Is this the end of the cryptocurrency game?

Recent events have highlighted the need to regulate cryptocurrencies, an industry that went from nothing a year ago to a market capitalization of 3 trillion dollars, although most of that figure has already evaporated.

But it also seems likely that the industry won’t be able to survive regulation.

The story so far:

Cryptocurrencies hit their pinnacle of public awareness last year when Matt Damon’s “Fortune favors the brave” ad sponsored by Singaporean exchange Crypto.com first aired.

At that time, the bitcoinsthe most famous cryptocurrency, it was being sold for over $60,000.

Now, Bitcoin is trading below the $17,000.

So people who bought after seeing Damon’s ad lost over 70% of their investment.

Indeed, because most people who bought Bitcoin did so when its price was high, most investors in the currency – about three-quarters of them, according to a new analysis by the Bank for International Settlements – lost money until at now.

However, asset prices are crashing all the time.

People who bought shares of Objectivethe company formerly known as Facebookat their peak last year they lost nearly as much as Bitcoin investors.

Therefore, falling prices need not mean that cryptocurrencies are doomed.

Cryptocurrency boosters will definitely not give up.

According to a report by Washington Post, many who signed up Blue twitter verifiedthe disastrous (and now suspended) attempt to Elon Musk to extract money from Twitter users, they were accounts that promoted right-wing politics, pornography… and cryptocurrency speculation.

More significant than prices has been the collapse of cryptocurrency institutions.

Recently, FTX, one of the largest cryptocurrency exchanges, went bankrupt and it appears the people running it simply ran off with billions of depositors’ money, possibly using the funds in a failed effort to support Search Alameda, its subsidiary.

The question we must ask ourselves is why institutions like FTX and Earththe so-called stablecoin issuer that collapsed in May.

After all, the 2008 white paper that launched the cryptocurrency movement, published under the pseudonym Satoshi Nakamotoit was titled “Bitcoin: A Peer-to-Peer Electronic Payment System”.

That is, the idea was that the electronic tokens whose validity was established with techniques borrowed from cryptography would allow people to bypass financial institutions.

If you wanted to transfer funds to another person, you could just send them a number — a key — without having to trust Citigroup or Santander to record the transaction.

It has never been made clear why anyone who is not a criminal would want to do this.

Although cryptocurrency advocates often talk about the Financial crisis of 2008 As a motivation for his work, that crisis never damaged the payment system, i.e. the ability of private individuals to transfer funds through banks.

Still, the idea of ​​a monetary system that didn’t require trust in financial institutions was interesting and probably worth trying.

Yet, after 14 years, cryptocurrencies have hardly made inroads into the traditional role of money.

are also difficult to use for ordinary operations.

Your values ​​are too unstable.

Indeed, relatively few investors bother to store their cryptocurrency keys themselves, as they run too great a risk of losing them, for example, by putting them on a hard drive that ends up in a trash can.

Instead, cryptocurrencies are largely bought through exchanges such as basecoin what happens if, FTP extensionwhich accepts your money and stores crypto tokens on your behalf.

These bags are -wait- financial institutionswhose ability to attract investors depends on – ah, wait again – the confidence of those investors.

In other words, the cryptocurrency ecosystem evolved into what it was supposed to replace:

a system of financial intermediaries whose ability to operate depends on their perceived reliability.

If so, what’s the point?

Why should an industry that, at best, simply reinvented conventional banking have any fundamental value?

Furthermore, trust in major financial institutions is based in part on Uncle Sam’s validation:

The government oversees banks, regulates the risks they can take, and guarantees many deposits, while cryptocurrencies operate largely unsupervised.

So investors have to trust the honesty and competence of entrepreneurs; when they offer exceptionally good deals, investors have to believe not only in their competition, but theirs as well genius.

How did it work?

As promoters like to point out, previous predictions of the imminent demise of cryptocurrencies have proven wrong.

In fact, just because Bitcoin and its rivals aren’t really usable as money doesn’t mean they have no value; after all, the same can be said of gold.

But if the government eventually steps in to regulate cryptocurrency firms, which, among other things, prevents them from promising undeliverable returns, it’s hard to see what advantage these firms would have over ordinary banks.

Even if Bitcoin’s value doesn’t hit zero (which it still could), there are reasons to think that the cryptocurrency industry, which seemed so big just a few months ago, is headed forgotten.

c.2022 The New York Times Company