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
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.
Rightmove: asking prices go up 0.9% in January
Mortgage rates remain high, but confidence appears to be returning to the housing market, with the latest Rightmove house price index data showing asking prices went up in January 2024.
By Katie Williams Published
MBNA unveils first ever savings product offering 5% return on cash - is it any good?
Credit card provider MBNA has entered the savings market with a one-year fixed account. How does the rate compare to other deals on the market?
By Vaishali Varu Published
Three high-quality global companies for growth
James Harries, a senior fund manager at STS Global Income & Growth Trust highlights three favourites.
By James Harries Published
Four high-quality stocks set for decades of dividend and earnings growth
Charles Luke, an investment manager for Murray Income Trust, highlights four favourite high-quality stocks.
By Charles Luke Published
Humana sees healthy growth in US healthcare
Humana is a major player in the American market and the stock’s valuation looks reasonable.
By Stephen Connolly Published
The nobbling of Britain’s nuclear energy sector
The UK once led the world in atomic power, but now it’s a has-been. The malaise is due to the left’s opposition to the sector and decisions taken by the Blair government.
By Max King Published
Five fantasy deals to hope for this year
From Amazon buying John Lewis to Warren Buffet taking on Unilever, these fantasy deals, mergers and acquisitions would improve the companies involved.
By Matthew Lynn Published
Stay safe: A financial crisis could still be around the corner
Investors were cheered by rate cuts, but Bill Bonner says don't get too excited…
By Bill Bonner Published
Why Laurent-Perrier could be a good buy
The market is overlooking Laurent-Perrier’s status as a top Champagne producer.
By Rupert Hargreaves Published
How fintech has gone mainstream
Once a niche sector, fintech went mainstream in 2023.
By David C. Stevenson Published