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
-
Should you invest in Canada?
Canada presents a compelling opportunity for investors who want to look beyond the US. Greg Eckel of Canadian General Investments highlights four favourites
By Greg Eckel Published
-
Higher rates are disappearing – should you fix your savings?
Fixed savings rates have dropped to their lowest levels in over a year. Should you fix your savings now ahead of a potential base rate cut in November?
By Katie Williams 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
-
How will the UK gambling sector be hit by the Budget?
There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
By Dr Matthew Partridge Published
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
By Dr Matthew Partridge Published
-
Pfizer shares rise as US investor takes $1 billion stake
Pfizer shares are on the up since US activist investor Starboard Value built up a stake in the drug maker. But strategic options appear limited
By Dr Matthew Partridge Published
-
Qualcomm could acquire rival Intel – but securing the deal won't be easy
A tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
By Dr Matthew Partridge Published
-
How to invest in the quiet market months
Here's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
By Cris Sholto Heaton Published
-
Spire Healthcare: invest in the booming demand for private healthcare
Spire Healthcare is one of the few listed companies benefiting from the growing trend in private healthcare. Should you invest?
By Rupert Hargreaves Published
-
Are insurance companies a good investment?
Costs may be soaring but the insurance sector is currently going through one of its most profitable periods. The market has been slow to realise the opportunity here
By Rupert Hargreaves Published