Does the FTX Verdict Signal a New Day for Cryptocurrencies?

Does the FTX Verdict Signal a New Day for Cryptocurrencies?

Analysts and pundits are applauding the guilty verdicts against cryptocurrency exchange founder and CEO Sam Bankman-Fried as a new day for digital currencies. But contrary to the Osmond Brothers’ belief that one bad apple don’t spoil the whole bunch, Bankman-Fried’s conviction on seven counts in relation to misuse of customer funds and the eventual collapse of the FTX exchange may be just the beginning of how deep the rot goes.

Cryptocurrencies have been hailed as the hot new thing in finances and future of money. That may end up being true someday, but not today. While you can use digital currency to pay for goods and services and include holdings in calculations of personal wealth, crypto is still an investment rather than a generally accepted medium of exchange.

And that is where the trouble begins.

Cryptocurrency fans tend to gloss over the fact that the array of digital currencies out there are more a commodity than cash and do a poor job of explaining that to the wider public. Given the complexity of how cryptocurrencies work – including where they come from and how to access them and what their value is – it is easy to see why there is so much confusion about them.

On a fundamental level, the transition from paper money and coins to digital currency is likely to be smoother than the switch from a barter economy to a money economy. But even in the days when you would trade a pig for a cow, there was general agreement about the value of both. With crypto, because it is primarily an investment that fluctuates in value, its very instability makes it unwieldy as an exchange medium.

And the story of Sam Bankman-Fried and the downfall of FTX is not likely to convince more people to jump onto the cryptocurrency bandwagon.

Whatever punishment is meted out to Bankman-Fried is unlikely to deter other unscrupulous crypto robber barons from plying their digital wares on an unsuspecting public. But given society’s fascination with technology and its affinity for the next big thing, the FTX story is destined to be the first chapter in a longer tale of digital deceit and skullduggery.

One of the fundamental ideas behind crypto is it is untethered to government regulation or supervision. While some see that as a good thing, when it comes to money and financial transactions, the supposed freedom that comes with no official oversight is not worth the volatility and opportunities for illegal activity that come in a financial state of nature.

Despite the verdict against Bankman-Fried, cryptocurrency exchanges are largely unregulated, leaving consumers on their own to determine which ones are legitimate and which ones are simply fronts for fraud. And that is not a firm foundation for sound money.

And while some will hail the justice Bankman-Fried faces as proof the system works, they fail to take into account that justice only came after a spectacular financial meltdown that left thousands of consumers wondering if they will ever see their money again.

The FTX scandal didn’t kill crypto, but it didn’t make it more legitimate either.