Systemic crisis in the cryptocurrency world resembles the Panic of 1907

A young shaggy-haired American man called Sam Bankman-Fried is attempting to do what the late John Pierpoint Morgan did back in 1907, and save an entire financial system. Only this time, it’s the cryptocurrency world, not Wall Street banking.

The most destructive financial crises are caused by “contagion,” the kind of abject panic to which human nature is so susceptible.

First comes the crash in asset prices - in this case, selloffs of 40 per cent and more for bitcoin and other cryptocurrencies in the early summer, as the US Federal Reserve started raising rates. Then comes a breakdown in markets. This happened in early May when TerraUSD, a so-called stablecoin whose value was supposed to stick fast to a dollar, plummeted to 10 US cents.