Owners Cryptocurrencies have been through a tough few weeks. Bitcoin and Ethereum have lost more than half their value since their peak in November last year, outpacing the decline of the broader markets. Earlier this month, the so-called algorithmic stablecoin Terra was launched, supposedly having a fixed price of $1. sharp drop in value. This is because it was backed by another crypto token, Luna, which was also losing money. To try and pump Terra back up, its creators sold a bunch of bitcoins, which in turn caused the price of bitcoin to drop.
All this looked like just the kind of crisis of confidence that could lead to the bursting of the crypto bubble. And yet, by historical standards, the prices of Bitcoin, Ethereum, and many other tokens are still sky-high. The cryptocurrency market has fallen twice in the past, but has come back bigger and richer than before. This begs the question: Is anything different this time around?
David Gerard is an active crypto critic and author of the book Attack of the 50 foot blockchain. He spoke to WIRED about why he considers crypto to be a scam and why it is actually the key to its longevity. This interview has been lightly edited for length and clarity.
WIRED: A lot of people in my Twitter bubble are gloating that the cryptocurrency is finally dead – what I call it, the cryptocalypse. It reminds me of how, during the Trump presidency, every time Trump had a new scandal, some people would say, “Okay, this time he will finally sink.”
David Gerard: It’s a bit like this. I think that unless the market is much more heavily regulated than it is – and it needs to be – it will take about three to five years before a new, fresh crop of suckers grows. Because some people really want to get rich quick. Frankly, if you just advertise, “I have a scheme where you can get rich for free,” you will have people in line to give you money. They will tell their friends to give you money.
Sometimes I say that the best book about bitcoin is Unusually popular misconceptions Charles McKay. This was published in 1841. This is the book that popularized the Dutch tulip bubble and talked about the South Sea bubble and various other crazes over the years, various asset bubbles, scams and schemes.
You can get completely rich on cryptocurrency. I would never say you can’t, but you’re betting that you’ll be a better shark than all the sharks that built the shark pool.
Nasdaq, the high-tech stock index, has fallen 28% since mid-November. And before the moon story happened, bitcoin was down 33 percent in the same time frame, slightly more than the Nasdaq but not as drastic. But now Bitcoin is down 47 percent. So it looks like it is simultaneously following the market and has received quite a significant extra push down the slippery slope due to the Luna crash.
People have forgotten what unregulated markets are. We’ve had 90 years of the SEC and reasonably regulated, well-managed stock markets. And it turned out really good. People can trade with some certainty that there are rules and so on. And people talk about crypto, bitcoin and so on like it’s a good high volume market where someone checks to make sure no one is lying about everything. And it’s not.
A pile of cryptocurrencies is not a pile of capital that you can develop or invest or whatever. These are just some of the things you can buy, sell or keep. And early investors can only pay with the money of later investors. No exit “we’ll all make itbecause it’s a game of winners and losers, and the winners are the big guys, and the losers are moms, dads, grandmas, and young adults who are economically desperate and looking for “one weird trick” they can use. win.
All this assuming there are no real use cases for cryptography.
I won’t say it’s philosophically impossible, but I’ll say that in the 11 years you’ve been able to exchange bitcoins for real money and all the descendants of bitcoins, there’s been no sign of it. So I would say that the burden of proof is solely on the lawyers who have to come up with something.
I could try to argue this.
But you’ll have to use words future, perhaps, perhaps, hypothetically, perhaps, could, and all those other words that mean “don’t.” All these other words mean: “He does absolutely none of the above. I’m just trying to make you think he’s doing it when he’s not.”
Good, the argument would be that as real blockchain use cases gain popularity with the issuance of crypto tokens that have real economic value on real networks, not all tokens will be magic beans.
All these things where “we have a blockchain use case” is this weird feature that we could fully implement. without blockchain. We have connected the blockchain for implausible reasons, and by the way, there is a token that you can fully earn on. There were coins for journalism on this basis coins to solve the banana market on this basis, coins to solve dentistry Based on this.
What makes this such a mystery is that everything you say has been there for years, but the party goes on. There is a concept in economics, the Efficient Market Hypothesis, which says that asset prices in general should reflect all available information…
The strong version of the Efficient Market Hypothesis is ridiculously false, and cryptocurrencies prove it.
I agree with you, but I wanted to emphasize that, for example, a couple of weeks ago, Sam Bankman-Fried, CEO of FTX, one of the largest crypto exchanges, admitted that many crypto products are Ponzi schemes. Yet so many people still haven’t left the market. I guess I’m wondering if this isn’t a cryptocalypse – if this is just another crypto winter that will eventually give way to new crypto springs and summers – then what would does it have to happen for crypto to freeze all the time?
In 2008, the reserve fund consisted mainly of houses. In cryptocurrency, I take this quite seriously, the reserve of support is gullibility.
It sounds like you are saying: firstly, crypto is all bullshit, but secondly, the bullshit will continue indefinitely, because as long as you can invent money out of thin air, you can find a sucker who will buy it. Unless governments step in and say that you can no longer do certain things.
Yes. The good news is that regulation is coming. The Treasury is watching this very closely because they basically have to make sure that these crypto bozos cannot mess up the real economy that people live in. And they would definitely screw up, because they are idiots. And they felt it in 2019 when Facebook made its own cryptocurrency Libra, or tried, and every regulator, central bank, and finance ministry in the world said, “No, hell no.” Because Facebook didn’t know what they were doing and they were really arrogant not caring that they didn’t know what they were doing. So after about a month, the entire US government, Democrats and Republicans, united in this, crushed him like a bug.
So, as far as the question of regulation, we are talking about something like if you have a stablecoin, you really have to get audited and prove that you really have a dollar for each of these stablecoins that you say backed by the dollar?
Such an offer, yes. There are various versions of this, such as the requirement that stablecoins be issued by real banks, which are highly regulated, and so on. Laws have been proposed for this. None passed, but these ideas are very much in the air.
The point is that regulators don’t want to act too fast, and they also have limited enforcement budgets. But I’ll tell you who really wants to regulate cryptocurrencies: the money laundering cops. FinCEN are completely humorless cops who don’t care if they crush your business. And internationally FATF, which set out rules that regulators are encouraged to follow if they want their country to be allowed to do business with anyone else. These guys put in a lot regulations this happened in 2021 to make crypto transactions more traceable. I think we will end up with a kind of two-speed crypto market. You will have organizations that are well-known exchanges where people can be traced and exchanging them back and forth for real money is relatively easy, and then another market that is filled with crack is just incredibly unregulated and has a much more difficult time to get to the precious ones. US dollars.
Most people don’t have crypto, but you do have Fidelity. offering bitcoin in 401(k)s, you have Wall Street institutions investing more and more in cryptocurrencies. How much will the collapse of the cryptocurrency affect the economy as a whole?
The main thing you have to worry about is that these jerks really want to put their tentacles into the world of real money. I think for a lot of them that’s the ultimate goal: to move money into people’s retirement accounts. Now the Department of Labor has actually issued notification warned financial advisors in March not to tell retirees to invest their 401(k)s in cryptocurrencies. And Fidelity went ahead and offered this product anyway. They really, really want to get into important products, because that way, when things go wrong, they hope that the government will be the last resort. And this must be fought hard. It hasn’t happened yet, but we need to be afraid of it.
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