The writer is an FT Contributing Editor and author of the Chartbook newsletter.
In a TV advertisement for the now infamous trading platform Crypto.com, Hollywood star Matt Damon said: Mostly adventurous, most accomplished, but in the end it turned out to be too much for them. Someone who accepts and commits to the moment. And in these moments of truth. ..they soothe and unwind with his four simple words, whispered by brave men since the days of the Romans. Fortune favors the brave. “
The explosion was no accident. For true believers, technology like crypto is more than just a technical fix or the promise of getting rich quick. It’s akin to a historical mission. If you subscribe to this vision, Joseph Schumpeter’s concept of ‘creative destruction’ is at your fingertips, with the confident promise that something better will come out of the ruins of the old.
While this brutal view of history is appropriate in some situations, the trillion-dollar question is which historical experiments are worth the expense and which are not. , requires the ability to distinguish between what looks bold and sexy and what actually makes sense.
Pliny the Elder is believed to have first uttered the phrase “fortune favors the brave” when he witnessed the eruption of Mount Vesuvius in 79 AD. Rather than take the obvious and run for cover, Pliny ordered his flotilla to head straight for Hell, hoping to rescue any survivors. died in the fumes of
Such a fate will not befall Damon, nor will Tom Brady and Gisele Bündchen, who backed FTX, the hard-hit cryptocurrency exchange. Nor will those who truly believe in cryptocurrencies be deterred by a bankruptcy or two. It is up to the US authorities to not only clean up the mess left behind by FTX, but to pass judgment on crypto’s self-proclaimed historic mission. It is inevitable political to do so.
It takes determination, courage and real authority to break the status quo and stop a hyped technology project that promises to bring about a bright new future. And there are no guarantees of success.
Politics are especially tricky when it comes to cryptocurrencies. The inconvenient truth is that in the recent midterm elections, FTX corporate executives were some of the largest donors to the Democratic Party. It is far-fetched to suggest that this had a substantial impact on the results. But try telling that to Republican agitator Senator Josh Hawley, who seems determined to turn the Sam Bankman-Fried deal into a cause.
Nor did Democrats simply take money from FTX. A vociferous faction in the US Congress was pushing a bill that would define a new regulatory regime for cryptocurrencies. The banking regulators seemed aloof and the Stock Exchange Council distrustful, but the Commodity Futures Trading Commission seemed keen on its job. This received encouragement from the top in the form of an executive order by President Joe Biden declaring that this is an area where the United States must not lag behind its international competitors.
By this summer, cryptocurrency awareness and regulatory efforts will gain the same kind of momentum that, in the name of modernization, brought disastrous deregulation on Wall Street in the late 1990s. It seemed possible.
The carnage revealed in FTX should stop that bandwagon. The most radical alternative is to simply self-burn the cryptocurrency. Allow the Ponzi scheme to collapse under its own weight. Pursue fraud through normal prosecution channels, but do not provide regulatory oversight. Make it clear to anyone dabbling in crypto that they do so entirely at their own risk.
Given the isolation of cryptocurrencies from the rest of finance, such malicious omission may not pose significant systemic risk, but the costs to retail investors are significant and May have political repercussions. Allow encryption burnt down may no longer be realistic. When that happens, it is imperative that regulators no longer turn a blind eye and draw the clearest line possible. They should not simply deny the support of regulators, but ban regulated financial institutions from getting involved with cryptocurrencies altogether.If there is a regulation, it should be under gambling, not a bank. It will antagonize the cryptocurrency lobby, which accuses regulators of squandering America’s valuable lead in world-changing technology.
The best response to this rhetoric of historical necessity is to answer it head-on. If it’s true that history is filled with “most,” as Damon warned, then this isn’t simply due to a lack of nerves or luck. Like most businesses, most historical adventures end in failure. Blockchain applications may be limited. Crypto tokens in their most basic form will never turn into money. Due to its moderate miniaturization, it could function as a type of online game. However, do not get involved in serious financial matters, let alone complex and opaque financial engineering. It’s time to throw that chimera into the dustbin of history.