Is the FTX Crash the End for Crypto?

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2022-11-20 03:10:47

The situation of being ostracized will always happen very quickly and be difficult to accept. Just two weeks ago, Sam Bankman-Fried was also a cryptocurrency billionaire with an estimated personal fortune of $16 billion. His crypto exchange FTX is also ranked third in the world with a valuation of $ 32 billion.

For venture capitalists (vcs) thriving in Silicon Valley, Sam is a financial genius who can wow investors. In Washington, he is also the guarantor of cryptocurrencies, working with lawmakers and providing capital to banks to help make important decisions.

FTX founder, Sam Bankman-Fried. Photo: VICE

But now Sam is just a bankrupt, heavily in debt, infuriating dozens of other companies and entangled in a series of criminal investigations. The terrible outburst of the FTX crash has dealt a catastrophic blow to the crypto industry with its failure and notoriety. Never before has cryptocurrencies been so criminal, damaging, and useless.

The more information about the demise of FTX, the more shocking the story becomes. First, FTX’s own terms of service state that trading affiliates are not allowed to borrow client assets. However, of the $14 billion worth of assets, the exchange is said to have borrowed $8 billion from Alameda Research, a trading company also owned by Bankman-Fried. In return, the company will use the FTTs (FTX-issued tokens) they hold as collateral.

This flaw was only revealed on FTX’s balance sheet after this exchange was massively withdrawn. That’s why, after this company declared bankruptcy in the US, people discovered that hundreds of millions of dollars had mysteriously disappeared from FTX’s accounts.

Big characters turned criminals, unusual loans, overnight crashes… are common occurrences in financial crises from time immemorial, from Flower Mania tulips in the Netherlands in the 17th century to the South Sea Bubble in 18th century England or to the banking crises in America in the early 1900s. At its peak last year, the market value of all Cryptocurrencies have gone from nearly $800 billion at the start of 2021 to an all-time high — almost $3,000, and today, it’s back to $830 billion.

Like every other financial storm, once the hurricane has passed, the question is whether cryptocurrencies can be used for anything other than fraud and speculation. Despite the promises of a technology that could make the financial system work in a faster, cheaper and more efficient way, each new scandal that broke out spooked genuine investors and the industry. will decline. However, there is still a chance, that one day some positive innovation about this market will emerge.

In the midst of the scandals of the past week, the most memorable thing is that the technology still holds a lot of potential. The traditional banking system requires huge investments in infrastructure so that complete strangers can trust each other. Meanwhile, on the contrary, at least in theory, the Public Blockchain (with an unrestricted ledger system built on top of a network of computers) along with things like smart contracts or other computers. The ability to build on open source code will make transactions transparent and trustworthy.

What is disappointing, however, is that 14 years after Bitcoin’s blockchain technology was invented, it still hasn’t delivered on those promises.

Is the FTX Crash the End for Crypto?  - Photo 2.

The explosive growth of cryptocurrencies has drawn from bright graduates to professionals on Wall Street; obtain capital from venture capital firms, sovereign wealth funds and even pension funds. But unfortunately a great deal of money, time, talent and energy has been used to build a large number of what The Economist calls “virtual casinos”. Many people speculate on unstable cryptocurrencies, and spawn money launderers, sanctions evasion, and scammers everywhere.

With all this in mind, skeptics argue whether now is the time for crypto to disappear. But the essence of the market mechanism is that investors will have to accept the risk as long as they know that they will lose if they bet wrong. Even when the cryptocurrency market crashes, we can still control the effects on the entire financial system.

Those who have invested in FTX include Sequoia, a California venture capital firm; Temasek, Singapore’s state investment fund; and Ontario Teachers’ Pension Plan. All lost money, but nothing too serious.

Furthermore, these skeptics should admit that no one can predict which invention will work and which change will not. People are free to invest their time and money in fusion power, airships, virtual universes, and a host of other technologies and can never succeed, so why can’t cryptocurrencies.

As the virtual economy industry grows, useful decentralized applications can still emerge, no one can predict. Technology will basically continue to improve and develop. For example, the September upgrade of Ethereum, an open source, distributed computing platform based on blockchain technology (Blockchain) significantly reduced energy consumption, paving the way to handle high transaction volumes. effectively.

To continue to grow, the cryptocurrency market needs to solve two things. One is to reduce theft and fraud, as with any financial activity.

The second is to separate the mainstream financial system from the clutter of cryptocurrencies. Requiring exchanges to use highly liquid assets as collateral for customer deposits is essential. The second is mandatory disclosure when a company in the same system borrows a huge amount of money from the exchange while the terms of the collateral are really vague.

Stablecoins (electronic currencies that are pegged to a stable asset such as gold or fiat money) can be considered for use as a payment instrument at banks.

Cryptocurrencies make no sense if investors and users are still afraid their money will be lost. So, if it wants to revive again, cryptocurrency has to get rid of its tricks and find a way to use it properly.

Reference: TheEconomist

#FTX #Crash #Crypto

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