How Crypto Lost Its Way

In our article about how antitrust law may affect your investments in the Metaverse we wrote about the “robber” barons of American industry in the 19th and early 20th century. We noted that governmental regulation leveled the business playing field at the end of that era and also provided more investment opportunities. We also noted that the “wild west” nature of that era has been replicated to a degree today. Nowhere has that been truer than in the crypto arena. Looking at the collapse of FTX and many other crypto enterprises one wonders how crypto lost its way from being a way to make it safer and fairer to invest and do business to a massive con game that has stolen life savings from many investors.

Crypto As a Remedy for the Ills of the Financial World

As noted in an article in The New York Times, crypto no longer adheres to its original goals of financial fairness and transparency. It was while the effects of the Financial Crisis were still deeply felt across the world that the suggestion arose to create a financial system that no longer required a trusted third party like a bank to operate. Those who provided the concept for cryptocurrencies envisioned a world where the sort of risky business practices that brought on the Great Recession would never happen, where all business dealings would be transparent, and where those previously excluded from the financial system would have equitable access.

FTX and Modern Day Robber Barons

We posed the question if the FTX mess was simply a failed business or fraud. When we look at who owns Bitcoin and how much, we noted that there are a handful of people who own a disproportionate number of BTC (82 addresses own over 14% of all Bitcoin). And that the vast majority of 75% own less than 1% of a Bitcoin. This is the sort of disparity of wealth that occurred during the rise of American industry in the late 19th century and had much to with what are today illegal business practices. The widespread damage caused by the FTX collapse and other crypto business failures has to do with a few people at the top controlling the futures of these enterprises and nothing to do with the original intent of crypto to be a transparent and fair system. Common practices like Bitcoin wash trading are illegal in the regulated stock market but are common and a manipulative influence in Bitcoin trading. Although the original intent of those whose ideas created the crypto realm was honest and fair, those who saw a chance to make money by manipulating and controlling the system prospered and helped create the current crypto winter and prospect of heavy handed regulation.

How Crypto Lost Its Way

Crypto Problems Over the Years

Despite Bitcoin being invented to provide a fair and equitable financial system it was quickly noted that this system could be a way to avoid taxes, move illegal funds out of sight of governments, and even fund terrorism. Because cryptocurrencies have no physical basis vast amounts of wealth can be and have been stolen by hackers from crypto exchanges. In 2022 alone, $3 billion in crypto has been stolen by hackers.

Crypto Evolved to Resemble Wall Street

The problems that crypto was meant to prevent were those typified by Wall Street where immense wealth and power are held in the hands of a few. As crypto grew it came to resemble Wall Street as companies like Coinbase, Binance, and FTX made up the vast majority of all crypto trading volume. According to the Times article trading on Binance in the months before the FTX collapse was about seven times that of its competitors combined. This is the sort of situation that John D. Rockefeller created with Standard Oil and which led to the breakup of the company and the establishment of the Federal Trade Commission. The original goal to rewrite the rules of finance all over the world and create a decentralized system has failed and crypto is even more centralized today than banks or Wall Street power centers are. It remains to be seen if effective regulation can bring the crypto world closer to the ideal of a fair and transparent system.

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