Stay informed with free updates
Sign up on the bus. Cryptocurrency myFT Digest — delivered straight to your inbox.
The author is a software engineer and author of ‘Popping the Crypto Bubble’.
Remember when cryptocurrency was supposed to disrupt and change finance? Well, the date had other plans. As Bitcoin moves past $85,000, having doubled in value over the past year, we find ourselves in what might be called the “institutional legitimacy paradox.”
Consider the historical irony: Bitcoin, which was envisioned as a peer-to-peer electronic cash system that would eliminate the need for financial intermediaries, is now primarily managed by funds managed by this intermediary. Trade is carried out with the aim of preventing it.
Two years ago, the collapse in crypto prices seemed to confirm what skeptics like me had long maintained: cryptoassets were a speculative bubble fueled by easy money and pandemic-era euphoria. were swollen. The implementation of Sam Bankman-Fried’s crypto exchange FTX, along with rising interest rates, seemed to sound the death knell for crypto’s mainstream aspirations.
Yet here we are in 2024, witnessing what can only be described as zombie-like regeneration.
This recovery is different from the last bitcoin high. This is fueled by both individual investors and institutional money, with UK pension funds and City asset managers increasingly experimenting with exposure. BlackRock’s spot bitcoin exchange-traded fund is amassing billions of dollars in assets. The shift toward “respect” should concern us all.
The financial industry’s embrace of crypto is less a validation of its alleged revolutionary potential and more an attempt to extract fees from gambling. This has effectively killed crypto’s fundamental promise of devolution.
Regulators have not put in place the necessary controls to address fundamental disclosure, manipulation and systemic risks. We are now in a critical situation where oversight is fragmented, inconsistent, and conflicting—with different agencies working at conflicting objectives and no clear guiding policy.
This is the era of institutional crypto capture. Bitcoin’s grand vision of a trustless financial system has been reduced to just another entry in the ledgers of the Depository Trust and Clearing Corporation – a massive clearinghouse that processes almost all stock trades in the US. In other words, the revolutionary technology that bypasses the establishment has become just another product under its control.
The implications for pension funds and their beneficiaries — namely, those of us hoping to retire one day — are troubling. Although crypto allocations are relatively small, a precedent is being set. Fiduciaries are increasingly being pressured to consider crypto exposure as part of a “modern” portfolio.
This is despite the fact that its basic characteristics remain unchanged. It still generates no cash flow, has no intrinsic value and its price movements are heavily driven by retail sentiment.
An even more terrifying sight looms on the horizon. Consider the next US administration, swept into power on a wave of deregulation promises. In this regulatory vacuum, we can witness things that make FTX’s misdeeds seem like mere child’s play.
Institutional players, freed from meaningful oversight, can create byzantine investment vehicles, packaging and repackaging digital assets into synthetic products that bundle both financial and software risks in new and unseen ways.
The next crypto winter — and rest assured there will be one — could affect retirement savings and institutional portfolios in ways we haven’t seen before.
Far from validating crypto’s fundamental value, the current bull run exposes a more uncertain reality: the financial industry’s adoption of crypto is little more than a steady knack for turning speculative trends into fee-generating products. is not
