FTX Bankruptcy

Right again: FTX declared bankruptcy a day after I said it would. Its CEO Scam Blankman-Fried stepped down, to pursue new scams I suppose. Apparently his family also has close ties with Biden…go figure. This did not come as a surprise. Its business was unsalvageable and worthless, given that all its customers who hadn’t had their funds frozen had deserted to competitors like Coinbase or Binance.

Some are blaming FTX for bringing down Bitcoin, which is a laughable claim. Bitcoin was already down 73% for the year when FTX failed. Bitcoin was on a crash landing trajectory well before FTX failed, as I said would happen months ago and in early 2021 when it was at $50k. There was so much hype about Bitcoin, even by people who are considered reasonably intelligently, but I wisely sat it out.

Mr. Blankman was done-in by greed. It was not enough to only make millions running an exchange and pocketing commissions on every trade, which is a good business to be in. He had to try to make billions by gambling with customer funds on highly-speculative, leveraged bets, which worked for a year or so, until it suddenly didn’t. The other individual involved, ‘CZ’ (the CEO of Binance), probably also shares some blame for helping to trigger a run on FTX’s assets.

Also, the fact that the stock market had one of its biggest weeks ever on this same week that FTX failed, also proves that the failure and eventual near-worthlessness of crypto will have no systemic effect on the overall economy. Crypto is just a big hobby or fad, not something important to the functioning or well-being of the US economy. It could go away tomorrow and probably at least 95% of people would not notice or care, if not for the media talking about it.

Pre 2013 Bitcoin saw a lot of adoption in the dark web, as a sort of secondary economy. The arrest and closure of Silk Road , in October 2013, dashed those hopes. Yes, other dark markets exist, but this shows the lengths and the capability of the feds to track Bitcoin and mete out very punitive sentences for those who try and are caught. Even now, 8 years later, Silk Road Bitcoins are still being tracked and arrests made. Just being in possession of a Silk Road Bitcoin is almost a crime–so much for fungibility.

A common argument by ‘Bitcoin people’ is that the financial system is broken, obsolete, or needs to be replaced (by Bitcoin, of course), but this too is unsupported by the evidence. Yes, the system does at times fail, like in 2008, but this had more to to with subprime mortgages, derivatives, and speculation, not the banking/financial system that average people interface with. When you got to the ATM and press the buttons and money comes out, how often does this fail? Like never, even in 2008. When you go to a store and swipe your card or pay cash, again, how often does this fail? For a solution to fix a problem, there must first be a problem, not the other way around.

OTOH, I don’t think Bitcoin is totally useless, nor will it be worthless. It has some niche applications, such as buying stolen credit cards or hiding ill-gained wealth. But even drug lords, sanctioned Russian billionaires, or Chinese capital-control-evaders don’t want crypto anyway. It’s sometimes better than PayPal or credit cards for small purchases (such as webhosting), but does this justify it being worth a quarter of a trillion dollars? Likely not.