Crypto is “Monopoly money”
FTX won't be the last crypto scandal, because cryptocurrencies mirror the worst aspects of the finance industry.
The fall of Sam Bankman-Fried “serves as a cautionary tale for all those who believe that they are immune to the laws of financial gravity”, says Maximilian Marenbach on crypto.news. Bankman-Fried has been convicted of fraud by a New York court and faces decades in prison.
FTX, his cryptocurrency exchange, stole billions of dollars from customers’ deposits and illegally passed the cash to Bankman-Fried’s trading operation, where it was gambled away on high-risk cryptocurrency speculation. The “hubris” and “arrogance” that brought down FTX late last year are all too common across the tech industry.
Bitcoin, the most popular cryptocurrency, has shrugged off the scandal to rally 125% so far this year, although it is still 40% short of its November 2021 peak. Crypto enthusiasts argue that Bankman-Fried was just a bad apple, says Molly White in The New York Times. Nonsense. The lack of controls and market manipulation that once made him a billionaire are rife in the crypto industry.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Take the widespread practice of issuing a digital “token” with no inherent value, “pumping up the price” and then “using that inflated valuation” to borrow real money. Many crypto operations rest on “an imaginary foundation” of such worthless tokens. FTX won’t be the last scandal.
The FTX trial exposed the “credulousness with which millions of crypto believers”, who are generally suspicious of traditional banks and brokerages, instead entrusted their savings to cowboy outfits like FTX, says Bloomberg.
Traditional finance has its problems, but crypto – full of opaque, unregulated operations rife with “conflicts of interest” – is even worse. Most digital assets generate no income and are “fundamentally worthless” beyond their speculative value. Unless, that is, “you’re looking to launder money”.
The most promising use case for crypto might be in the huge video gaming industry, says Jon Sindreu in The Wall Street Journal. Gamers are already “immersed in a digital world” and are certainly willing to pay for “a Darth Vader suit or flashy virtual gun”. But digital bank transactions already fill that demand better than blockchain technology. Attempts to create game-based currencies have quickly succumbed to speculation, with people playing not for fun but to win tokens that can be cashed out.
Cryptocurrencies are “Monopoly money”, says Jemima Kelly in the Financial Times. The industry doesn’t create value – indeed, it arguably destroys it. Yet this “nihilistic” universe – where one user’s gain is another’s loss – only mirrors the worst aspects of the wider finance industry, where much so-called “financial innovation” is also “a game of... finding gaps in existing rules and exploiting them” until regulators catch up.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Related articles
- The cautionary tale of FTX and the future of bitcoin
- The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
- Here’s a useful vehicle for betting on blockchain without buying cryptocurrencies
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
How ‘Bed & ISA’ could save you £15,000 over a decade
Moving your investments into a tax-free wrapper through ‘Bed & ISA’ transactions could save you thousands over the long run by cutting your tax bill
By Katie Williams Published
-
House prices hit record high, says Halifax
UK house prices rose 3.9% over the past year, with a typical property now costing £293,999. We look at which regions are seeing the strongest growth, and whether the rally in house prices will continue next year
By Ruth Emery Published
-
Invest in Hilton Foods: a tasty UK food supplier
Hilton Foods is a keenly priced opportunity in an unglamorous sector
By Dr Matthew Partridge Published
-
HSBC stocks jump – is its cost-cutting plan already paying off?
HSBC's reorganisation has left questions unanswered, but otherwise the banking sector is in robust health
By Dr Matthew Partridge Published
-
Will bitcoin be banned?
Bitcoin is often touted as a hedge against inflation, but it's a threat to the whole scammy system
By Bill Bonner Published
-
Lock in an 11% yield with Sabre
Tips Sabre, a best-in-class company is undervalued due to low profits in the motor insurance industry. Should you invest?
By Rupert Hargreaves Published
-
US election – is the Trump Trade back?
The US election is around the corner. How does Trump influence US markets?
By Alex Rankine Published
-
Byju’s – the startling rise and fall
India’s educational technology start-up Byju's attracted big-name backers and soared to vertiginous heights during Covid. It has now plummeted. What happened?
By Jane Lewis Published
-
A bull market on borrowed time
While the US enjoys a bull market, it may not last. Will the US rate cut push stock prices down?
By Alex Rankine Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published