Bitcoins crash below the Mendoza Line

January 24, 2022 by Matt McCracken

Today, Bitcoin traded below its Mendoza line, hitting a 50% decline from its all-time high.  Assuming a fixed number of units, which isn't the actual case, more money has been lost by owners of bitcoin than has been made.  Given the number of units has in actuality grown over time and these new units would have been purchased above the original price, Bitcoin owners in total have now actually lost more money than has been made.   Of course, the very early adopters have still made a mint but those who purchased in the last 24 months have now lost as much or more in strict dollars terms than the early adopters made.    

I assume a significant catalyst for the crash in cryptocurrencies is the increasing popularity of China's digital yuan, or "e-yuan".  My theory for quite some time is that blockchain-based, digital currencies will become ubiquitous in my child's lifetime and could be adopted on a broad scale much earlier.  Whether digital currencies replace paper currencies altogether, I have no idea.  However, I believe that independently generated cryptocurrencies, such as Bitcoin and Ethereum, are not likely to survive unless they are backed by something or someone that underpins their value.  Unless a real country with a real economy (i.e not El Salvador) adopts Bitcoin or some other cryptocurrency, their long-term viability is questionable.  If a country like Brazil or Australia would back Bitcoin or any other established crypto, then yes, said crypto could be worth a substantial sum.  But I doubt this outcome will take place. 

Why?  It stands to reason, governments and/or central bankers will issue their own digital currencies rather than adopting an existing crypto because they want to control it.  To adopt an independent crypto would be to give up control, which politicians and central bankers are not apt to do.  My personal belief is that large governments and central banks have allowed the cryptocurrency craze to go on for as long as they have because they just assume let someone else fund and create the infrastructure and then they can "adopt it" for their own digital currencies.  Once we are all buying goods using e-yuans and digital dollars, crypto will become a footnote in the history books.