May 2, 2024 - 7:00pm
Binance founder Changpeng Zhao was this week sentenced to four months in an American prison for failing to take adequate measures against cybercriminals and terrorist groups on his exchange. For some crypto enthusiasts, there may yet be a silver lining to this sad episode. As crypto goes from being a buccaneering innovator in finance to one of the grown-ups in the room, the increased scrutiny from regulators will weed out some bad apples, in turn enabling a cleaned-up sector to move forward.
However, the incident underscores a tension at the heart of crypto. Created by libertarians angry at the bank bailouts that followed the 2008 global financial crisis, it was originally intended as a new form of money that would operate outside the formal system. Along with new dark web spaces that sprang up around that time, such as Silk Road, its whole purpose was to create an autonomous space where a new economy could emerge. If a few bad apples used it, that was a price worth paying for sticking it to the man. After all, the 2008 crash had revealed plenty of villains in the regulated banking sector.
But that anarchist origin sits uneasily with the recent push to turn crypto into yet another branch of the financial sector, replete with regulations and oversight by the authorities. Whether this is maturation or betrayal depends on one’s point of view. What seems less contestable is that it’s no longer clear just what crypto’s purpose is — or indeed whether it still has one.
What’s more, events this week point to an even bigger problem facing crypto than an identity crisis. For those of us who’ve only ever seen Bitcoin as an ingenious hack of central bank policy, one designed to exploit and expose the tactic of preserving asset values by printing money, the end of the cheap money era was always going to spell the end of the crypto boom.
Jerome Powell has repeatedly intimated that the implicit assurance that the central bank will rescue asset prices from a rapid fall with cheap money, what’s known as the “Fed put”, is still in place. But to judge from the activity in bond markets, where investors keep demanding higher interest rates in order to lend to governments, the markets have begun losing faith in him. There is an ongoing tug of war between the Fed and the bond vigilantes who doubt its competence, as revealed at this week’s meeting when Powell’s message that the central bank wouldn’t hike rates triggered a market rally that then reversed. But in its battle with inflation, the Fed keeps losing ground.
As is always the case with living history, we’ll only know with hindsight when the end of the cheap money era has come. But it’s a good bet that if it hasn’t done so already, it soon will. Since last year, it’s been growing apparent that the tightening of central bank policies, only ever intended to be a temporary pause in the upward march of markets, may become permanent. Inflation is turning out to be stickier than usual, and bond yields keep rising.
Bitcoin’s value ultimately depended on the same cheap money that supported stocks and bonds this last decade and a half. As the curtain slowly falls on that era, it seems the end of the crypto boom may soon be upon us. Bitcoin’s 20% drop since its January peak may be just a pause before the next surge, or it may be the beginning of the end. But it’s looking increasingly likely that the end is coming.
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Subscribe“Bitcoin’s 20% drop since its January peak”
What is the author talking about? Bitcoin was in the low 40,000’s in January, peaked at 73,000 in March and is currently just below 60,000.
The author is talking to shore up the traditional financial parameters he’s psychologically invested in.
Possibly so. Though I rather doubt that anything written here – not even by John Rapley – is going to move the needle, so your worries are surely unfounded !
But the “psychologically invested thing” operates on both sides of the debate. Bitcoin and crypto exhibits many of the symptoms of a religious cult – every setback merely reinforces the faith of the true believers.
I agree with your appraisal of crypto being the purview of something akin to a religious cult. But now that players like BlackRock and other traditional finance mavens have embraced Bitcoin, the cult is a different religion.
Just like contemporary communists, ‘this time for sure’. Far from being some kind of populist alternative to the vile behaviour of the traditional banking sector, crypto is even more prone than government backed currency to being used for financial malfeasance, with the full cooperation of its willing victims. The elites are so buffered against grim reality that they end up being more stupid than anything else.
So true. Which means there is little dispassionate discourse on the future structure of money, in what remains of the substantially globalized economy. But the forces in play, especially blockchain tech, will roll on relentlessly nevertheless.
And the current drop since the March high is consistent with every other peak Bitcoin has enjoyed. The author doesn’t know his arse from his elbow.
Nothing has fundamentally changed with Western central banks attitude to cheap money. When the US economy hits a rough patch, as all economies do from time to time, rates will be cut, maybe with more QE.
The author could have used the opportunity to criticise the hypocrisy of this verdict. As if cybercriminals and terrorists don’t use traditional banking networks to do their business. When has a bank CEO ever gone to prison?
Instead, he chooses to do a hatchet job on cryptocurrencies. Without any justification he decrees that ‘Bitcoin’s value ultimately depended on the same cheap money that supported stocks and bonds this last decade and a half.’ The same cheap money that has caused massive inflation and against which Bitcoin, which can’t be printed into existence at the whim of a central bank, provides the almost perfect hedge.
Bitcoin has risen US $2,600 in value in less than 24 hours since this article was published. Strange idea of freefall.
Bitcoin’s value does not and did not depend on the same cheap money we saw in the last decade.
Its value is being accelerated upwards by the *economic system that produced the cheap money* that we saw in the last decade.
Furthermore, its value is underlined by its fixed supply schedule, and the fact that it’s people-controlled.
Its value can only be reversed by the government creating something similar, which of course they won’t.
“What seems less contestable is that it’s no longer clear just what crypto’s purpose is — or indeed whether it still has one.”
The author doesn’t seem to be aware that the top twenty countries with the highest adoption rates of crypto are outside of the western hemisphere (exception is the the US with higher adoption of crypto in the non white community)
Why is this? Very practical non religious reasons for example:
(i) inflation protection eg in Turkey, Argentina, (ii) remittances eg pretty strong money flows between US and Mexico (iii) circumvention of capital transfer controls like in Nigeria – you can order 3D printers with Bitcoins and ship it anywhere in the world. (iv) NFT center of art-excellence in Vietnam (v) deal with sanction hardships like non oligarch-Russian refuges dont have access to money abroad other than by using crypto.
Further in the Western world crypto/Web3 could be a way to get around strong central controls, drawbacks of platform capitalism, censorship and loss of privacy…
Journalism in the finance mainstream like FT and The Economist is shockingly uninformed about crypto, obsessed with ups and downs and centering its critique on failures that arent even at the core of crypto: all recent failures and disasters like Do Kwons Terra/Luna, SBFs FTX, and now CZs Binance are in Cefi not Defi – old fashioned finance applied to crypto.
“What seems less contestable is that it’s no longer clear just what crypto’s purpose is — or indeed whether it still has one.” The author doesn’t seem to be aware that the top twenty countries with the highest adoption rates of crypto are outside of the western hemisphere (exception is the the US with higher adoption of crypto in the non white community) Why is this? Very practical non religious reasons for example: (i) inflation protection eg in Turkey, Argentina, (ii) remittances eg pretty strong money flows between US and Mexico (iii) circumvention of capital transfer controls like in Nigeria – you can order 3D printers with Bitcoins and ship it anywhere in the world. (iv) NFT center of art-excellence in Vietnam (v) deal with sanction hardships like non oligarch-Russian refuges dont have access to money abroad other than by using crypto. Furthermore in the Western world crypto/Web3 could be a way to get around strong central controls, drawbacks of platform capitalism, censorship and loss of privacy… Journalism in the finance mainstream like FT and The Economist is shockingly uninformed about crypto, obsessed with ups and downs and centering its critique on failures that arent even at the core of crypto: all recent failures and disasters like Do Kwons Terra/Luna, SBFs FTX, and now CZs Binance are in Cefi not Defi – old fashioned finance applied to crypto.