Just when it seemed like the crypto world couldn’t get any crazier, did it. Last week, Sam Bankman-Fried, the 30-year-old genius who oversaw a more than $32 billion empire consisting of cryptocurrency brokerage FTX and Alameda Fund, yesterday declared his company bankrupt.
However, it is wrong to assume that this means that all cryptocurrencies are gone. One reason is that there is still a large group of players using digital assets to evade government controls, whether due to libertarian ideologies, to engage in nefarious activities, or to move funds outside of jurisdictions.
The collapse of FTX is unlikely to change this. Above all, Tether is still the largest stablecoin today, although US regulators have repeatedly criticized it for misleading balance sheet data.
Second, even as the value of private sector crypto assets diminishes, governments are copying some key technologies. In particular, experiments with central bank digital currency, CBDCs, are increasing not least because, I was told last month, the government of China (and to a lesser extent Europe) wants central bank digital currencies to replace private digital assets.
It seems unlikely that the retail version of central bank digital currencies will succeed anytime soon. But many European and Asian central bankers see it as useful in settling interbank transactions. Although the Federal Reserve is less enthusiastic, Jerome Powell, its chairman, recently indicated that he might accept dollar-dollar stablecoins from the private sector, if “and only if” they were subject to Fed regulation.
So the future of cryptocurrency may be divided: one area of shady, offshore activity, and another of the experiments of sober central banks under tight control. This is certainly not what the libertarians who first launched the crypto dream expected.