Historically, when there was inflation, when currency seemed to fail us, there was gold, or silver, or some precious, tangible, storable, divisible, transferable, securable, and very real asset that we could use to store and preserve value.

That asset could hedge a declining currency value because it also had inherent value. Even, or perhaps especially, after our fiat money was no longer a proxy, in any real way, for any such commodities, they offered an alternative store of value to offset any inflationary toll on the official currency.

Now we have actual, alternative currencies, cryptocurrencies, touted as a medium of exchange and a store of value. As inflation devalues our official currency, cryptos’ value could be expected to increase, not only relative to the value of the fiat dollar, but as a more useful and stable alternative currency.

Lately crypto markets have decidedly gone the other way: the Wall Street Journal reports that nearly $1 trillion, half the value, of cryptocurrencies has disappeared in the past six months. The worst of the meltdown has hit the market for “stablecoins”: cryptocurrencies pegged to an actual currency, such as the U.S. dollar. Stablecoins are meant to be a more reliable and thus useful currency because their value is backed by something more “real,” i.e., a fiat currency.

Fiat money, for the past half century, has been sponsored by a sovereign government and backed by the “full faith and credit” of both the government and its economy. Before that, it was backed by a store of gold or silver held by the sovereign government. Presently, sovereign currencies are as sound as their governments are successful at protecting a productive economy.

Touted as a populist alternative to fiat currency, cryptocurrencies are backed by the full faith and credit of those who trade them. They can be created by anyone who can contribute to processing the “blockchain,” a universal but anonymous ledger. They can be traded for other goods and services, they can function as a medium of exchange, or they can be traded as investable assets, as long as someone else accepts them on the other side of the trade.

And therein lies the rub: stablecoins’ value is backed by nothing but the willingness to trade them, which props up their value. That is, it is trade itself that hedges the asset: a “market” that bears no small resemblance to a Ponzi scheme. And now that the going has gotten rough, the unregulated exchanges that broker the cryptos and warehouse traders’ accounts have simply shut down, to cut their losses, and the stablecoin market is said to be in a “death spiral.”

Critics of fiat currency often point to a government’s ability to manipulate currency value, usually through the central bank that manages monetary policy, and sometimes by the government’s own fiscal policy. But governments at least have a vested interest in protecting their currencies.

Populist currencies such as cryptos are vulnerable, as are all assets, to market manipulators, as well as to the wisdom and whimsy of crowds. Those same herding instincts that burst bubbles for any asset with exaggerated value will eventually create death spirals for currencies with no apparent value. And at that point, there is no sovereignty to protect them.

Tulips were brought to the Netherlands in 1594, and quickly became a symbol of 17th century prosperity. To the growing middle class, the first of its kind in Europe, tulips signified wealth and status for newly endowed investors in the financial markets. Likewise, cryptocurrencies have been lauded as the new populist and participatory asset, as a currency investment beyond the manipulative reach of conventional markets and sovereign controls.

Now, with very real inflation of very real commodities and currencies causing disruption in very real stock and bond markets, it all falls apart. It turns out that every currency needs support by some real value, and that only sovereign governments that can control the wealth of an economy can provide it. It turns out that trading in unregulated markets leaves only investors to absorb losses. And it turns out that cryptos cannot perform as a hedge against inflation, or even as a store of their own ethereal value.

But it is equally clear that the impetus to create new assets with new technologies will continue to create new kinds of markets, exchanges, and traders. Cryptocurrencies may survive this, or they may join tulips in the footnotes of financial market history, but demand for more access to markets and more populist investing is probably here to stay.

Rachel S. Siegel, CFA, is the author of Personal Finance v 3.1, available at www.flatworld.com. She has been published monthly in the Northstar since July 2001.