The crypto crash proves it – Bitcoin's libertarian dream is over

Cryptocurrency was meant to replace our giant financial institutions. So why does it seem so vulnerable to a good old-fashioned bank run?

Last month, an investor panic knocked almost $200bn (£165bn) off the value of Bitcoin and other crypto coins when the (so-called) stablecoin Terra collapsed, a sell-off that was likened to the Black Wednesday ERM crisis of 1992.

And in recent days, cryptocurrency prices have fallen to 18-month low. The latest sell-off has been sparked by the crypto companies Celsius and Binance blocking users from withdrawing their bitcoin.

The blocks have provoked fury among customers. If Celsius and Binance had high street branches, there would have been hordes of crypto owners lined up outside them yesterday morning, pounding on the doors and demanding their money back.

It wasn’t supposed to be like this. Bitcoin was invented in the depths of the financial crisis, when billions in taxpayer money had been spent bailing out RBS and Lloyds, and public anger at banks was at a peak.

Satoshi Nakamoto, its pseudonymous inventor, characterised the cryptocurrency as a way for payments “to be sent directly from one party to another without going through a financial institution”, taking power away from big banks and back to the people.

Many of Bitcoin’s most idealistic supporters purport to carry this flame. They characterise cryptocurrency as a way for individuals to avoid the tentacles of the state, the eyes of privacy eroding technology companies and the whims of inflation-happy dictators.

In theory, Bitcoin means that an internet connection, a smartphone and a password is all you need for financial freedom, impervious to despots or hackers. It is why cryptocurrency is often characterised as a revolution on a par with the internet, doing for money what the latter did for information.

Recent events have exploded that illusion, however.

Celsius, which had raised hundreds of millions from serious backers, operated somewhat like a crypto lender, taking customer deposits in Bitcoin and lending it back out for a fee.

More than 1.7m users signed up, tempted by the promise of interest rates of up to 19pc, and it boasted of billions in assets.

But on Sunday night the company suddenly blocked customers from withdrawing their Bitcoin savings, blaming “extreme market conditions”. Two days later, deposits remain frozen.

While one could argue that Celsius was a bit-part player in a much wider ecosystem, the same could not be said for Binance. The company is the world’s biggest cryptocurrency exchange, processing tens of billions in transactions a day.

Binance cited a “stuck transaction” on Monday when it suspended Bitcoin withdrawals for several hours, but the news was enough to send the market into a tailspin. Bitcoin fell from $27,000 to less than $21,000 yesterday, and has lost more than half of its value this year.