The Daily Parker

Politics, Weather, Photography, and the Dog

The collapse of crypto

I want to call attention to an article from October by Ben Mackenzie and Jacob Silverman that seems prescient today:

Securities and Exchange Commission Chairman Gary Gensler has compared [the cryptocurrency industry] to betting in unlicensed, unregistered casinos. “We’ve got a lot of casinos here in the Wild West,” Gensler said in a chat last month with the Washington Post. “And the poker chip is these stablecoins.” In this casino, the chips themselves might be just as risky as sitting down at the blackjack table.

A stablecoin is a digital currency whose value is directly linked to another asset, kind of like the dollar under the gold standard. The value of a stablecoin is supposed to remain constant. Such cryptocurrencies are useful because converting fiat money into and out of a cryptocurrency like Bitcoin can be slow and cumbersome; if you load up on stablecoins, you’re dealing in the coin of the realm and can make your transactions quickly. The most popular stablecoin by a country mile is Tether. According to a recent study, 70 percent of Bitcoin trading is done in Tethers. On any given day, Tether is by far the most-traded coin, its volume often double that of Bitcoin. If you want to gamble at the crypto casino, you need Tethers.

I was never into betting on crypto for the same reason I was never into online poker: There’s no human interaction involved, and drinking at my desk while watching numbers flicker by on a screen is not my thing. I’m also not eager to gamble on things where I don’t know the risks involved and when I may be playing by different rules than others. For all of its talk about ensuring trust via strong code and decentralized authorities, the crypto industry remains, like many pockets of its mainstream finance counterpart, profoundly concentrated and often untrustworthy.

For those who look past all this and end up on the losing end if this $2 trillion bubble pops, it might be catastrophic, especially as crypto exchanges increasingly resemble unlicensed banks, with some now encouraging users to directly deposit their paychecks into crypto. For the average investor/gambler (is there a difference anymore?), one would be best advised to heed a popular saying in Vegas: Look around the poker table; if you can’t spot the sucker, you’re it.

Forward to this past week, and the tulips South Sea Company Ponzi scheme crypto market seems like the casino is closing.

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