And another one...

A large cryptocurrency exchange has gone bankrupt, and after that, several crypto exchanges have 'paused withdrawals'. Did you spot the big mistake in that sentence? The mistake is the word 'exchange'. To a considerable extent, people (ordinary people) who have lost money in crypto over the last year or so have done so because of the confusion over what an exchange does. In equity or debt trading, the exchange is an intermediary that brings buyers and sellers together. In crypto, exchange means a combination of a bank, a depository, a mutual fund, and a company that issues stock. Oh, and also the regulator! In fact, it means everything except exchange.

Consider the facts that have emerged from the bankruptcy-eve balance sheet of FTX that has been revealed. On the liability side, it has roughly 9 billion USD of funds, most of it being deposits from customers. On the asset side, it has realisable holdings of only about 1/10th of that amount. Much of the rest is either missing or held as 'crypto tokens' that it created itself. Basically, it was imaginary money. Why was an exchange holding customer assets? Because crypto exchanges are not exchanges at all. They're basically like banks or mutual funds, except entirely unregulated.

For a long time, some of us were saying clearly that the entire crypto space is tailor-made for thieves and criminals. Some will be blue-collar ones who will use it for ransomware and laundering, while others will be white-collar ones like FTX. In the end, it's the saver who has been bamboozled by the crypto racket who will suffer. Even a cursory look at social media and mainstream media stories shows that plenty of Indians are still investing in crypto on international exchanges. Tax-related and other rules have ensured that the activity has gone down drastically domestically.

More than a little of the blame goes to the normalisation of crypto as a legitimate investment vehicle in the mass media. Even now, with a snowballing global insolvency crisis in the crypto outfits, the general tone of the discussion is that there are some problems because of a lack of regulations, but these are just temporary, and crypto's future is bright. Every time a crypto crisis happens, there is no shortage of people who double down on the 'one-bad-apple' sort of approach. As if crypto is a generally clean business, except maybe there is one bad apple here or there. It would be a grave error to fall for this idea. This is a business designed for bad apples, and you'll probably find many more. I'm reminded of a comment I saw on Twitter at the time of the last blow-up, which was the collapse of a currency named Luna in May this year. Someone said: Sick of people calling everything in crypto a Ponzi scheme. Some crypto projects are pump-and-dump schemes, while others are pyramid schemes. Others are just standard-issue fraud. Others are just middlemen skimming off the top. Stop glossing over the diversity in the industry. That about sums up what is actually happening on the ground.

To be honest, the crypto racket now seems well-settled. The time for it to have been stamped out globally is gone. There is big money to be made by fooling people into parting with their savings. It's up to the individual to be sensible and save themselves. Cryptocurrencies have no underlying economic logic. The only reason to buy is the price, so if the price falls, then that reason gets weaker. There is no way to calculate value. It's a gamble, pure and simple. There is nothing else there. On top of that are the issues like taxation and the need to trade through shadowy entities that are self-declared exchanges but which have no one regulating them. If you still want to gamble, go ahead but don't say that no one warned you.

Suggested read: Some questions on crypto exchanges