Crypto exchange FTX files for bankruptcy protection. Is that the sound of the crypto bubble popping?

Frequentlyhere

I know you guys really want to try and divorce bitcoin from cryptocurrency, and to an extent I see where you're coming from, but ultimately, in the eyes of the normal World, Bitcoin is cryptocurrrency.

Don't believe me? Try asking anyone on the street "name one cryptocurrency" - and of those who have a clue, 95-99% will say Bitcoin.

That association matters because Bitcoin's success depends on adoption. Adoption depends on credibility. Credibility depends on perception, and right now perception of crypto and ergo bitcoin could not be any lower.

I've been browsing reddit r/cryptocurrrency this morning, and frankly you can barely tell the difference between r/buttcoin and r/cryptocurrrency. The sentiment is that bad.

I think the "crypto industry" will largely be evaporated at the end of this. A bit like UK P2P, it won't disappear entirely, but it'll be a niche interest once again and much more regulated, which will also take away what draws most people to it (speculation).

What that means for Bitcoin?  Well, there's definitely a kernel of true believers and then there's also lots of criminal usage ongoing so there is some genuine demand. I wouldn't even want to try and guess what the value will be in a few months time. 

If you're a long sighted dogmatic libertarian/cult member, and many are, they'll just hold bitcoin in cold storage regardless, even if it goes to $1000 in the misguided belief that it will prevail one day.

For any rationalist who's just after making some dollar, it's over, unless you want to try and short it (bad idea, probably).  This situation now isn't a cleansing, it's the beginning of an implosion of the crypto ecosystem. 

Can any sane person really now sit back and think "yeah, this is good for bitcoin long term"? 

 I mean, we're now in a position where conveninent centralised exchanges are blowing up left right and centre, whilst fervent bitcoiners rant on in the corner about air-gapped cold storage devices as if this could even conceivably be a monetary way forward for the average joe.

At this point, people who haven't already are about as likely to adopt bitcoin as they are to build a wooden outhouse with a hole in the dirt to take a dump rather than use their nice plumbed centrally heated bathroom.

DannyCarey

Frequentlyhere said:

I know you guys really want to try and divorce bitcoin from cryptocurrency, and to an extent I see where you're coming from, but ultimately, in the eyes of the normal World, Bitcoin is cryptocurrrency.

Don't believe me? Try asking anyone on the street "name one cryptocurrency" - and of those who have a clue, 95-99% will say Bitcoin.

That association matters because Bitcoin's success depends on adoption. Adoption depends on credibility. Credibility depends on perception, and right now perception of crypto and ergo bitcoin could not be any lower.

I've been browsing reddit r/cryptocurrrency this morning, and frankly you can barely tell the difference between r/buttcoin and r/cryptocurrrency. The sentiment is that bad.

I think the "crypto industry" will largely be evaporated at the end of this. A bit like UK P2P, it won't disappear entirely, but it'll be a niche interest once again and much more regulated, which will also take away what draws most people to it (speculation).

What that means for Bitcoin?  Well, there's definitely a kernel of true believers and then there's also lots of criminal usage ongoing so there is some genuine demand. I wouldn't even want to try and guess what the value will be in a few months time. 

If you're a long sighted dogmatic libertarian/cult member, and many are, they'll just hold bitcoin in cold storage regardless, even if it goes to $1000 in the misguided belief that it will prevail one day.

For any rationalist who's just after making some dollar, it's over, unless you want to try and short it (bad idea, probably).  This situation now isn't a cleansing, it's the beginning of an implosion of the crypto ecosystem. 

Can any sane person really now sit back and think "yeah, this is good for bitcoin long term"? 

 I mean, we're now in a position where conveninent centralised exchanges are blowing up left right and centre, whilst fervent bitcoiners rant on in the corner about air-gapped cold storage devices as if this could even conceivably be a monetary way forward for the average joe.

At this point, people who haven't already are about as likely to adopt bitcoin as they are to build a wooden outhouse with a hole in the dirt to take a dump rather than use their nice plumbed centrally heated bathroom.

Loved that rant  

I actually agree with almost all of it to be honest. The problem is that its just so easy to spin up an "alt coin" and get some VC or cringe celeb like a Kardashian to pump it up, then do a rug pull. 

The SEC is coming down hard on these snake oil salesmen however, they are going to make almost all of them them illegal unregistered securities, but Bitcoin does appear to be isolated and protected from this. 

Exchanges will be regulated to death to stop them doing what SBF did. It's very much the Wild West out there still. Exchanges are for the most part interpreted by ignorant people as digital banks. They are clearly not banks. 

I still think Bitcoin will continue to do its own thing and will only become bigger and bigger. It's in a league of its own, despite the obvious insane volatility. It has seen all of this before and it always comes back bigger. The boom bust thing may never go away for the next 10,20 years, who knows. 

InvesterJones

Isn't this really nothing to do with crypto but instead the age old story of an organisation using customer assets in a risky way they didn't agree to and when the gamble doesn't pay off it unravels and everyone finds out? Seems to be a story that happens again and again unless it's banned and said ban is enforced. Crypto's only involvement is that it wasn't an industry that has protective regulation to prevent this. And there are still people who think we should be removing this kind of regulation for banks...

Frequentlyhere

I'm glad that you generally don't seem to have swallowed the kool-aid, Danny.

If I'm being honest, I can squint hard and see a possible scenario where bitcoin sort of becomes a bit 'digital gold' with some speculative ups and downs that might benefit investors looking for diversifications.

It's a possibility, but I think an increasingly remote one. Why?

1) Yes BTC has crashed and risen before, several times. But to use those fated words, it could be very different this time. Without the hyper-fraudulent leveraging/theft/price washing activity that is still ongoing right now in other (currently - currently!) operating exchanges, all of the speculative froth is so much harder to build.

2) Speculative froth also harder to build because it takes a very special type of new fool to enter into this space anytime soon.

3) Institutional purchases by big investors have helped BTC nurture some credibility. Until now. This really is a disaster for institutional perception.

4) ...and for Government perception. The crypto lobby that has been greased up in the US has basically been obliatered with this episode. " Freeing the people to do what they want" is now " we must protect the poor people from predatory crypto".

5) That criminal demand I mentioned earlier? If all fiat onramps/offramps are regulated to hell, and anything involving crypto-> cash is KYC'd to the hilt, well that criminal demand is going to dissipate fast.


What I have to say is remarkable though is that bitcoin is still up 70% in value since just before the pandemic. I'd be surprised if that persists though, the pure number of downward pressures is extraordinary. I mean, it's just a question of what pops next. Another exchange? Saylor selling out? Tether running off with the loot? Some hilarious timing of Mt Gox released Bitcoins, perhaps? The problem with that "value" is that in this wild west, it's not any real reflection of supply/demand and is just largely an artificial construct laid on.  Just one guy pitching up and trying to sell a few hundred bitcoin for real cash could see the whole edifice collapse.

Reaper

Crypto supporters tell us crypto is the future and fiat money will fail because governments can turn on the printing presses so the public will inevitably lose faith in it. So it's amusing to see FTX fail because they (allegedly) created more of their FTT coins out of thin air and gave them to Alameda Research to prop it up.

Ignore FTX claiming it is merely a liquidity crisis. It's not, it's fraud.

What about Binance who are by far the world's biggest exchange with assets of $74 billion. Surely they wouldn't do anything similar? Who knows, but 40% of those assets are held in coins that they run, just like FTX [source].

I know people will say Bitcoin doesn't suffer from this problem but if Banance were to fail I'm not sure any crypto would survive.

Millyonare

Folks never learn.

Peer-to-peer (P2P) finance has a long history of failure -- over decades. P2P loans, P2P microloans, P2P tokens, P2P crypto, etc., they all flop. P2P finance is always under-regulated, and there is no lender of last resort (like the Fed). Absolutely nobody can be surprised by the crypto crash.

Adyinvestment

There is no doubt that the failure of FTX is a slap in the face for crypto, and I don't think it is finished there either as other exchanges have connected ties with them.

The whole thing stinks of fraud and greed, and quite frankly should never of happened, SBF was one of the most highly respected people in the industry, named by Forbes as the richest 29 year old, on the list of most influential people in the world etc. Why somebody like this would allow this to happen is beyond my comprehension, I guess some people can never have enough, and now his life is likely ruined with a possible prison sentence on the horizon.

It brings more negativity to the space and adds extra fuel for people calling Bitcoin/crypto a scam, which is actually unfair to the assets themselves as they had nothing to do with it, but inevitably will get bundled together.

However this is not the end of crypto (IMO) as some like to claim, and hopefully will hasten the arrival of regulations for these exchanges which should already be in place, if crypto is the big gamble that some think (and maybe it is) then it is about time the powers that be protected the gamblers in a responsible way, at least if you go into your high street bookies and lose all your money, you know they are playing by the rules, and are regulated.

Losing money because Bitcoin turns out to be rubbish is one thing, losing money because people have committed fraud and lost your money for you is another, and some blame should go to the regulators for sitting back for years letting things like this happen.