Somewhat counter-intuitively, the aftermath of the FTX collapse may show that the global crypto racket may survive or even flourish
23-Nov-2022 •Dhirendra Kumar
After the FTX collapse, I find myself happy that crypto has remained unregulated in India. Crypto should not be regulated, and those who dabble in it should be left to their own devices. They should have the freedom to go bankrupt in the manner and time they choose.
I'm sure my regular readers are surprised by this view. For months now, I've been writing for immediate regulation of crypto exchanges and crypto trading. In columns of newspapers and on Value Research Online, I've pointed out that the so-called exchanges are not really exchanges and are a grave danger to the bank accounts of Indian investors.
I think non-regulation is better because by regulating crypto, a regulator gets into the business of certifying which crypto exchange is trustworthy and which is bad. However, the details that are coming out of the carcass of FTX demonstrate that this is either not doable or worth doing. Crypto is tailor-made for crookedness. Therefore, it preferentially attracts crooks. A few days after the FTX collapse, I retweeted someone's joke, "Just raised $500m for my new startup that uses AI to detect crypto fraud. We don't actually use any AI, we just say that everything is fraud and haven't been proven wrong yet."
That joke is funny because everyone reading it knows in their hearts that it's probably true. Crypto might attract some honest entrepreneurs, and it definitely did that at some point in the past. However, the bad ones will quickly drive out the good ones in a manner that's somewhat analogous to Gresham's law in economics which states that 'bad money drives out good'.
The days following the FTX collapse demonstrated this quite clearly. Based on the Madoff affair, one would have expected that someone caught running a Ponzi scheme above 10 billion dollars would be universally condemned and would not have anyone to defend him. Somehow, what is happening to FTX boss Sam Bankman-Fried is very different.
The legacy media in the US carries many articles that try to minimise the harm that this man did and, in fact, portray his actions as mistakes or misjudgements rather than outright theft. Many articles also lament how his donations supported all kinds of scientific research, and all that will now come to an end.
"Before FTX collapsed, the founder poured millions into pandemic prevention. Most of those initiatives have come to a sudden halt," is an actual headline in a very influential American newspaper.
Why is this happening, and more importantly, what does it mean for savers and investors in India? This means that the crypto racket now might be here to stay as part of the global financial system. FTX has shown that you can suck up billions from investors worldwide, blow it all up, and yet that no longer calls into question the very basis of crypto. There's just too much money to be made and too easily. The mainstream view on crypto now is that it is a legitimate asset type, and while there might be some regulatory problems, it will all get sorted out. Sooner or later, there will be another bull run, the surviving currencies and tokens will shoot up in price, and a new flock of gullible savers worldwide will sacrifice their financial well-being.
Of course, it's possible that this may not happen. There are still enough influential people in the public space, even in the US, who call out crypto for being nothing but a made-for-fraud racket. However, if the numbers start ticking again, many in India will start investing again. From social media activity, it's clear that despite the various disincentives, many Indians are quietly trading crypto on Indian and international exchanges. Nothing is to be said about this except the old adage about a fool and his money. Do the smart thing. Keep your money safe.