I agree: don’t regulate encryption, let it burn. Make good progress on their own

By letting it burn out, it will not become large enough to cause major infections outside of cryptocurrency.

By Wolf Richter for WOLF STREET.

The last thing the cryptocurrency community will hear – from billionaire Silicon Valley venture capitalists to true believers – is another warning from yet another central bank about cryptocurrency exchanges and cryptocurrency and potentially losing “all your” money. And they certainly won’t appreciate the comments that we told you that are now emerging from central banks and regulators.

The latest we told you came today in a speech by Bank of England Deputy Governor for Financial Stability, John Cunliffe. He said, “Since September, FCA [UK Financial Conduct Authority] He publicly warned on FTX that “you’re not likely to get your money back if things go wrong.”

And things went wrong. Central banks and other financial regulators are worried about massive, tangled tentacles of cryptocurrency reaching the fiat finance system — a matter of contagion that goes beyond crypto.

But this year, those tentacles snapped, touched, as one by one, cryptocurrency firms and hedge funds exploded, taking their clients’ money with them. The most recent example was the stunning internal collapse of FTX and its subsidiaries, including Alameda Research, leaving behind untold chaos and huge financial holes. The wreckage of all this will be picked up over the next few years in bankruptcy court.

So the question now arises: Why even regulate this thing? Why not let it self-destruct before it gets old enough to pose a real transmission risk? Why not allow the massive, unchecked, and recurring losses of these users to create a self-regulatory force that keeps the cryptocurrency space from growing, and thus keeps risks of infection beyond crypto to a minimum?

This seems like a good idea to me. And this argument, after the explosion of FTX, can be heard more forcefully on various sites.

And even Cunliffe of the Bank of England, today in his speech on cryptocurrency, gave this theory a nod, even as he explained why cryptocurrencies exist. should to be organized. He referred to an article in FT Alphaville, “Let Crypto Burn.”

In his speech, Cunliffe said:

“It is possible, of course, that neither of those reasons — protecting and protecting investors from financial stability risks — are appropriate because the instability and risks in the unregulated world of crypto finance, which FTX has recently demonstrated, will ultimately ensure that the sector cannot grow.

“Actually, some [the authors of the FT Alphaville article] Regulators grappling with the cryptocurrency world have argued to keep it out of the regulatory framework to ensure that “user-warned” user concerns prevent growth and connection to mainstream finance.

Instead of regulating, “it’s much better to do nothing, and let cryptocurrencies burn,” said FT Alphaville article authors Stephen Cicchetti (Head of International Finance at Brandeis School of International Business) and Kim Schoenholtz (Professor Emeritus at New York University). Stern School of Business).

They said in their article:

Effective intervention would impart undue legitimacy on a system that does little to support real economic activity. It would also provide an official seal of approval for a system that currently poses no threat to financial stability and will lead to calls for public bailouts when cryptocurrency explodes again.

“Finance is all about trust. The loss of trust from the already growing failures is leading to the demise of the cryptocurrency. The market value of countless “coins” is down about 75 percent from its peak in November 2021.”

I agree: let cryptocurrency burn; Don’t regulate it.

The cryptocurrency emerged during the period of the Fed’s money printing and financial crisis in January 2009. In the initial Bitcoin white paper, they called it “a system of electronic transactions without relying on trust.” It turned out to be the opposite. Compared to existing transaction methods, including free and easy-to-use peer-to-peer methods managed by the fiat currency banking system, it is difficult and expensive to use Bitcoin for transactions. And given how volatile it is, it is also dangerous to use it for transactions.

On top of all this are the other risks, such as hackers swallowing your bitcoin, when the exchange crashes, or when you lose the key.

So he never became what he was said to become. Instead, there are now several thousand cryptocurrencies, which everyone can create and use as collateral, as FTX did with its original FTT cryptocurrency, and these cryptocurrencies are nothing more than gambling codes in an illegal high-tech casino.

And everyone who enters a casino knows this – or should know – because the warnings have been around for many years.

So just keep the gambling inside the casino, lock the exits, and let the casino burn down on its own. And it works well in this regard.

Unlike a normal financial system, this casino is not needed by the economy, and it serves no purpose, but burns large amounts of energy during the mining process. If this system disappears, the economy will continue to function well.

The public that ventured into the casino and was crushed by falling debris, the venture capital investors who funded the casino and who lost their shirts on it, the hedge fund clients whose paper money vanished before their eyes, well, they had been warned for years about the dangers of betting on something they just made up.

I mean, I’m sure it worked great for a while because all of the participants played a role in doing what I call harmonic hallucinations.

There is no need to organize this. It is self-regulating by the fact that many people will lose a lot or all of their money. This will prevent the cryptocurrency from reaching such a volume that it could cause serious infections outside of the cryptocurrency.

If some technologies emerge from the crypto space that have useful and broader applications, well, great. They will find benefit in the highly regulated monetary financing system.

The rest can just burn out, no problem.

These are the stocks of some of the cryptocurrency-related companies that have not yet filed for bankruptcy: today’s closing price, today’s percentage change, and a breakdown percentage from the top. All of them are featured in my pantheon of exploding stocks. There really isn’t much left to lose:

Cryptocurrency related stocks
November 21, 2022

price $ % today % of high
Coinbase [COIN] 41.23 -8.9% -90.5%
Robinhood [HOOD] 8.85 -3.7% -89.6%
MicroStrategy [MSTR] 157.22 -7.6% -88.0%
scientific basic [CORZ] 0.17 -6.3% -98.9%
Blockchain cell [HIVE] 2.00 -10.7% -93.0%
Terawulf [WULF] 0.83 -13.4% -98.0%
Digital Marathon [MARA] 6.19 -17.1% -92.6%
Blockchain Riot [RIOT] 3.98 -10.8% -95.0%
Hut 8 Mining [HUT] 1.12 -9.7% -93.3%

Coinbase, among others, hit a new low today:

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