Zero Sum Game

Cryptocurrency had been hailed as a “revolutionary” new technology that would change the way we transact and store value. In reality, it has become a breeding ground for scams, fraud, and corruption. Despite its original promise of decentralization, transparency, and freedom from government control, cryptocurrency has become dominated by centralized exchanges, speculative trading, and other forms of manipulation.

The catastrophic unravelling of cryptocurrency over the last year has been a sight to behold over the previous year. The perfect storm of FOMO, greed, a deafening lack of regulation and continuous and constant predatory behaviour (and people) has taken a novel concept into a ’too big to fail’ zero-sum game which is now starting to fail.

Cryptocurrency is a zero-sum game, meaning that the value of a particular coin or token is determined by the collective actions of all the participants in the market, with any gain by one person being balanced by an equal loss by someone else. Cryptocurrency has no intrinsic value, and it does not have any inherent worth or usefulness.

The current state of cryptocurrency is a perfect example of the greater fool theory, where people are willing to pay more for an asset than its intrinsic value because they believe they can sell it to someone else at an even higher price. The conclusion of the greater fool theory is that investors who rely on this approach are likely to suffer significant losses when the market reaches a saturation point. Unfortunately for crypto, it seems that there may be no longer any “greater fools” willing to pay higher prices for the assets.

Market Goes Boom

“Due to market conditions, we’ve temporarily freezed withdrawals….”

~ Celsius, Voyager, FTX, Hodlnaut, Vauld, Gemini

Cryptocurrency was supposed to be decentralized and free from government control. Still, the difficulty of trading has led to the creation of centralized exchanges (such as Celsius, FTX, etc.) that took depositor funds and lent them to others for a profit - this is banking, but this time it’s unregulated. These crypto banks’ existence wholly defeated cryptocurrency’s original purpose by introducing a centralized and “trusted” party.

The ongoing implosion of the cryptocurrency ecosystem is the conclusion of the practical application of the greater fool theory. The sharp drop in prices in early 2022 was like a child kicking the foundation of a castle made of sand and technical jargon, causing it to come crashing down. The sharp drop in prices shattered the illusion that the market would only ever go up and led to a massive chain reaction of significant players going bankrupt. If you were invested in Bitcoin 5 years ago, you would now be down 13%.

In June 2022, Terra (an exchange) had its ‘algorithmic stable coin’ (paradoxical) lose its dollar peg crashing to $1.999967e-7, that’s a millionth of a dollar. A stable coin is a type of cryptocurrency that is pegged to a stable asset (e.g. a USD), and people may have invested in them because they believed they offered a safer (it didn’t) and more predictable alternative to other cryptocurrencies (it wasn’t).

Terra Luna’s collapse, in turn, caused 3 Arrows Capital, Celsius, Voyager, BlockFi, Hodlnaut, Vauld, and FTX, to go bust in quick succession. Regrettably, this resulted in massive losses for the customers of those entities. Many of these people were likely unsophisticated investors lured in by promises of ‘going to the moon.

At the time of writing, many other exchanges look ‘shaky’, with some shakier than others. It’s going to get worse.

Good Riddance

I’m guilty of buying into the novelty of cryptocurrency in its early heyday, but now I see that it has become something different from what it was supposed to be.

Cryptocurrency in its state is an anthesis to its original concept, rife with shady and dodgy market players and scams, fraud and corruption. It’s long overdue to die. Additionally, it’s been over a decade since the “financial revolution” was meant to occur, and the only things that can be reliably bought with cryptocurrency are drugs and fake hitmen.

This post did not even touch on the cancer that is NFTs, but I highly recommend Dan Olson’s documentary Line Goes Up - The Problem with NFTs. There is also the fun fact that one of the largest NFT collections, Bored Ape Yacht Club, is filled to the brim with white supremacist dog whistles (whoops).

Lastly, how great would it be to stop having to hear crypto lingo finally?