The world of cryptocurrency is going through a crisis that is severe even by its own notoriously volatile standards.

We’re not going to pretend we really understand what crypto is all about, other than it being positioned as an alternative to state-run fiat money and emerging as a major new source of speculative investment. Such speculation has always felt even more like gambling in a casino than other forms of investment, but the prospect of massive gains ensured there were always plenty of people willing to give it a go.

Sensible crypto investors will have treated it as the high-risk end of a balanced portfolio that also includes much less volatile stuff, while the state of the global economy has made people more risk-averse. That will be one of the reasons crypto has been plummeting for most of this year but recent events have intensified the sense of crisis.

While part of the point of crypto is that it’s an unregulated form of finance, that also means anyone can get involved. As a result there are a seemingly infinite number of cryptocurrencies, as illustrated by coinmarketcap.com. You will note nearly all of them are heavily in the red over the past week and the two big ones – Bitcoin and Etherium – which account for over half of the total crypto market capitalization, are down by around two thirds since the start of this year.

And then there are the specialist exchanges, which seem to offer bank-like services too, leaving them especially exposed to major fluctuations in the crypto market. One of these – FTX – is apparently on the verge of some kind of collapse, due in part to the kind of run and resulting liquidity crisis historically associated with regular banks.

It was hoped that FTX might be rescued by fellow crypto exchange Binance but the WSJ reports that’s a non-starter, with Binance noting ‘the issues are beyond our control or ability to help’. The WSJ also reports that the US Securities and Exchange Commission has indicated it’s going to take a long, hard look at the crypto world, especially exchanges, in the wake of the FTX drama. The following gesture of contrition from the FTX CEO is unlikely to placate the SEC nor console investors.

As we warned at the start, it’s really difficult to make sense of all this arcane chaos, but a growing feeling is that the crypto world as we’ve come to know it may be set to disappear. The risk level seems so high now that it’s hard to imagine sufficient speculative interest to even restore prices to their level of a few months ago for quite some time. That means there are a lot of investors sitting on significant losses, who will presumably be reluctant to expose themselves in that way again.

This kind of crisis is presumably also what law-makers and regulators were waiting for to allow them to pounce. How can you deny the jurisdiction of organisations like the SEC when crypto seems to have done such a bad job of regulating itself? Increasing state involvement is likely to put off those people who view it more as a hedge against government over-reach and thus further depress interest and value.

It’s tempting those of us too baffled by the whole thing to have ever dabbled in crypto speculation to feel a sense of vindication. If something seems too good to be true then it probably is. Blockchain-based technologies such as crypto and NTFs are here to stay but we could be witnessing the end of the inevitable over-exuberant phase and the start of a more sensible one in which people will hopefully be less afraid of speaking out when they think the Emperor has no clothes on.

Get the latest news straight to your inbox. Register for the Telecoms.com newsletter here.