Crypto Contagion Rips!

The world of crypto collapsing - why? And where is it heading?

Cryptocurrencies were the first major application of Web3 and as a result they have been hotter than a multi-coloured armband in Qatar. People bought into these pesky cyber coins because it felt like they were buying into the next tech fad before it went public, overpriced and, well, a bunch less exciting. Like Harry Styles in the movies.

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But crypto owners are not buying a tech stock - even though these ‘tokens’ can sometimes behave like a quirky proxy. In reality we are just buying a digital token. You know, like an air mile or a Tesco point or one of those green things you get at supermarket checkouts instead of giving food for foodbanks. They are not really currencies - which in the end are the preserve of sovereign countries, backed by institutions and laws.

You can dress up a pig but in the end it’s still just a short little rootler that oinks.

Getting buried?

A cryptocurrency is not cash either. It is not gold and it is not backed by a lender of last resort. They are private tokens - and there are thousands of the things. Some are not even liquid. It would be like stating that gambling is investing. No, it is gambling. And like punting on spread betting is gambling, betting on the price of crypto is also just ‘gambling’. Sorry.

Crypto trading, like spread betting, has some really powerful tools that most mortals will never understand (try reading a how-to from Bankless!), meaning the only folks likely to make any money are the creators of crypto and its most advanced day traders and dealers. That leaves the rest of us holding the can. And right now it's pretty empty.

Crypto has been one of the bigger momentum plays in history - but that does not mean the fundamentals are good. And right now they are terrible. Some argue that trading crypto has become so technically challenging that the only participants that really understand them are the super geeks, the super insiders and the super funded (including Sam I am - no longer). Look how it’s been working out for them!

And, at the same time, we should remain weary of the supposed crypto white knights - you know, the ones that are like Donald Trump after an all-night election count cum pizza fest.

As example cryptocurrency exchange Binance recently announced new details about its ‘industry recovery fund’, which aims to prop up struggling players in the wake of FTX’s calamitous bankruptcy. Like a drug dealer injecting it’s most hardcore users?

In a recent blogpost, Binance said it will devote $1 billion in initial commitments to the recovery fund. It may increase that amount to $2 billion at a point in time in the future “if the need arises,” the company added. The need arose pretty quickly as a couple of days later Binance hooked itself in for the other billion. Contagion, what contagion?

Binance said it anticipates the program will last around six months. It is accepting applications from investors to contribute additional funds - in a wink and a prayer that the whole house of cards doesn’t collapse before then.

Binance said it is “flexible on the investment structure (so long as they make a hill of beenz)” and is accepting contributions in tokens, cash and debt. “We expect individual situations to require tailored solutions,” the company added. Which is geek for we’ll take whatever form of funny money we can get our mitts on to look like we actually want to save the wider industry and not just take it over/tank it.

Around 150 companies have already applied for support from the fund, Binance said. Showing perhaps just how desperate things are. Tip of the iceberg really.

Down, down, down…

In the latest twist digital currency lender Voyager Digital has been thrown back to square one after FTX, which had initially agreed to acquire the firm, filed for bankruptcy. Dominoes on the move? Imagine if Binance themselves are the next to go up in a puff of smoke! So far, it seems, those that make the most waves are the more likely to be hiding a broken propellor.

It might be too soon to glean where FTX’s crypto traders will flock following the exchange’s shutdown, but Binance’s already-outsized market share certainly suggests an industry leader poised to win the lion’s share of whatever spoils remain. Unfortunately no cryptocurrency is too big to fail or seemingly too big for its founders outsized ego’s.

And it should be noticed that over the last few days, Binance’s volumes were nearly 9 times higher than its closest competitor, Coinbase. Meaning the latest wheeze has to be toppling your closest, shaky competitor.

As regulators lick their chops, it could be that an even more powerful Binance leaves the industry more exposed to regulation targeting precise jurisdictions. Some are screaming for it. Consumers sorely need it.

“People now think we are the biggest and will attack us more,” the erstwhile leader of Binance told staffers in the midst of FTX’s implosion. Sounding a bit like the last supper at the Madoff’s.

We asked our editor, Philip Letts, about his perspective. After all he founded the world’s first digital currency.

“I think the current crypto wave is somewhat precarious - and overly inflated. The promise of decentralised finance is being eroded by centralised exchanges. The industry probably needs to fix its overly complex technology to move forwards and gain clarity about what it really offers the consumer. Right now it is more betting slips than routes to next generation finance tools.”

Letts goes on to warn us. “We should acknowledge that crypto is more like the lotto than the US Dollar or the Federal Reserve. If we accept this, with all the health warnings associated with the gaming/gambling industry, we might take some of the terminology and industry marketing with a much needed pinch of salt. It could also help us to better predict where nations will come out on crypto. Like with gambling, a bunch will ban it outright, a number will regulate it and for many it will lurk deep underground.”

Before the industry matures and truly consumer-friendly applications and regulations develop it might be wise to sit this one out.

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