Before the 2008 global financial crash, shadow-bank lenders issued about 12 million subprime mortgage loans totaling a bubble of roughly $2 trillion, made much larger by mortgage-backed securities (MBS) and other derivatives. At the end of April 2022, total global investment in crypto instruments was about $2 trillion, but had been about $3 trillion at the end of 2021, according to the estimate of a firm called CoinMarketCap. An end of May 2022 estimate by Statista claims that crypto “market cap” is actually now down to $1 trillion or less, so that nearly two-thirds of it has vaporized.
Thus cryptocurrencies have been the objects of a debt bubble larger than the size of subprime mortgages in 2007-08, and which is collapsing under the first rise in interest rates. Moreover, it is becoming clear that based on this bubble there has been an unknown but large volume of derivatives, super-leveraged collateralized credit products, and repo lending. There are now runs on these products as well as on the underlying crypto holdings from which investors are trying to escape.
So while private cryptocurrencies are now being shown to be just another, completely unregulated securities bubble, it is also being shown to be a shadow-banking sector which was expanding very rapidly from early 2020 until the early spring of 2022. It is one of the “locks of the approaching storm,” in Shelley’s phrase.
