Rebuilding the Crypto World

It has been a year since FTX collapsed and declared bankruptcy. This was the culmination of a series of crypto financial disasters. A year later Sam Bankman-Fried has been convicted of money laundering and fraud and awaits sentencing. There are two possible stories for what happens now in the blockchain and cryptocurrency universe. One is whether crypto will rebuild or retreat. The other aspect of rebuilding the crypto world is how crypto has a chance to do it all over and do it right this time.

Lied to or Just Dumb and Greedy

Folks in the venture capital world generally blamed the collapse of FTX and all of the monetary losses on Bankman-Fried. The often-repeated opinion is that these folks were lied to and deliberately misled. Due diligence supposedly led folks to this conclusion. It seems to us that due diligence is supposed to prevent those sorts of financial catastrophes. At the point of the FTX collapse, crypto already had a history of illegal trading like with the Silk Road marketplace, the collapse of Mt. Gox, and rampant Bitcoin wash trading. We are wondering if venture capitalists lost money because they were lied to or because they were just dumb and greedy to boot.

Crypto Always Goes Up Until It Doesn’t

Bitcoin was invented to allow folks to transfer money via the internet free of third party charges. It was meant to provide a degree of privacy to one’s transactions as well. Then Bitcoin and the rest started to rise in price. Bitcoin, especially, was seen as a way to get rich quick. The mantra developed that even though Bitcoin was volatile, it would always recover after it dropped and would keep going up forever. Then the Fed raised interest rates and both the stock and crypto markets fell. The one single biggest problem turned out to be the belief by otherwise-rational people, that digital currencies would go up forever and ever. Thus, one could make business deals in which the most important factor was that one would always profit due to the steady rise of Bitcoin and the rest.

Will the Bitcoin Mantra Return?

When markets started to believe that the US Federal Reserve was pretty much done raising interest rates, stocks and Bitcoin started to go back up. Bitcoin has not gone to the levels it saw in 2021 but is half-way there. Will the world of crypto come back to the belief that crypto goes up forever? Will crypto businesses base their plans on that belief? If that happens, crypto will have suffered a lot and learned nothing.

Crypto Has an Opportunity to Go Back to Its Roots and Get It Right This Time

We are seeing two things going on in the crypto world. Both are good. One is financial regulation just like with banks, insurance companies, mutual funds, stock exchanges, and anyone who handles your money. The opinion that regulators should stay away from crypto went away will billions of dollars in crypto losses. The other thing is a lot of investing in the technology that makes the blockchain, smart contracts, and DeFi in general work. Crypto is meant to be used to transfer assets. We are seeing businesses getting funded in places like the UK for facilitating money transfer for folks who want to start and end with pound sterling. Investments are going into ways to speed up the blockchain with things like layer two technology. To the extent that crypto goes back to its original reason for being and builds faster and better technology, that will be rebuilding the crypto world the right way.

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