The cryptocurrency sell-off has exposed those swimming naked

Financial aphorisms are trotted out by investors in every financial cycle. Think of “Buy the rumour, sell the fact”, or “Markets can stay irrational longer than you can stay solvent”. These sayings have staying power because they often ring true. Today, amid a general market rout, cryptocurrency assets are collapsing in value, and the aphorism of the moment is “When the tide goes out, you find out who is swimming naked”.

The crypto slump has been brutal. In November the market value of cryptocurrencies was almost $3trn. That fell to $2trn by mid-April before plunging by another 35% to just $1.3trn now. Bitcoin has briefly dipped below $29,000, its lowest since late 2020. Crypto’s detractors have long argued that it is useless—unless you are a money-launderer or con-artist—and predicted its demise. The crash will convince many that they are right. In fact the picture is rather different: a sorting process is under way, as the dodgiest parts of the crypto world are exposed, while other bits prove more resilient.