Crypto skeptics are reading the wrong lesson from FTX

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FTX hammers more nails into cryptos coffin, screamed the Washington Post headline of a missive by a Bloomberg analyst on Friday. The week the crypto dream died, news website Axios chimed in.

While there is no doubt that the event given the scale and prominence of FTX has spooked the market, it would be wrong to read its collapse as an indictment of the underlying technology.

Though it offered an in-house token (FTT), FTX was primarily an exchange upon which crypto assets like bitcoin and Ethereum could be traded.

Dream worth saving

Blaming cryptocurrencies for its poor governance, therefore, would be akin to blaming the companies listed on the Australian Securities Exchange for the market operators bungled CHESS replacement project.

The episode has rightly thrown a spotlight on the business model of unregulated crypto exchanges many of whom really act more like investment banks, monetizing the assets under their control in risky and complex trades (and in FTXs case, allegedly without customer consent). But it has not undermined the entire ecosystem.

Of course, that doesnt mean coins like bitcoin and Ethereum have any intrinsic value that is very much still up for debate. And it would not be unfair of consumers to think more cautiously now about doing business with any crypto-related entity.

But there are some elements to the crypto-libertarian dream that are worth salvaging.

One of the initial promises of cryptocurrency was to enable a financial system free from the meddling of central banks. Given the costs and consequences of the Reserve Banks money-printing efforts in recent years let alone the quantitative easing projects of other central banks around the world that idea is not without merit.

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Another was to strip out layers of fees from the system so that transactions were less costly to end consumers, investors and businesses and doing so while also leaving an indelible trace on the ledger that is visible and verifiable.

It remains to be seen whether the blockchain can really fulfill these lofty aims. But the goal of a more accessible and transparent system shouldn’t be scoffed at.

And it is telling that many of the critics come from those corners of the traditional market that have the most to lose: bankers and fund managers who rely on layers of opaque fees; lawyers whose six-minute increments are threatened by smart contracts; company directors who fear the potential of decentralized autonomous organizations (DAOs); and regulators frustrated that this wacky world exists outside their dominion.

The final narrative to have been popularized this past week is one of inter-generational conflict. FTXs crypto collapse shows that Millennials arent ready to take over the world of finance, wrote my colleague Aaron Patrick in this publication.

FTXs use of emojis in the workplace, the penchant of its staff for gaming and its non-corporate attire have all been the subject of ridicule. But show me a regulated institution these days that isn’t home to the occasional emoticon in its Slack threads, or sneakers on its staff.

Lack of sartorial property was hardly FTX’s biggest crime.

As many as one million customers (and an estimated 30,000 Australians) lost money in the FTX collapse. They knowingly invested in highly volatile assets via a platform subject to few rules and vulnerable to cybercrime.

Next time they might want to think twice about who they trust and the security of their holdings.

But they deserve better than being the butt of jokes among those with more market experience. And theyre not wrong to dream of a better financial system.

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