FTX Bust Night: Crypto Winter Tremors – Economy
Flames blaze in the fire bowls, ice stocks rumble in their tracks, the lamps glow purple. In a Munich beer garden, enthusiasts of the cryptocurrencies and other cryptotechnology. Wrapped up in thick coats and hats, they process the bankruptcy of FTX, the online stock exchange that has speculated billions of their customers’ money, with mulled wine. Since FTX went down spectacularly, the entire crypto world has suffered a loss of image. But the mood in the beer garden is despite small ideological trench warfare – is Bitcoin the only true cryptocurrency or not? – pretty good.
“I’m happy about the FTX bankruptcy,” says Nicole Nowak. “FTT, that was an invented token. We Bitcoiners have always criticized that.” The FTX balance sheet was beautified by large holdings of their homegrown digital currency called FTT (more here). Bitcoin lovers are mostly critical of the expansion of crypto technology to many other complicated cryptocurrencies, coins and tokens. Start-up founder Christian Adler defends the young industry: “No, FTX wasn’t crypto, it was CeFi. They committed crimes.” CeFi is a kind of swear word in the scene, it stands for “Centralized Finance”, which are centralized financial platforms like FTX. The system of cryptocurrencies is actually decentralized and proud of it – and yet players have established themselves here who act like stock exchanges and banks. This is suspect to many crypto fans. When Adler calls FTX CeFi, he insinuates: The crypto technology is not to blame, only the FTX scammers.
Christian Adler founded a start-up that creates “digital twins” of objects on the Blockchain builds. For example, a bicycle pass with a serial number that can be used to digitally prove that a bike belongs to you. Even if the mood among investors has generally cooled off, he says: “I feel as affected by FTX as any online retailer by the Wirecard scandal.” That means: Great story, but actually has nothing to do with me.
The blockchain is considered by its disciples to be the path to perfect money
Virtual crypto money is not in the bank, but is listed on the blockchain: a digital, non-manipulable directory that is always kept up to date with special software on many, many computers around the world – i.e. decentralized. All computers “know” about every change. That should be the chain (chain) on data records forgery-proof. The blockchain is, in theory, the perfect proof of everything. Since money, to put it simply, is only proof of a number in a directory, for example in bank accounts, the blockchain is considered by its disciples to be the way to perfect money. It is intended to make middlemen superfluous, especially banks.
It has only partially succeeded. Whenever crypto investments become suitable for the masses, middlemen appear here too. They make entering the world easier. Most recently, Sam Bankman-Fried was one of those with his stock exchange FTX. The 30-year-old used money deposited by customers so they could trade cryptocurrencies. He used it to finance his own speculative business. When that came out, millions of customers withdrew their money. In November, FTX, valued at billions of dollars, collapsed. Bankman-Fried was arrested in the Bahamas and extradited to the US with the first class action lawsuit filed. FTX – the three letters became the cipher for the rise and fall of the crypto industry.
And now? For now it’s winter.
Insiders call crypto winter the phases in which belief in the great future of cryptocurrencies and coins wanes and in which prices plummet. Which implies: Yes, it will be tough, but then spring always comes and then the next boom.
Virtually all cryptocurrency prices have collapsed. The market is down 70 percent from its peak a year ago. The Dax lost only 13 percent in the same crisis-ridden period. Skeptics argue that the whole thing is not a revolution in the financial system, but a pyramid scheme in which only those who quickly pass their digital “values” on to the next idiot at peak levels win.
The financial professionals here in the beer garden, who continue to rely on crypto, don’t want to hear anything about that. Beside the flames, the eyes of believers like Nicole Nowak glow. “When I started with me Bitcoin “I couldn’t think of anything else to do,” she says. “Interest is at an all-time low. “But we still believe in the technology, bear market or not.”
Boerse Stuttgart even counts itself among the winners of the FTX bankruptcy
Daniel Seifert feels cold through the glass front in his Berlin office. Before the video call, he put on his gray sweater with the C logo, he says. The C stands for Coinbase, and Seifert is the head of the Europe and Middle East region at the crypto exchange. His employer’s share price: down almost 90 percent in one year. He is already sobered: “The FTX case is a major setback for the industry.” But you can only survive the crypto winter if you warm yourself to faith like a graphics card that is running hot. Like Seifert: “We could survive a very, very long crypto winter. We have already lived through four of these cycles, which have been similarly extreme in their rashes.”
Coinbase is subject to the rules of oversight, unlike FTX founder Sam Bankman-Fried. Coinbase has a Bafin license like four other crypto platforms. You have to stick to the rules, otherwise there will be trouble with the German state. A bank run as with FTX, where all customers want their money back but there is not enough money, is not possible, claims Seifert: “We hold customer funds 1:1. The customers could withdraw everything, we would still be liquid.”
At the Stuttgart Stock Exchange, one counts oneself explicitly among the winners of the FTX bankruptcy. It is one of the few exchanges that has jumped into cryptocurrencies. The FTX collapse will not negatively impact crypto trading via the exchange’s Bison app, a spokesman says. On the contrary: “Since the events surrounding FTX at the beginning of November, the increase in new users at Bison has been around 15 percent higher than in the previous five weeks. Trading volume has increased by almost 100 percent since the beginning of November compared to the five weeks before.” The spokesman also says, “FTX is a scam by appearances and this one is technology agnostic. Blockchain and individual cryptocurrencies have nothing to do with it.”
The position can also be heard at the Munich Crypto Meeting: FTX? Has nothing to do with crypto. However, that is only half true: the alleged billion-dollar value of FTX was based largely on Bankman-Fried’s invented cryptocurrency FTT. When their value was publicly questioned, the house of cards collapsed.
Even the pros aren’t writing off the technology just yet
Among those who have burned their fingers is the world’s most powerful wealth manager. Larry Fink shrugged when asked on a recent New York stage about the money his company lost in the FTX bankruptcy. 24 million dollars, that’s a “very small investment”. Fink is the head of Blackrock, the company holds nine trillion dollars in value for its customers. He still believes that blockchain is a revolution: “This technology will be very important.” And Wall Street bank Goldman Sachs is checking which crypto companies are currently available cheaply. For the full professionals, however, crypto only makes up a fraction of their diversified portfolio. Many private individuals who believed the promises made by crypto sellers lost their savings this year.
There are also victims at the crypto meeting in the beer garden. “I’ve also lost money on FTX. We’ve all fallen at Bankman-Fried’s feet,” says one participant. However, she does not regret having quit her job and is now fully committed to crypto. Next to her is Tung Nguyen-Khac. He is working on a computer game in which players are supposed to buy purely virtual clothes, which then “belong” to them and are stored on the blockchain. He says about crypto technology: “We have passed the point of no return.”