Cryptofinance: Bitcoin meets mainstream rejection

Welcome to the Cryptofinance newsletter this week from FT. Still shaken by the collapse of FTX, bitcoiners fight against well -known enemies.

Fortunately,

crypto is experiencing a golden age.

It was a hard year for crypto supporters, since her manifesto for a beautiful new world was repeatedly undermined by falls coin prices and failures such as the stable coin Terrausd, the hedge fund Three Arrows Capital and the lenders Voyager, Blockfi and Celsius.

But the collapse of the figurehead FTX really hit the core. Every unveiling about the looseness that penetrates the exchange has deepened the suspicion that crypto is fundamentally lazy. Skeptics and those who are almost hostile are on the rise. Friends have been asking me for weeks whether FTX is the last nail in the crypto scout.

Now questions are asked whether crypto should be regulated as finance, since it would give him legitimacy that skeptics say that it does not deserve them. Formal rules would open the door from crypto to traditional institutions and possibly infect the financial markets in a way that has not been the case before.

The academics Stephen Cecchetti and Kim Schoenholtz say that it is time to "let crypto burn". During this week FT crypto summit in London, well-known skeptic Stephen Diehl told a committee of industry members that their business is based on economic and technological absurdity.

At the FT's adjacent banking summit, I asked bankers, including JPMorgan and Société Générale, this week whether the reputation was at risk if serious companies were floating with blockchain technology. There was an embarrassing 10-second silence before the long-term goals were discussed.

And if you ask the European Central Bank, it is finally time to stop waiting for the people who are no longer formed (it is more than a decade ago, people).

"The belief that innovation has to be given at all costs persists," said Ulrich Bindseil and Jürgen Schaaf from the ECB on Wednesday in a blog post. The stubborn capture of Bitcoin at around $ 20,000 in your eyes is nothing more than "an artificially listed last breath before the way to insignificance".

The reaction of the industry was frustrating. If you can believe my inbox, the crypto-PR machine works around the clock to convince "Normies" that FTX does not represent the industry.

The strategy was to distance itself as far as possible from Sam Bankman-Fried. Others said the problem lies in centralized stock exchanges and argue that this crisis should accelerate the transition to decentralized finances. Or that Bitcoin is not the problem.

As for the ECB blog, yes, yes, the central bank has settled on Bitcoin and rounded off its blog post with a number of crypto critic ™'s greatest hits: the value of Bitcoin is "purely for speculation", it is a "unexploited value". Pollar "and a" reputation risk for banks ".

But instead of struggling with the arguments of the authors, most responders on social media tried to disqualify binderseil and Schaaf due to their connection to a central bank that looks at their own digital currency (but has not come very far).

Brian Armstrong, Managing Director of the Coinbase based in the USA and, in my opinion, Sam Bankman-Fried's more likely successor as the main attorney of crypto in the congress, very simply answered with a laughing emoji.

Admittedly, nobody expects from the ECB that it works openly to build up a private currency, but the industry now has to convince more than ever, instead of Photoshopping a clown nose on Christine Lagardes face replies with "Have fun staying arm".

The jokes may have worked when the numbers rose, but the crypto world is faced with an existential crisis. Playing in front of the audience on social media is not enough.

Industry must accept that it has produced Bankman-Fried. Fans of decentralized financing have to take a closer look at why it is the source of so many hacks and how it will work without a central stock exchange to set prices or to offer customers in the crypto world.

If the crypto industry cannot answer these crucial questions, it may never recover. I leave her with the thoughts of David Trainer, Chief Executive of the investment research company New Constructs:

"Too many of these assets are connected - as we see at FTX.

Is David Trainer wrong? As always, send me an email to scott.chipolina@ft.com.

Weekly highlights:

• Temasek, the state investment fund Singapore, has initiated a review of his unfortunate FTX investment. Singapore State Fund Gic also has an open ear as an investor in the battered crypto broker Genesis. Both questionable decisions have made Singapore ambitions to become a turntable for digital assets. Funny that it seems to never work. Mercedes Ruehl and I treated the story here.

• Binance only steps back to Japan for a year after the regulatory authorities had warned consumers about the legality of the activities of the stock exchange in the country in recent years.

• The regulation of the European markets for crypto-assets, which was celebrated as the turning point for legislators, who tried to get this volatile industry under control, has also been under fire after the collapse of FTX. In a hearing this week, several European legislators questioned Mica's ability to prevent FTX-like catastrophe in the block. My colleague Akila Quinio and I'll take a look here.

• Only yesterday the Senate Committee for Agriculture, Food and Forestry held a hearing on FTX, and CFTC chairman Rostin Behnam said that the current US system "gaps, gaps, gaps". He added that a stock exchange could not act as a dealer, lender and storage at the same time. "It just does not exist in our traditional financial system and I think that the same principles and regulations should apply to crypto." (H/T to my colleague Joshua Oliver, who saw it so that they didn't have to do it)

Soundbite of the week: FTX, the company that you have never heard of

The weekly FT Crypto and Digital Assets Summit was packed with fascinating findings, many of which are shared in this Twitter-Thread .

A listener surprised everyone when he suggested that FTX was not so relevant for the future of crypto.

"I have been working in the blockchain area for eight years and only heard from FTX two weeks ago."

ok.

Data mining: The octopus is driven down

This summer I spent a lot of time to write about the extensive job cuts in the industry, especially on stock exchanges that expanded too quickly during the record-breaking crypto bull run last year.

The cutting is not over yet. This week, Kraken announced that it would reduce 30 percent of its workforce, which corresponds to more than 1,000 employees. Why 3,000 people had needed it is a good question.

How to be predicted, Kraken called the “market conditions” as a problem. As you can see, the trade volumes have been stagnating since May.