Skeptics are wrong to think that these currencies are dead
by David Auerbach
An employee inspects a crypto mine. Credit: Getty
After several flash points and a broader sell-off wiped out $1 trillion from the cryptocurrency’s overall market cap, skeptics are crowing at being proved right about the uselessness of the cryptocurrency and NFT ecosphere. They are wrong to gloat.
The total crash of the “stablecoin” [sic] Terra, meant to be pegged to the dollar at $1 but now trading at literally a penny on the dollar, was the most vivid indicator of a general loss of faith in the future of cryptocurrency and blockchain-backed assets more generally — everything listed under the rubric of Decentralised Finance (DeFi). But while most NFTs — virtual “objects” with a blockchain-based proof of ownership designed to verify authenticity and enforce scarcity — may be nothing more than white elephants, the underlying technology and philosophy behind DeFi has not gone into remission, and the crash ironically sets the stage for it to advance.
What the crash provides, however, is the next step toward the centralisation of DeFi. After prolonged skepticism, the last few years have seen financial titans finally engage with cryptocurrency, with Citi and Morgan Stanley both taking cautiously optimistic stances toward the ongoing importance of DeFi assets. Microsoft and Facebook have also signalled their plans to use cryptocurrency as one of the building blocks of their efforts to build the nebulous “metaverse.” The recent crash, if anything, strengthens their position. By obliterating minor, sketchier players, it clears the territory for larger, institutional players to step in and set the overall direction of the cryptocurrency ecosystem.
But why? Here a 2021 report from Citi GPS. Contrary to Bitcoin’s foundations in an anarcho-libertarian mindset, Citi GPS repositions cryptocurrency as fundamentally a neoliberal tool, and a powerful one. Citi GPS wrote:
Bitcoin may be optimally positioned to become the preferred currency for global trade. It is immune from both fiscal and monetary policy, avoids the need for cross-border foreign exchange (FX) transactions, enables near instantaneous payments, and eliminates concerns about defaults or cancellations as the coins must be in the payer’s wallet before the transaction is initiated.
In simple terms, cryptocurrency’s appeal does not lie in speculation, trading, or NFTs, but as an algorithmic means to circumvent governmental regulations and local costs of doing business. For investment banks and other titans of finance, this is a tremendous boon. If inefficient and or corrupt local banks and pint-sized governments could be cut out of the picture by losing sovereign control of their national currency, international business stands to gain from their loss–as well as, perhaps, the citizens and businesses of those countries, though that remains to be seen.
To that end, the cryptocurrency crash is actually a blessing in disguise, thinning the ranks of small and sometimes disreputable competitors and investors while leaving the underlying infrastructure in place to be increasingly taken up by larger, institutionalised players. The wear and tear on the financial system is significant, but those celebrating the bursting of the bubble haven’t noticed that a bigger game is afoot.