The Collapse of Cryptocurrency

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The collapse of cryptocurrency exchange FTX is a fascinating story. A lawsuit filed on 11/15/22 against FTX founder and celebrities including quarterback Tom Brady and basketball Hall of Famer Shaquille O’Neal, claims they engaged in deceptive business practices by promoting unregistered securities. Cases against FTX, which is based in the Bahamas, will be made more complex by the fact that U.S. securities laws generally apply only to domestic transactions. It makes sense that the lawsuit includes anyone who promoted FTX as an investment. I don’t own any digital currency. The closest thing I have is 250 shares of FINX which is down 50% this year. FINX is a Global X fintech ETF that holds several blockchain companies. I consider this a long-term holding. With recent negative crypto events, it will take many years and new financial regulations before FINX starts to recover.

With my limited understanding of crypto, I think there should only be two digital coins. BTC (Bitcoin) and ETH (Ethereum). All of the others have been created because the technology exists. Anyone with a computer and a little programming knowledge can create a digital coin. That makes it easy without regulations for someone to setup a scam enterprise. Now countries like China and the United States are creating their own digital coins. A digitized version of China’s legal currency, the renminbi (RMB) is called e-CNY, also known as the digital yuan. China has banned all other digital currency and have created their own so that they have complete control of it. The US is still trying to figure out what makes a token a security, and which ones should be regulated as commodities? If a US-dollar digital coin is on the horizon, it may be a while before we actually see it.

If cryptocurrency continues to get hacked and values collapse overnight, there is a good chance that the US (like China) will ban all digital currency and create their own version of a digital dollar. It almost feels like we have that now. I can’t remember the last time that I paid for anything with real money. Most transactions are done with credit cards or electronic bank transfers. The dream of having a decentralized currency without regulation in a world full of criminals is not worth the risk. Unless you are a criminal. On the other side of the coin, adding regulation and government oversight to cryptocurrency defeats the main purpose of an anonymous decentralized digital currency. The concept was good, but it fails when you put humans in control.

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