“Crypto Inferno!”

by Aug 23, 2022Articles


“Crypto Inferno” screams the front cover of The Sunday Times magazine…

“How more than $2 trillion went up in flames”.

14 years on and crypto’s still tarred with the same narrative.

The sinister internet casino that lures unsuspecting sheep and spits out financial ruin.

Prancing and cackling gleefully like the child catcher in Chitty Chitty Bang Bang.

Of course there are bad actors…

Sociopaths who set up dodgy schemes and fleece investors…

Misguided start-ups who setup absurdly high risk ventures (and get in way over their heads).

Just as there has been in traditional finance for thousands of years.

The Bernie Madoffs, the Charlie Ponzis, the Alves dos Reises’.

(Remember Alves dos Reis? The Portuguese criminal mastermind who printed himself so much money he triggered an economic crisis and a military coup).

Do Kwan, Celsius and Three Arrows Capital are three of ‘crypto’s’ bad actors).

I put ‘crypto’ in inverted commas here because:

Celsius isn’t ‘crypto’

It was centralised finance, investing in crypto and making wild promises. The startling and often overlooked fact here was actually how well DeFi (decentralised finance) performed throughout this debacle

Do Kwan’s Tether isn’t a ‘Stablecoin’ (any more than I’m an astronaut)

I might decide to call myself an astronaut, and sometimes do on weekends, but it doesn’t make it true. Tether claimed to be pegged to the US dollar algorithmically by Luna i.e. itself (Luna is its sister coin) but this meant it was backed by nothing. It was brazen, laughable and called out by many way before the crash. A true stablecoin, like USDC, is backed by real dollars 1:1. It undergoes regular auditing by respected, independent third parties.

Three Arrows Capital is a Singaporean hedge fund, not ‘crypto’

Three Arrows capital were gamblers caught up in the crossfire, victims of their own greed. As Danny Forston puts it “they borrowed $670 million from Voyager… Three Arrows [then] used Voyager’s money to make a huge bet on Luna just weeks before it crashed.”

The villain here is not crypto tech itself. It is greedy players, often from traditional finance, who have spotted an opportunity and make wild promises on the back of a crypto gold rush.

(Incidentally, it’s interesting that the Sunday Times Magazine article quotes November to June figures – peak to bottom of the crash to get their $2 TRILLION figure.

They could have used today’s where figures have begun to recover significantly but it’s less dramatic).

Imagine if every time a new online scam blew up we declared the internet ‘broken’

The financial system has its scammers and risk takers, so does the internet, so does crypto.

Tether, Celsius and Three Arrows Capital were greed driven speculators trying to profit from the gold rush narrative surrounding crypto.

They are not the crypto world builders or game changers.

Viewing this through the right lens is important.

We wouldn’t brand the NHS a murderous cartel because of Harold Shipman… or ban the Olympics because of Ben Johnson.

One of the things that sets top crypto projects apart is that everything is right there on the table for everyone to see.

The code is open source and transparent…

The transactions are all there on the open ledger…

Usually any foul play is at the hands of the influencers and story tellers trying to spin a profit. Sometimes it’s naive, sometimes calculating.

Regardless, we miss the whole point of this technology when we only talk about it in terms of who got rich and who lost everything.

The internet is a place of work, play, socialising, research and more.

That is an exciting part of crypto’s roadmap too.

New tools, new ways to transact, less barriers, greater fairness.

There over 12,000 crypto coins (you do need to know where to look)

The reality is most crypto tokens will never make it.

60% of new businesses in the UK fail in the first 3 years. That figure will be higher for crypto.

There is rampant competition and it’s global.

Many cryptos are created with fine intentions but just won’t get the traction.

Others will be constructed entirely as a means for the developers to try and get rich.

But some will make it.

That’s what we’re interested in.

Some will solve the right problem and benefit from the network effect (as others have done before). Those are the ones which could see enormous gains for early adopters over the coming years.

With new technology and scores of speculators wild price fluctuations and crashes are evitable… but so are booms.

It’s common to see cryptos make exponential gains in the space of a single cycle.

At the CTA we keep you posted on what we see as the most promising projects.

If you’re not a member yet you can start a risk-free trial here. Do take a look.

The Key Takeaway

Sure, if we look for human’s behaving badly or making devastating miscalculations in any sector we’ll find examples.

There is SO much speculation in the crypto space right now.

But this is precisely because the technology is so astounding and evolving at such a fast rate.

This attracts the good, the bad and the naïve.

But all this has financial upside for early investors. Crashes and dips mean we can benefit from low prices in the wake of rogue players and negative headlines scaring off short term investors.

At the Vanguard we want to focus on some of the exciting positive developments… the potentially world changing ones that go beyond financial transactions or NFT JPGs of bored apes that sell for millions.

Stay tuned.

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