Text by Pyr Marcondes, Senior Partner at Pipeline Capital.
For a system that has touted itself as impregnably secure and transparent, the crypto world’s last few weeks have been revealingly devastating.
The chain break (and this is a point of attention for you to immediately put in mind there, the chain …) of some of the most representative exchanges in the sector was not a punctually circumstantial phenomenon: it was systemic.
As Rodrigo Batista, founder and CEO of Digitra, a Brazilian crypto exchange, put it so well in a post… “the collapse of the FTX crypto exchange is a story of serial crimes”.
Maybe we can eventually compare it with the crashes of Enron, Lehman Brothers and Bernie Madoff. Remember?
Because, conceptually, it’s the same thing: the system showed its flaws, not just the companies in isolation
This does not mean that he broke, as he did not break capitalism with the cases above. Crypto will survive.
But let’s go by parts.
The lack of regulation stands out as the most obvious reason for the catastrophe. A regulated system would have mitigated part – perhaps not all, as it failed to do in the case of Eron and so on. – of the tsunami, and it is conceivable that the discussion about the regulation rules should be the next step to rebuild the system and try to put it back on its feet. A lot complex, but indispensable. It will take time, but it will happen… in the gerund … in the coming months/years.
To those who argue that the free market is the best form of regulation, the examples above end up proving that this is not the case. Upon realizing the miscalculation with FXT, the VCs involved launched a series of unorthodox initiatives with the resources they had in custody of their investors. They were creating by default a perverse chain (the one I mentioned above) of retro investments – which, if proven, is a crime – which, at a given moment, collapsed. Investors together.
Yet, as the excellent New York Times Deal Book aptly reminds us… “if the FTX case is a fraud, regulation alone might not have been enough to stop it. Madoff didn’t live on an island outside US jurisdiction – he lived on Lexington Avenue. If we finally discover that the FTX downfall is the first of many in an industry that was built on a pile of offshore leverage, the regulatory lesson will actually be the opposite: the S.E.C., C.F.T.C. and the Treasury will have been prescient by all their warnings to the public that cryptocurrency was too risky.”
At issue here is not just regulation itself, but the very liberal essence of financial markets.
It is said of Web3 that it is more decentralized and democratic (and it really is), but perhaps those who imagine that same libertarian dream (me included) of the internet in its beginnings, that everyone (citizens) would own the web are mistaken . No, we won’t be. I mean, we weren’t even from web 1.0, nor will we be from web3. Economic groups and technological platforms (those we know and others we don’t even know yet) will continue to dominate the backbone of the system.
In the case of the financial system, institutional funds and banks, and the entire ecosystem of the open market for stock exchanges and investments.
The crypto market will go on with its life because it is an inevitable piece of the future. If it’s not exactly what we have now, another improved version of it will survive and digital financial assets will go on with their lives.
The fact that Web3 is more inclusive broadens the market into the financial world. It puts in the game most of the people who can never attend this party. And that could prove to be even more profitable than the current closed model.
For better or for worse, Capital seeks – that is its nature – to permanently value itself. It will not, I believe, be any different now.
Text by Pyr Marcondes, Senior Partner at Pipeline Capital.
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