Opinion With the quick one-two punch of FTX and Binance, the cryptocurrency is finally losing its luster as the next money revolution.
I was recently in Manhattan at the Linux Foundation and the Fintech Open Source Foundation (FINOS) Open Source in Finance Forum New York (OSFF) 2022 event. There the topic of the day was fintech. It was about how open source and the cloud are revolutionizing the way banks, financial firms and stock markets work with money. You know what we haven’t talked about? Crypto.
The crypto bros keep babbling about how their Bitcoin, Ethereum or whatever will go to the Moon. They also insist that with their diamond hands, they will HODL no matter what.
So cute. In a pathetic way.
At the conference, financial adults dived into topics like data interoperability between platforms and applications and how to encourage bank executives to allow developers to contribute to open source projects.
Cryptocurrency? It was mentioned in passing. People would talk about it the same way you would talk about your little brother’s latest embarrassing TikTok video. That is, you would acknowledge that it happened and quickly change the subject.
Why? Because while Bitcoin has, for more than a decade now, been the cryptocurrency poster boy with its proof-of-work consensus mechanisms as an alternative to fiat currencies, such as the US dollar, recent events have shown that the crypto emperor is not wear any clothes.
The value of Bitcoin continues to fall. From its record high of $69,000 in November 2021 to, as I write this in mid-December 2022, it is worth $17,678. Inflation may be bad, but it’s not a bad “nearly 75% drop in value.”
At the same time, other related virtual goods have seen their market value plummet. Sales of non-fungible tokens (NFTs), for example, decreased from $7.3 billion to $1.6 billion globally, a 77% drop according to NFT tracker Nonfungible. Perhaps the most well-known NFT promoters, Bored Ape Yacht Club, are being sued because their NFTs are proving – shock! – have no lasting value: “The truth is that the Company’s entire business model is based on the use of insidious promotional and marketing activities by A-list celebrities who are highly rewarded (without disclosing it), to increase the demand for Yuga securities by convincing potential retailer investors that the price of these digital assets would appreciate”.
Let’s say you still believe in cryptocurrencies, where can you store or trade them? Former market-leading cryptocurrency exchange FTX has collapsed. The allegations are that FTX client funds were used to prop up CEO Sam Bankman-Fried’s private hedge fund Alameda Research.
While other major cryptocurrency companies aren’t in as hot water as FTX, things are starting to boil around them too. Take Binance, for example. Panicked holders withdrew funds from the beleaguered Bitcoin exchange. To calm investors’ nerves, Binance called on accounting firm Mazars to provide a test report of reserves. While not a comprehensive audit, it would have assured crypto speculators that Mazars was, indeed, good value for money. But then Mazars pulled the plug on its cryptocurrency reporting. Any reasonable investor or user will ask: Is this a “temporary hiatus” or is it a sign that all is not well with Binance?
Even better-known companies, such as Coinbase, are struggling. The stock has been staggering for the past few quarters. Recently, CEO Brian Armstrong said that the cryptocurrency exchange’s revenue could be cut by half or more this year.
Let me be frank. From where I sit, this is the slow but sure fall of what has always been a giant Ponzi scheme. There has never been – ever – any real value in cryptocurrencies. Yes, I know all the arguments about how fiat currencies don’t have intrinsic value either. You know what, though? If I go to the grocer, I can buy milk, bread and butter with my fiat dollars or pounds. Dogecoins? Garlic? Trump NFT Trading Cards? I do not believe.
I know it. It’s hard to admit that I’ve been a financial nut for years or even a few months. I had friends in the 2000s who “knew” that Bernie Madoff would be able to deliver 20% returns a year forever. They were wrong. Some of them have lost their homes. All of them have lost serious money.
There comes a point where you have to stop throwing good money after bad money. We are well beyond that point with cryptocurrencies and NFTs. At least with the famous financial scams of the past, like the Dutch Tulip Bubble and the 2008 housing crash, you had tulip bulbs and houses for your money when it was all said and done. With cryptocurrencies, you will be left with nothing but meaningless, meaningless and worthless blockchains. ®