What has been happening around Blockchain Technology and Cryptocurrencies this week? The most relevant local and international developments as well as appealing background reports in a pointed and compact weekly review.
Selected articles of the week:
2022 was marked by a series of high-profile bankruptcies of various multi-billion dollar cryptocurrency companies. The same pattern is evident that has been seen through many historical financial crises. The wave of bankruptcies currently plaguing the industry is the result of an industry that blinded by an unprecedented bull market, neglected risk factors and thus brought itself down. The parallels to traditional financial crises are undeniable. What 2008 came as a bunch of junk mortgages disguised as AAA debt, can in the digital age be replaced by self-created “utility” or “governance” tokens. But not only illiquid and second-class collateral led to the crisis. To round off the dilemma, the balance sheet fraud in the case of FTX/Alameda also gives the sector an Enron déjà-vu. In sum, a lot of trust has been lost and the fragility of fractional reserve system and faith in counterparties must be replaced by the starting point of blockchain technology: mathematical proofs.
New details about the biggest fraud case in the sector’s history are coming to light on a weekly basis. In addition to a huge hole in the balance sheet, the FTX / Alameda collapse leaves a bitter taste with regard to the activities within the corporate mesh. The success story of the quantitative cryptocurrency trading firm Alameda Research and the later founded FTX, the second largest cryptocurrency exchange at the time, came to an abrupt end within just two weeks. A complete overview from the beginning to the end of the debacle.
The origin of the mess the industry has gotten itself into has little to do with Bitcoin or the blockchain, whose integrity has remained untouched since its inception. Finally, a blockchain system is based on mathematical proofs and not on trust. Ironically, the use of centralized services compromises the starting point of cryptocurrencies. The implosion of central crypto service providers, which speculate on customer funds with a fractional reserve system, brings the ever-present crypto slogan “not your keys, not your coins” back to the fore.
As it turned out over the past few weeks, Grayscale’s Bitcoin Trust (GBTC) is in a central position in the current domino effect in the industry. The exchange traded product allowed risk-loving actors to drive a fateful leverage through the sister company Genesis Global Capital. When the market turned, this not only pulled the speculators with it, but also the impressive conglomerate of the parent company Digital Currency Group (DCG) has taken its damage.
In addition: The collapse of the formerly second-largest cryptocurrency exchange destroyed the trust of many market participants. In addition to private customers, quite a few players from the institutional sector have also been affected. While private investors are withdrawing their digital assets off central exchanges, banks are increasingly reluctant to enter the industry. But this setback should not obscure the long-term growth trend and the enormous potential of the industry, says Pirro Morandi, Head Client Relationship Management & Sales at Swiss InCore Bank.