According to the opinions of several experts, cryptocurrencies have primarily been used as a speculative investment that was successful so long as there were still dollars in circulation.
In the early morning hours of November 11, John Jay Ray III assumed control of the defunct cryptocurrency exchange known as FTX. During a US House Hearing on Financial Services, Ray was questioned about the similarities and differences between FTX and Enron, another financial disaster he had to clean up after. Ray described the situation as “simply plain old embezzlement.” “Absolutely devoid of any sophistication.” FTX did nothing more than steal money from their customers and use it for their own benefit.
Both FTX and its sister company, the cryptocurrency hedge fund Alameda Research, conducted their business without being subject to any form of supervision in the Bahamas. At this point, at least $8 billion in customer cash have been misplaced, prompting cryptocurrency enthusiasts to reevaluate their views on the future of finance and prompting lawmakers to ask for greater regulation of the cryptocurrency industry.
Are cryptocurrencies doomed to oblivion as a result?
According to Frances Coppola, an independent financial and economic observer, “in its present shape, yes.” this response was given to Al Jazeera. She brought up the point that in the 14 years that the cryptocurrency industry has been around, it has not been able to produce any meaningful real-world use cases other than the financing of criminal activity. It has been primarily a speculative investment, which was profitable for the brief period of time that real funds were being added to the system.
She replied that cryptocurrency had never known anything other than easy money. “Right now, central banks all over the world are rapidly unwinding quantitative stimulus and boosting interest rates. There is a severe shortage of liquidity occurring throughout global markets, and money is being pulled out of asset classes that are considered to be high risk.
The use of cryptocurrencies now carries a very high level of risk. She stated, “The prices that crypto was enjoying just a year ago are gone, and I don’t believe they will return for a long time, if ever.” “The valuations that crypto was experiencing just a year ago are gone.” “In all honesty, I believe that cryptocurrency values still have farther to fall. She stated that there is still an excessive amount of debt in the market and that central banks are in no way finished with their policy of tightening monetary policy.
Professor of Finance at the University of Sussex Carol Alexander had the opinion that cryptocurrencies will not fully go extinct in the foreseeable future. Her argument was that non-fungible tokens will undoubtedly be there for as long as the evolution of the metaverse does. “However, at this time we are experiencing a shake-out that is quite comparable to the bursting of the dot-com boom, with countless tiny enterprises defaulting on their obligations.”
Alexander believes that the only entities that will survive the crypto market crash will be blockchains capable of smart contracts, such as Ethereum, a small number of regulated exchanges, such as Coinbase, and futures markets, such as the Chicago Mercantile Exchange.
Charles Whitehead, who teaches law at Cornell University’s school in New York, is of the same opinion. According to what he shared with Al Jazeera, “It may be too early to scream the death knell of crypto, but we are definitely late in efforts to regulate it.”
Get rich quick
According to Nicholas Weaver, a researcher at the University of California at Berkeley who has been an outspoken critic of cryptocurrencies, “the theoretical promise of cryptocurrency was a payment system not subject to the control of intermediaries.” Al Jazeera received this quote from Nicholas Weaver. According to him, however, the true promise was that the price of bitcoin would perpetually increase.
“FOMO,” which stands for “fear of missing out,” has been there from the beginning of time, according to John Stark Reed, a critic of cryptocurrencies and a former head of the internet enforcement branch at the United States Securities and Exchange Commission. He explained that the promise of virtual currencies has always been to “become rich quick with little effort, no experience, and no danger.”
The smooth-talking of Bankman-Fried played a role, as well, in convincing consumers that FTX was a safe way to save their money and a safe option for an investment. FTX was perceived as being both.
“Some investors seem to have been blinded by SBF’s charisma in much the same way that Softbank’s Masayoshi Son was blinded by WeWork’s Adam Neumann’s fast-talking,” explained Coppola. “Some investors seem to have been blinded by SBF’s charisma in much the same way that Softbank’s Masayoshi Son was blinded by WeWork’s Adam There wasn’t a lot of research or investigation being done.
After Neumann offered Masayoshi Son a 12-minute tour of a WeWork location in 2016, the Japanese businessman made his first investment of $4.4 billion. In a similar fashion, investors in FTX handed out $2 billion, which brought the business’s valuation to $32 billion, without trying to learn more about the operations of the company.
Between the end of 2021 and the beginning of 2022, FTX engaged on a big buying frenzy, shelling out close to $5 billion to acquire a wide variety of cryptocurrency businesses. In addition, FTX invested $256 million in the purchase of 35 properties in the Bahamas. Donations to political candidates of tens of millions of dollars were made by SBF and Ryan Salame, CEO of FTX Digital Markets in the Bahamas. Salame was making acquisitions in the western Massachusetts restaurant scene. Additionally, Bankman-Fried contributed financial support to a variety of charitable organisations in addition to the media.
Ray’s responsibility in the Chapter 11 processes will be to try to obtain as much of that money back as possible. This is a process that he has already started and will continue throughout the proceedings. In the meantime, Bankman-Fried has been extradited to the United States to face charges, and the co-founder of FTX, Gary Wang, as well as the former chief executive of Alameda Research, Caroline Ellison, have both admitted to the charges that have been brought against them and have agreed to cooperate with authorities in the ongoing investigations.
Every form of virtual currency is FTX.
According to Weaver, “I think a lot of investors thought FTX was safe,” despite the fact that in reality, no cryptocurrency exchange is regulated enough to be called safe. “I think a lot of investors thought FTX was safe.”
In 2021, a significant decrease in the flow of real-world currency into cryptocurrency was observed. The remainder came to an end in May 2022, when the TerraUSD stablecoin failed, resulting in the loss of an estimated $18 billion in value and blowing the account books of a great number of other cryptocurrency companies. Following in the footsteps of cryptocurrency hedge fund Three Arrows Capital and cryptocurrency loan platforms Voyager Digital and Celsius Network, FTX experienced a decline in their market value.
Even Binance, the largest cryptocurrency exchange in the world, has started to see some volatility recently. Mazars, the accounting firm that serves Binance, made a recent announcement that it will be stopping all cryptocurrency work, and the firm subsequently removed any and all references to such work from its website. During the week that Mazars ceased its cryptocurrency business, customers of Binance withdrew a total of $6 billion worth of bitcoin holdings.
Critics had a theory that all cryptocurrency exchanges are bankrupt because they are over-leveraged and full of unsaleable cryptocurrency assets that have no market demand but are still accounted for at full mark-to-market value – and not at what a seller could actually get for them. This theory was based on the fact that there is no market demand for cryptocurrencies and that the exchanges are full of cryptocurrencies that cannot be sold. If what you say is accurate, then it’s possible that the future of cryptocurrencies may feature even more cryptocurrency companies declaring bankruptcy in the not too distant future.
There were a lot of different interpretations as to what the end of cryptocurrencies even meant. It was explained to me by Weaver that the phrase meant “We don’t care any more.” He pictured a society in which there were no more advertisements on television or racetracks promoting cryptocurrency as the way of the future for financial investments. He also envisioned a world in which there were no more Crypto.com logos. “Those who invested their money in bitcoin over the past few years have already lost the majority of what they initially invested.” The admission of having lost everything is what constitutes extinction.
Originally published on: aljazeera.com