People kept telling me, "These companies have billions of dollars invested in them, they're rock solid, its a great investment." And then you keep seeing these crypto companies who are valued in the billions continually going under and taking investors money with them.
I've always admired what crypto was aiming to achieve, but stuff like this hinders their effort for people to take this stuff seriously and get involved.
But at some point, a bunch of financial sharks got involved into the crypto pond. These guys have decades of experience at exploiting financial markets, and a bunch of the regulations and rules we have through banks and the state is to protect naive people like me from sharks like those. And it doesn't work beyond a certain state, sure. If you can pay millions to dudes finding loopholes to make billions, alright. But at my level of money I can trust the system to some degree. At least more than an unregulated market full of people with decades of experience at exploiting companies and people financially.
And while I like the idea behind crypto, that thought has shaken my confidence into the idea beyond repair, to be honest.
It’s not like things were any better before the sharks arrived. In the old days you had Mt. Gox where they lost your money through rank incompetence. Now you have FTX/Terraform/etc. where they lose your money through evil (and also rank incompetence). At no point was there a golden age when crypto wasn’t a shitshow.
In reality, everyone would behave the same way if they were similarly scaled.
The idea that crypto lets you avoid banks is akin to the idea of thinking you can have an economy without humans.
I don't share the view that Terra or FTX are good reasons to give up on crypto. Terra's promise of 15-20% interest on staking a "stable coin" should have raised big red flags. Even at the time there were notable people warning of risks in such algorithmic stable coin, but their voices were drown out under the massive hype parade on twitter that then spread on to various news outlets and so the stage was set for regular investors to lose their money.
FTX on the other hand was harder to predict but anybody following the age old mantra "Not your keys, not your coins" was safe from that fiasco.
On a purely technical level I think it is incredible what Ethereum has succeeded to achieve. A decentralized ecosystem with decentralized exchanges, loan systems, staking, and so on. Scams, shitcoins are an unfortunate side-effect but I don't see how a decentralized system could ever avoid those.
I personally use crypto whenever possible and think it is absolutely the easiest and cheapest way to transfer money to anywhere in the world. At its best it can also be a very convenient way to make online purchases.
Looking back to the financial history of the 1800s, it seems to be the case that it is only the massive intervention of government beginning in the 1900s and especially after the Great Depression -- in particular aggressive regulation and oversight, central bank systems, deposit insurance -- that prevents perennial banking failures. And it happens anyway: see 2008. Reportedly, even the recent failures of Silicon Valley Bank and Signature Bank threatened contagion before the FDIC made the extraordinary decision to protect balances in excess of $250k.
So really, it appears to me that crypto is merely an immature financial system that is learning the lessons of legacy finance in an accelerated fashion.
But, yes, I agree. It's not good for the original value proposition, but I'm not sure that's relevant anymore -- does anybody really buy crypto in order to use it in the real economy (drugs aside)?
This is a complete misunderstanding of the US banking system history.
The reason the US banking system was totally screwed up after the Civil War was because of a few major regulations. Most importantly not allowing branching. So the US literally had 10000s of banks that were incredibly small and not deversivied. And it gave NY banks a monopoly on foreign market stuff forcing all the smaller banks to deal with the NY banks creating a pyramid structure.
And then combine that with a monetary system that forced banks to back notes with US government bonds (raising money for the civil war). Guess what happened after Civil War, the US paid back debt (yes I know, crazy to think) and this basically created a constant deflationary pressure.
This is literally as if somebody had designed a system to implode, and guess what, it did, repeatably.
This was actually well understood by many back then. And the solution was also clear. Don't force banks to back notes with US government bonds (or alternatively stop reducing debt). And allow banks to operate beyond their local economy.
These changes went before congress multiple times. It was rejected each time because of lobbying. The small unit banks didn't want to compete against each other, and the NY banks didn't want to give up their privilege position in the market. Support came from the medium sized banks, in other cities like Chicago.
So it was basically a alliance of the very small banks and the very large banks that locked a horrible terrible system into place. Rural and NY teamup FTW. This system lead to repeated massive waves of bank failures and it lead to the 'Free Silver' movement and famous things like the 'Cross of Gold' speech. Ironically William Jennings Bryan was also against the actual solution to the problem we was complaining about, go figure.
This can be observed by comparing the US to Canada. During the same period Canada had no massive waves of bank failures. Canada had always allowed these things (in fact, the suggestion in the US were inspired by Canada). So in Canada you have larger banks that operate in the whole country and they were backing notes with general stocks not just government bonds. Canada had basically no bank failures, not even during the depression, even while the depression was quite deep in Canada (given their trade with the US) and Canada didn't even have a central bank during that time. And just minimal regulation in general (but it has to be said that these cooperation didn't hae all the rights of cooperation today).
This deadlock was then basically 'resolved' at least in theory by creating the Fed in 1913. The reason this was managed is because it basically the Wilson Administration bought off the NY banks by giving them even more power. And it bought of the small banks by not changing any of the unit banking laws and buy not giving all power to NY (hence the strange structure of the Fed). In practice of course NY actually took control and that's where actual policy decisions were made for the early history)
Problem was just, Fed didn't even remotely solve any of the actual problems and was a totally incompetent institution. Issues with the banking system persisted, the Fed didn't actually improve anything. They had the power to fix some of the issues, but they weren't competent enough to actually do it.
That meant that during the Great Depression the US still had 10000s of weak banks and didn't have an efficient system to provide liquidity. Its hard to say if the Fed made things worse or not. And this time the deflationary pressure came from all the dumb shit central banks were doing at the time (namely France and US gold hording) rather then from US debt retirement. But its the same effect. This lead to many 1000s of bank failures.
In this total shitshow post Great Depression FINALLY a law was passed to end the insane unit banking laws. The US still had far to many banks really. FDIC was introduced and that certainly helped to perpetuate that system. FDIC is overwhelmingly the reason failure are not as common anymore. The other reason is that central banks actually figured out that collapsing the money supply isn't a great idea.
Its kind of funny that people use this history to say 'see we need regulation and complex government insurance programs', when in reality the US was a total basket case with horrible banking regulation that distorted the whole market and build a insane unstable pyramid that fell over every 10 years. While Canada had very few regulation beyond contract law and had almost a perfect history of bank operations.
> So really, it appears to me that crypto is merely an immature financial system that is learning the lessons of legacy finance in an accelerated fashion.
The issues in crypto and historical bank operations are not the same at all. Most crypto are independent systems that mostly try to use marketing to hype up their chain current holder increase in value. Its all about tricking people into believing in a new fiat currency and asserting that it has value. All the requires is social media. Normally having a fiat currency, requires the whole having an economy, army and other institutions. Arguably the software ecosystem around a cryptocoin is what makes it value.
Historically banks weren't allowed to be 'peers' in crypto terms until they had proven capital requirements (this is just self interest for the banks, they didn't want to get stuck with notes from banks that didn't have capital). Only if a bank had that and was considered basically competent were they allow into the clearing house operations. And in the clearing house you could then see if a bank had consistent capital outflow. If a bank was a bad actor that seem to have to much capital outflow, the could be cut of from the system early and liquidated when they can still pay of most of their debt.
So really I don't see many parallels here at all. Historical bank failures overwhelmingly were connected either to local conditions (famines mostly) or to systematic problem with the organization of the monetary system (US debt reduction, Great Depression) or occasionally you had banks just make to many bad investment and go under (and that isn't a systematical problem, that's just expected market outcome).
The issues in crypt currency are don't really fit either of these patterns.
In crypto you either have pump-and-dump. Or you have just straight up hacking. Of course robbery was already an issue back then, you just didn't have the internet. And pump-and-dump in crypto works because of social media and a gigantic addressable market.
The difference is in crypto this stuff isn't reversible and there are few limits of what can be done. While in the real world the system is more manual and has more checks so hacking a bank and stealing all its money just isn't that easy. But these fallbacks and limitations are there just for practical and historical reasons.
No matter if it's correct or not, that's an argument to not invest in stocks like MSTR (Microstrategy) or COIN (Coinbase) and that's an argument to not put your coins on a centralized services.
It's not an argument against cryptocurrencies themselves.
It just prove that those who are repeating, since 10+ years, "not your keys, not your coins" are right.
If anyone goes into these thinking "they're rock solid investments", they don't know what investment means, they don't know what rock solid means, and they understand absolutely nothing, not even the basics, about cryptocurrency. Saying that you'd "invest in crypto" is like claiming you invest in dollar bills. If a person says this, they are a stooge. If you want crypto because you wish to buy something that the seller only takes crypto for, then crypto is a good thing. If you're "investing", then you're just a stooge that got caught by this scam first, rather than by some Nigerian prince.
Well - if you're currently living in Argentina, with ultra-high interest rates[0], you should invest in dollars. Investing in another currency is definitely a thing.
The problem with crypto isn't at all what you're saying, to the extend you're saying anything. The problem with cryptocurrencies is the majority of the underlying value isn't "this country/group of countries uses this currency, so it's valuable". It's "other people who buy in later will allow you to sell for more than you bought".
[0] https://edition.cnn.com/2023/05/15/business/argentina-intere...