The writer is an editor for the FT and writes the Chartbook newsletter.
In an infamous TV commercial for the Crypto.Com trading platform, Hollywood star Matt Damon uttered the following lines: “History is almost full. With those who almost ventured, who almost succeeded, but in the end it turned out to be too much for them. Then there are others. Those who seize the moment and commit. And in these moments of truth. . . they calm their minds and strengthen their nerves with four simple words whispered fearlessly since Roman times. Fortune favors the brave.”
The pomp was no accident. For true believers, a technology like cryptocurrency is never just a technical solution or a promise to get rich quick. This is something like a historical mission. If you believe in this vision, then Joseph Schumpeter’s idea of ”creative destruction” lends itself easily, with its confident promise that something better will emerge from the ruins of the old.
There are circumstances in which such a brutal vision of history is appropriate, but the trillion dollar question is which historical experiments are worth the cost and which are not. Distinguishing between the two requires the ability to distinguish between things that seem daring and sexy and those that actually make sense.
The Roman believed to have first uttered the words “fortune favors the brave” was Pliny the Elder, who witnessed the eruption of Mount Vesuvius in 79 AD. Instead of doing the obvious and running for cover, Pliny ordered his flotilla to head straight for hell in the hope of saving the survivors. He died among plumes of poisonous volcanic gas.
Such a fate will not befall Damon, nor Tom Brady, nor Gisele Bündchen, who supported FTX, the affected cryptocurrency exchange. The true supporters of cryptocurrency will not be stopped by one or two bankruptcies. The US authorities must not only clean up the mess left by FTX, but also decide on the historical mission of the cryptocurrency. It is inevitably political.
It takes determination, courage and real power to stop any hyped technology project that promises to disrupt the status quo and secure a bright new future. And there is no guarantee of success.
In the case of cryptocurrencies, the politics are especially complex. The inconvenient truth is that in the recent midterm elections, FTX’s corporate leadership was one of the biggest donors to the Democratic Party. It would be far-fetched to suggest that this significantly affected the result. But try telling this to Republican Senator Josh Hawley, who seems determined to turn the Sam Bankman-Freed deals into a celebrity affair.
The Democrats didn’t just take money from FTX either. An active faction in the US Congress pushed for the passage of a law defining a new cryptocurrency regulation regime. While banking regulators were on the sidelines and the Securities and Exchange Congress looked askance, the Commodity Futures Trading Commission seemed eager to take on the task. This received support from the very top in the form of an executive order from President Joe Biden that declared digital assets an area in which the US must keep up with international competitors.
By the summer of this year, it seemed that the push for the recognition and regulation of cryptocurrencies might gain the same momentum that, in the name of modernization, led to the disastrous deregulation of Wall Street in the late 1990s.
The turmoil revealed at FTX should stop this move. The most radical alternative would be to simply let the cryptocurrency self-ignite. Let the Ponzi schemes collapse under their own weight. Prosecute fraud through regular prosecutorial channels, but do not offer regulatory oversight. Make it clear to anyone involved in cryptography that they do so entirely at their own risk.
Given the isolation of crypto from the rest of finance, such malicious neglect may not pose major systemic risks, but the cost to retail investors could be serious, and with it, political implications. Letting cryptocurrencies burn out is no longer realistic. If this is the case, then there is an urgent need for regulators to no longer turn a blind eye, but instead to draw as clear a line as possible. They should not simply withhold regulatory approval, they should completely ban regulated financial institutions from dealing with cryptocurrencies. If there should be regulation, it should be related to gambling, not banking. This will spark a backlash from the crypto lobby that will accuse regulators of squandering America’s invaluable leadership in world-changing technologies.
The best answer to this rhetoric of historical necessity is to answer directly. If it’s true, as Damon warned, that the story is “nearly filled,” then it’s not just a lack of courage or luck. Most historical endeavors, like most enterprises, fail because they are ill-conceived or run into too much opposition. Blockchain may have limited applications. Crypto tokens in their most basic form will never be money. Noticeably reduced in size, they can serve as a form of online gaming. However, in serious finance, they should not play any role, not to mention complex and non-transparent financial engineering. It’s time to send this chimera to the dustbin of history.