At the end of 2023, many are now waiting to see how long Sam Bankman-Fried will spend behind bars for the activities that led to the collapse of his FTX crypto exchange. A new CEO has settled in at Binance following the departure of the exchange’s founder and CEO, Changpeng Zhao, who resigned after pleading guilty to failing to maintain an effective anti-money laundering programme. I moderated a debate around whether crypto assets will ever become a mainstream investment at the recent FT Live Crypto and Digital Assets Summit: Winter Edition.
The motion from the house was: in five years’ time, all major asset managers will be managing crypto assets. Ben McKenzie, actor and co-author of Easy Money: Cryptocurrency, Casino Capitalism and The Golden Age of Fraud (and Ryan on television show The O.C.) and Frances Coppola, financial writer and commentator, stood ‘against’ the motion. While Juliette Souliman, principal at venture capital firm Portage and Tim Grant, CEO at Deus X argued ‘for’.
At the start, an overwhelming 81% of the room voted ‘for’ the motion. However, that lead was cut into, slightly, going down to 74% after arguments were heard.
Although not winning the room, Ms Coppola made a point that cuts to the heart of my issue with the mainstreaming of digital assets: that being mainstream negates the central point of cryptocurrencies, that the asset itself is supposed to be outside the traditional financial system, decentralised and permissionless.
Crypto is a funny world. It burst on the scene 14 years ago with money derived from cryptographic puzzles and trust reliant not on sovereign third parties, but on blockchains. The network itself depended on trust to operate. The structure, laid out in the mysterious white paper published by a person known publicly as Satoshi Nakamoto was anti-establishment from birth.
Historical anti-establishment movements have ushered in such diverse offerings as British satire in the 1960s, the punk scene in 1970s popular music and even the anti-EU rhetoric that fuelled much of the Brexit debate in the UK. However, bitcoin and its subsequent cryptocurrency cousins quickly presented themselves, not as an alternative payment method, but as a way to accumulate a large amount of money, very quickly, completely outside the so-called restrictions and regulations that dictated the way money was moved, loaned, invested and traded in the more traditional, established financial systems.
You may wonder why I am presenting this ‘beginner’s guide to the birth of crypto’, but I have been trying to figure out why I frequently meet smart, reasonable, considered people who work in and promote the evolution of cryptocurrencies, while the industry has seemingly invited and embraced its fair share of nefarious characters and illegal activities over its short lifespan.
At the beginning of this journey, I attended and spoke at conferences where people pleaded with the wider media to look beyond the Silk Road marketplace, an online black market that ran from 2011 to 2013, where transactions were made anonymously using bitcoin. That marketplace became a haven for the international drug trade.
Ever since Mr Bankman-Fried was arrested, almost a year ago, those in the crypto-know were quick to point out that most of his crimes weren’t exclusive to digital asset exchanges and volatile online currencies. Which is true: you don’t need tokens and blockchains to divert client funds to luxury real estate in the Bahamas. And Mr Zhao didn’t invent money-laundering; he just ignored the safeguards to protect against it.
But what if the problem lies not in the biscuits being sold by a wide variety of bakers, but the very ingredients those biscuits are made of in the first place. Bitcoin was meant to sit outside the established, legacy, global financial infrastructure, always. It emerged hot on the heels of a massive global economic crisis, brought on by questionable activities ongoing at the established global financial ecosystem.
“Look at what the ‘established’ banks did to the global economy!’’ these anti-establishment crypto proponents cried. This laid the perfect groundwork for those who felt the only way forward for a progressive monetary system was to turn its back on central authorities, centuries-old banks and ageing payments rails. An ‘idealistic libertarian’ urges that trust in the blockchain will set us free.
But I argue that the ‘idealistic libertarian’ so named by Mr Grant during the debate never existed. Crypto has emerged, not as a refuge for people looking to shake loose the tyranny of central banks and government authorities (both real and imagined), nor even as a ‘get rich quick’ asset class. (Mr Grant admitted to losing so much money in the FTX collapse ‘that it hurt’.)
No, this sector has emerged as a haven for people who see established financial regulations, some the result of lessons learned after decades and centuries of disasters and mistakes in the global financial industry, as things to ignore and disdain.
The structure itself, the very essence of what crypto currencies are, is dependent on rejecting all of the rules and regulations and laws that are inherent in ‘established’ structures (even those millennia-old, like ‘Thou shalt not steal’).
Did bitcoin need to be born for ‘idealistic libertarians’ to learn that regulations matter? Or that a crime is still a crime, even when committed by those wearing startup T-shirts and living on VC money.
I was drawn to a column in the New York Times this week from Ezra Klein, reviewing the recent book Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall by Bloomberg journalist Zeke Faux.
Mr Klein writes that much of “crypto was or is … old scams given new life by the sheen of code and technology. … The elegance of the cryptography tricked people into thinking of trust as a problem of code rather than of human beings. And so they had no defence when human beings started manipulating the code.”
Mr Klein goes on to write: “When FTX finally collapses, and Faux finds himself at Bankman-Fried’s compound, the conversation they have really lands, and you understand Bankman-Fried as he really was: Not an exception to the broader crypto culture, but a perfect illustration of it.”
You can connect with Liz on LinkedIn, or follow her on Bluesky @lizlum.bsky.social.
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