of the stories of institutional investors dipping their toes, but it’s a very small part of their portfolios,” said Reena Aggarwal, a finance professor at Georgetown University and director of its Psaros Center for Financial Markets and Policy. So when the market crashed, they contained their losses. At the same time, big money managers applied sophisticated strategies to limit their direct exposure to cryptocurrencies because they recognized the risks.

But Wall Street banks have been forced to sit it out - or, like BNP, approach crypto with ingenuity - partly because of regulatory guardrails put in place after the 2008 financial crisis. It is not that financial giants did not want to be part of the fun. In the great cryptocurrency bloodbath of 2022, Wall Street is winning. “There’s a big bifurcation between retail positioning and institutional positioning.” He declined to name the specific stocks that BNP clients got to bet against. equities and derivatives strategy group, which put together the trade. equities and equity options,” said Greg Boutle, who heads BNP’s U.S. View Details »“The moves in crypto were coincident with retail money flooding into U.S.

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