Long stories short
- Russia said more than 900 Ukrainian soldiers who surrendered in Mariupol have been sent to prison camps in Russian-held Donbas.
- Recep Tayep Erdogan said Turkey was serious about preventing Finland and Sweden’s accession to Nato membership.
- Tom Cruise got a standing ovation at Cannes for saying he did his own stunts for the same reason Gene Kelly did his own dancing.
Death spiral of the Lunatics
If a cryptocurrency collapses somewhere in the ether, does anyone in the real world care? We know the answer now, because it happened last week. It’s yes, up to a point.
The implosion of the misnamed TerraUSD stablecoin was spectacular, at least numerically:
- It lost more than $40 billion in notional value in six days’ trading, much of that in a single blow-out day on 12 May.
- Total losses for Terra and Luna, the more conventional cryptocurrency to which it was linked, were more than $60 billion.
- They – and investors desperate to cut their losses – dragged each other down in a “death spiral” that took the value of one Luna coin from $116 (up from $1 last year) to $0.000254.
This was a story of hubris and contrition too. Both currencies were invented by a South Korean crypto-adventurer, Do Kwon, who called Luna his “greatest invention” and used to dismiss critics as “poor”. By 13 May he was tweeting that he was “heartbroken about the pain my invention has brought on all of you”.
Kwon’s devoted followers were known as Lunatics. They included institutional investors who got in and out early and made large sums, among them Pantera Capital, which turned a $1.7 million investment into a $170 million return. But many retail investors lost their life’s savings. Some shared suicide helpline numbers last week on Reddit threads.
The Luna/Terra collapse did not destroy billions in real assets because they barely existed even on paper. But it did have lessons for the real world:
- Don’t believe the label. “It turned out that what was perceived to be a ‘stablecoin’ may not be so stable,” Ryan Coyne, a FinTech analyst at Mizuho, says with cool understatement. Stablecoins claim to be pegged to “fiat” (real) currencies and some, like Tether, do boast real reserves. But Terra’s only underpinning was Luna.
- “Stable” can mean the opposite. Terra and Luna were “algorithmic”, meaning they were linked by a programme that automatically bought Luna to bolster Terra and preserve its claim to a 1:1 dollar peg if Terra’s price started sliding. But the closest thing Kwon had to real reserves was a stock of old-fashioned Bitcoin, and last week that was sliding too.
- Algorithmic cryptos can drag others down. Total losses in the crypto sector since last November stand at around $2 trillion. These include losses incurred by holders of another algorithmic crypto/stable pairing, Iron and Titan, both of which collapsed last year. Whether these failures were a cause or effect of a broader loss of faith in digital currencies remains to be seen, but by promising the world on a foundation of thin air they didn’t help:
– The price of Bitcoin fell last week by around $10,000 compared to the week before.
– Shares in Coinbase, a cryptocurrency exchange platform, have fallen by more than 80 per cent since the company’s IPO in April 2021.
- So prepare for regulation. “There are risks to financial stability and we need a framework that’s appropriate,” Janet Yellen, secretary of the US treasury, told Congress last week. For purists, regulated crypto is a contradiction in terms. The whole point of digital currencies is to insulate them from governmental meddling. That ideal may keep the dream alive, at least for what now rank as mainstream cryptocurrencies like Bitcoin. But even they have never convinced some titans of traditional investment.
Is cryptocurrency an asset? In the whitepaper that heralded Bitcoin’s creation, it was described as a digital payment mechanism that would allow users to make transactions anonymously and without the involvement of traditional financial institutions. Around 2015 it started to take off as a vehicle for investment.
Warren Buffett of Berkshire Hathaway was still sceptical. In a 2018 interview, he said buying into crypto was speculating, not investing. “You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more.”
Four years on Bitcoin is trading at less than half its November 2021 peak and the sage of Omaha is looking vindicated, but only partially. If he’d bought and sold Bitcoin at the right times within those four years he could have doubled his money five times over.
CAPITAL ECONOMY, BUSINESS AND FINANCE
No time to lose
Rishi Sunak, the UK’s chancellor, says he will cut taxes to help British businesses cope with a downturn that analysts could turn into a recession. But which taxes? The Telegraph reports that a reference to business taxes was removed from Sunak’s speech to the CBI shortly before he delivered it last night. Instead what he offered was to ease the overall tax burden. This much is clear: he’ll be under intense pressure from backbench tax hawks in his own party to cut the headline rate of income tax and in current circumstances won’t have much headroom to do that and cut business taxes, and cut fuel duty and council tax, both of which he did promise last night as ways to help householders with the rising cost of living. He insisted the Tories remain the natural party of businesses. They are less and less convinced.
CULTURE soCIETY, IDENTITY AND BELONGING
Tucker’s grouping
The Conservative Political Action Conference (CPAC) will be held in Hungary this year because Viktor Orban’s government there “represents Christian conservative values,” CPAC’s organiser, Matt Schlapp, tells Vice. CPAC is the biggest American shindig of its kind. It has never taken its show on the road abroad like this before, and to do so to a country whose leader has failed to join European collective action against Russia’s war on Ukraine is an eyebrow-raiser for the ages. Orbán will speak, and so – by video – will Tucker Carlson, the Fox News host quietly hoping Trump won’t run in 2024 so he can have a go himself. Nothing else about Carlson is quiet. He’s an avid exponent of the baseless white supremacist “great replacement” theory that pro-immigration leftists are trying to permanently do conservatives out of a majority. Or he was, until it was also expounded by the Buffalo mass shooter last weekend.
TECHNOLOGY AI, SCIENCE AND NEW THINGS
Sim cards in Donbas
The fighting in eastern Ukraine is intense. Both sides are suffering severe casualties – Russia’s now exceed 20,000 according to the UK’s ministry of defence; Ukraine does not publish its own. Ukrainian forces have retaken territory north of Kharkiv but have been forced to retreat elsewhere. One key advantage they seem to enjoy where Ukrainian firms still provide cell phone signals is the ability to map Russian troop concentrations by counting Russian phones logging into Ukrainian networks. One so-called cell phone heat map circulating online shows an intense concentration of Russian troops around Izyum and almost none in the coastal region north of Crimea. That may be because this territory is held by Russia and now offers only Russian signals. But elsewhere the Kremlin seems to be giving away valuable battlefield intelligence by failing to keep its soldiers off their phones.
The 100-year life health, education AND GOVERNMENT
Hay fever and climate
Some bad news for hayfever sufferers who’ve noticed their symptoms are more intense and started earlier this year – it’s only going to get worse. Why? Carbon dioxide fuels photosynthesis. So, as CO2 emissions increase plants grow more, producing more pollen leading to more hay fever symptoms. Rising temperatures also boost growth as well as bringing forward the start of the pollen season and making it last longer. Research from the University of Michigan suggests the US will face up to a 200 per cent increase in pollen counts this century if the world continues producing CO2 at high rates. Urban areas, despite having fewer plants, could also see higher rates of hay fever symptoms as air pollution has been found to aggravate the allergy. Recent warm weather in the UK has led to pollen warnings for those with lung conditions like asthma and COPD, as groups particularly susceptible to pollen.
Our planet CLIMATE AND geopolitics
Legacy laggards
Tesla and Mercedes are the only big carmakers producing electric vehicles fast enough to meet their net zero targets and the planet’s, according to InfluenceMap, a campaign group. The rest of them, including Honda, Nissan, Hyundai and General Motors, are making a big noise about new models but are still heavily reliant on sales of petrol and diesel-engined cars. The Japanese giants are the most conspicuous laggards. Honda and Toyota will produce only 18 and 14 per cent zero-emission cars by 2029, data from IHS Markit suggests. This is only partly because of global shortages of the copper, nickel and rare earths needed for vast numbers of batteries and electric motors. It’s also because of the big Japanese bet on hydrogen as the future of personal transport. Not paying off.
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Ella Hill
@_EllaHill
Giles Whittell
@GWhittell
With additional reporting by Phoebe Davis.
Photographs Getty Images
in the tortoise app today
A u-turn on torture
In 2020 the government tried to pass legislation that would have made it harder to prosecute British troops for war crimes like torture. This is how one group of campaigners forced it to rethink the Overseas Operations Bill.