Crypto’s last stand
- January 1, 2023: Vol. 10, Number 1

Crypto’s last stand

by Benjamin Cole

As 2023 concluded, cyptocurrencies were undercut by real-world problems, including the collapse of FTX, the highly touted cryptocurrency exchange, and then a slashing report from the European Central Bank that declared Bitcoin worthless and largely used for illegal transactions.

The FTX snarl was described by many crypto-industry defenders as simple fraud, and certainly misdeeds do appear copiously in explanations of the cryptocurrency exchange’s sudden demise in November 2022, in which billions of dollars of investor and client assets evaporated.

A cryptocurrency exchange (such as FTX) is a digital trading floor that allows customers to trade cryptocurrencies for other assets, such as conventional fiat money or other non-state digital currencies. A cryptocurrency exchange is radically distinct from a commercial bank, in that the exchange does not lend funds or use client money to invest in assets or other enterprises.

However, the Bahamas-based FTX has been accused (though not yet by authorities) of transferring assets to an affiliated parent company, Alameda Research, despite having promised clients it would not lend or extend client funds. Those funds have disappeared.

Some industry defenders contend that the collapse of FTX no more defines the cryptocurrency industry than the 2008-era Bernie Madoff debacle characterized investing in U.S. Treasuries. However, at least part of the FTX disintegration was trigged by the largely speculative, even ephemeral, value of cryptocurrencies.

Though national fiat currencies at first blush can also appear diaphanous, and sometimes are, there is almost always an ace-in-the-hole for state-created cash. To wit: A nation must accept tax payments in the sovereign currency. Thus, the U.S. dollar and other national fiat currencies are almost always acceptable in transactions, as recipients know they can pay taxes with the greenbacks or pounds or euros.

But cryptocurrencies have no such final backstop of value.

Part of the FTX meltdown was that it issued its own digital token, known as an FTT or FTT token. The cryptocurrency exchange even periodically bought back and “burned” or eliminated FTTs to enhance value through scarcity.

After press reports regarding FTX’s solvency and operations, a competing cryptocurrency exchange named Binance — and a prior investor in FTX — announced it would sell its large hoard of FTT tokens. So, what was an FTT worth? After reaching $80 in September of 2021, the FTTs traded for a little more than $1 by the end of 2022.

By some accounts, FTX, through Alameda, had extended loans (using client tokens) worth billions of dollars at the time of lending. But since the FTT token had collapsed in value, borrowers could repay the loans for mere fractions of the worth at time of lending.

FTX was soon worthless.

Investors and markets had hardly digested the FTX washout when the European Central Bank in late November posted an excoriating blog on its website entitled Bitcoin’s last stand. Reading more like the polemic of an embittered investor than a central bank, the ECB missive stated:

“The value of bitcoin peaked at $69,000 in November 2021 before falling to $17,000 by mid-June 2022. Since then, the value has fluctuated around $20,000. For bitcoin proponents, the seeming stabilization signals a breather on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance — and this was already foreseeable before FTX went bust and sent the bitcoin price to well below $16,000.”

Bitcoin is, of course, the largest and most successful of cryptocurrencies, able to retain some value and to be spent widely, even while hundreds of other such digital coins flounder in nearly worthless obscurity.

The ECB further described bitcoin as clunky, and largely a means to virtually finance underworld transactions. “Bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legal real-world transactions,” sniffed the ECB bloggers.

The blog post also detailed a string of fundamental weaknesses of bitcoin, including that the digital currency does not generate rents like property, dividends or interest like stocks and bonds, cannot be used productively like commodities, or even provide dubious social benefits in the way of gold jewelry.

“The market valuation of bitcoin is therefore based purely on speculation,” declared the ECB.

Despite its dubious nature, the crypto industry has somewhat sidestepped regulations due to strenuous lobbying efforts, suggests the ECB. “Large [crypto] investors also fund lobbyists who push their case with lawmakers and regulators. In the U.S. alone, the number of crypto lobbyists has almost tripled from 115 in 2018 to 320 in 2021. Their names sometimes read like a who’s who of U.S. regulators,” warned the ECB.

By December, eminent economist and New York Times columnist Paul Krugman was pontificating in print that the entire crypto market had entered an “endless winter” and will not see spring again.

The crypto industry’s much-ballyhooed blockchain-based security has been savaged repeatedly, while old-line financial industries are adopting fintech solutions to reduce the cost and clunkiness of traditional banking and transactions.

It remains to be seen how many seasons remain for cryptocurrencies, and if the digital coins can find a larger role than facilitating dubious transactions.


Benjamin Cole ( is a freelance writer based in Thailand.

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