Could This Be Crypto’s Downfall?

Recent developments have highlighted the importance of regulating cryptocurrency, a sector that rose from virtually nothing to a $3 trillion market value a year ago, albeit much of that has since gone. However, it appears that the industry will not be able to withstand regulation.

When Matt Damon’s fortune favors the brave commercial, financed by the Singapore-based platform Crypto.com, first premiered last year, cryptocurrency hit its pinnacle of public awareness. At the time, the most well-known virtual currency, Bitcoin, was trading for more than $60,000.

Bitcoin is currently going for less than $17,000. Individuals who purchased after seeing the Damon advertisement have since lost more than 70% of their stake. In fact, because most individuals who acquired Bitcoin did so at a high price, most stakeholders in the currency — almost 75% of them, as per a new Bank for International Settlements report — have lost money thus far.

Nonetheless, asset prices continue to fall. Individuals who purchased stock in Meta, the business previously recognized as Facebook, at its zenith last year lost roughly the same amount as Bitcoin investors.

As a result, declining prices do not necessarily imply that virtual currencies are hopeless. Furthermore, as reported by The Washington Post, many of the individuals who subscribed to Elon Musk’s failed (and now halted) attempt to squeeze more money from Twitter users were profiles advocating right-wing ideology and virtual currency speculation.

The failure of crypto organizations has been more instructive than price fluctuations. Most recently, FTX, one of the largest crypto exchanges, declared bankruptcy, and it looks that the individuals in charge just stole billions of dollars from depositors, most likely to sustain Alameda Research, its sister company.

The question is why organizations like FTX and Terra, the so-called stablecoin producer that went bankrupt in May, were established in the first place.

After all, Satoshi Nakamoto’s 2008 white paper that launched the virtual currency concept was named Bitcoin: A Peer-to-Peer Electronic Cash System. In that instance, the entire premise was that digital coins whose authenticity was proven using cryptographic procedures would allow consumers to avoid financial institutions. If you wanted to give money to somebody else, you could just send them a digit — a key — without having to rely on Citigroup or Santander to keep track of the transfer.

It has never been obvious why anybody would want to undertake this besides criminals. Although cryptocurrency proponents frequently cite the 2008 economic downturn as inspiration for their work, the 2008 economic downturn had no impact on the payment network – the capacity of people to move monies through banks. Nonetheless, the concept of a financial system that did not rely on faith in banking institutions was intriguing and possibly worth attempting.

Nevertheless, virtual currencies have achieved almost no advances in the traditional role of money after 14 years. They’re too inconvenient for everyday transactions. Their valuations are far too volatile. Few individuals can be committed to keeping their cryptocurrency keys on their own – there’s a significant danger of losing them by storing them on a hard drive that winds up in a landfill.

Instead, the majority of digital currencies are acquired through markets such as Coinbase and, yes, FTX, which accept your cash and holds cryptocurrency assets on your behalf.

These marketplaces are financial institutions, and their ability to recruit investment is dependent on the trust of those participants. In other words, the cryptocurrency system has essentially developed into what it was meant to start replacing a network of financial intermediaries whose capacity to operate is determined by their perceived trustworthiness.

What is the objective in the particular instance? Why should a sector that has merely redesigned traditional banking have any intrinsic value?

The Bottom Line

If the state eventually steps in to oversee crypto enterprises, preventing them from pledging impossible-to-deliver profits, it’s difficult to see what benefit these organizations would have over traditional banks. Even if Bitcoin’s value does not fall to zero (which it still could), there is a solid case to be made that the cryptocurrency business, which seemed so enormous just a few months ago, is on its way out.