Cryptofinance: Bitcoin faces major rejection

Welcome to this week’s FT’s Cryptofinance newsletter. Still reeling from the FTX collapse, bitcoins are fighting familiar foes.

It’s a golden age for crypto kicks.

It’s been a tough year for cryptocurrency advocates as their brave new world manifesto has been repeatedly undermined by falling coin prices and failures such as the TerraUSD stablecoin, hedge fund Three Arrows Capital and lenders Voyager, BlockFi and Celsius.

But the poster child FTX collapse really broke the ground. Each revelation about the loophole spreading to the stock market has fueled suspicions that cryptocurrency is fundamentally rotten. The skeptics and outright adversaries dominate. For weeks friends have been asking me if FTX is the final nail in the crypto coffin.

According to skeptics, questions are being asked about whether cryptocurrency should be regulated as finance. Formal regulations will open the doors of cryptocurrency to traditional institutions, potentially infecting financial markets like never before.

Academics Stephen Cecchetti and Kim Schoenholtz say it’s time to “burn crypto.” During this week’s FT crypto summit in London, renowned skeptic Stephen Diehl told a panel of industry members that their businesses are based on economic and technological absurdities.

At the FT’s neighborhood banking summit this week, I asked bankers including JPMorgan and Société Générale whether reputations are at risk when serious firms flirt with blockchain technology. There was an awkward 10-second silence before discussing long-term goals.

If you ask the European Central Bank, it’s finally time to stop waiting for an industry that’s no longer emerging (it’s been over a decade, folks) to find purpose.

“The conviction that innovation must be accommodated at all costs persists,” the ECB’s Ulrich Bindseil and Jürgen Schaaf said in a blog post on Wednesday. Bitcoin’s stubborn clinging to around $20,000 is nothing more than an “artificial gasp before the road to irrelevance” in their eyes.

The industry’s response has been frustrating. If my inbox is anything to go by, the crypto PR machine is working around the clock to convince the “norms” that FTX does not represent the industry.

The strategy was to get as far away from Sam Bankman-Fried as possible. Others said the problem lies with centralized exchanges and argued that the crisis should accelerate the transition to decentralized finance. Or bitcoin is not the problem.

As for the ECB blog, yes, the central bank has gone for the yoke on bitcoin, concluding the blog post with a series of Crypto Critic™ greatest hits: bitcoin’s value is “purely speculative”, it’s “an unprecedented polluter” and “a reputational risk for banks”.

But instead of countering the authors’ arguments, most social media responders tried (but didn’t go very far) to disqualify Bindseil and Schaaf because of their association with a central bank overseeing their digital currency.

Brian Armstrong, CEO of US-based Coinbase and, in my opinion, Sam Bankman-Fried’s likely successor as top cryptocurrency advocate in Congress, simply replied with a smiley emoji.

Granted, no one expects the CBA to publicly defend its attempts to create a private currency, but the industry needs to convince the skeptics now more than ever. A clown photoshops his nose onto Christine Lagarde’s face and “have fun being poor” he replies.

The jokes may have worked when the numbers were up, but the crypto world is facing an existential crisis. Playing to an audience on social media doesn’t cut it.

The industry must admit it spawned Bankman-Fried. Fans of decentralized finance should take a closer look at why it is the source of so many hacks and how it would function without a centralized exchange to set prices or offer customers entry and exit into the crypto world.

If the cryptocurrency industry fails to address these critical issues, it may never recover. I’ll leave you with the thoughts of David Trainer, CEO of investment research firm New Constructs:

“Many of these assets are linked – as we’ve seen with FTX. . . very incestuous situation. “Now that one of the dominoes has fallen, we expect it’s only a matter of time before they all fall.”

Is David Trainer wrong? As always, feel free to email me at

Weekly Highlights:

  • Singapore’s state-owned investment fund Temasek opened a review of the failed FTX investment. Singapore’s sovereign wealth fund GIC also has egg on its face as an investor in beleaguered crypto broker Genesis. Both questionable decisions have once again made a mockery of Singapore’s ambitions to become a hub for digital assets. Interestingly, it will never work. Mercedes Ruehl and I covered the story here.

  • Binance is re-entering Japan just a year after regulators warned consumers in recent years about the legality of the exchange’s operations in the country.

  • Europe’s Crypto Asset Markets regulation, hailed as a turning point for lawmakers trying to capture the volatile industry, has also come under fire following the collapse of FTX. At hearings this week, several European lawmakers questioned Mica’s ability to prevent a disaster like the FTX that hit the bloc. My colleague Akila Quinio and I take a look here.

  • Just yesterday, the Senate agriculture, nutrition, and forestry committee held a hearing on the FTC, and CFTC Chairman Rostin Behnam said there are “loopholes, loopholes, loopholes” in the current US system. He added that the stock exchange cannot act as a dealer, lender and trustee at the same time. “It doesn’t exist in our traditional financial system, and I think the same principles and rules should apply to cryptocurrency.” (H/T to my colleague Joshua Oliver, he read it, so no need)

Soundbite of the week: FTX, a company you’ve never heard of

This week’s FT Crypto and Digital Assets Summit was full of interesting ideas. This was shared on Twitter.

One audience member surprised everyone when he said that FTX has little to do with the future of cryptocurrency.

“I’ve worked in the blockchain space for eight years and only heard about FTX two weeks ago.”


Data mining: Disables the Kraken’s powers

This summer, I spent a lot of time writing about industry-wide job cuts, particularly in exchanges that expanded so rapidly during last year’s record-breaking cryptocurrency run.

The cut is not over. This week, Kraken announced that it will cut 30 percent of its workforce, or more than 1,000 people. Why he needs 3000 people is a good question.

Presumably, Kraken cited “market conditions” as the problem. As you can see, trading volume has stagnated since May.

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