Comfortable with crypto?

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Concept of bitcoin destroying concrete wall with dollar graffiti, 3d illustration

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November 8, 2021. Time Magazine said: The cryptocurrency market is now worth over $3 trillion. (It hit $3.2 trillion.)

Today, December 16, 2022, one year and one month later, its value is $864 billion, a loss of 73%. It’s probably not done.

What’s more, Time said, the digital asset market, just over a decade old, has already roughly quadrupled from its year-end 2020 value as investors have become more aware. comfortable with established tokens. Let’s stop there. Still comfortable?

The Times report continues: Excitement about the possibilities of decentralized finance and non-fungible tokens is growing. Let’s stop there again. In the 5,000 year history of money. decentralization was never what made it work. The success of money and currencies was the confidence that two or more parties in a transaction had in the enduring value of money and in who handled it. It wasn’t people like Sam Bankman-Fried or organizations like FTX.

Around 3000 BC. AD in Mesopotamia, when money became established as a representative of equivalent value, great care was taken in its management. Standards have been established and adhered to, regulations and accountability have been met. Currency deposits in the form of grain may have finally become the precursors to what we call central banks, enabling trade routes. All in all, the success of currencies through the years Aristotle had a lot to say about it, just like the Romans, was based on trust, regulation and centrality.

Unfortunately, the financial devastation wrought by young Sam was not the first time a financial or monetary system had been misused or abused. If young Sam, 30, knew a little more about the history of money or more recently about financial crashes, it’s a safe bet that he, the child of two university professors at Stanford, would probably have acted differently. At least, one would like to think. It seems he either didn’t know the story of what he was involved in or didn’t care.

Here are just four of the biggest market disasters that have elements of what he created. But either he knew less than he should have, or, worse, knew what he was doing but did it anyway.

Wall Street Crash of 1929 (Black Tuesday)

Stock prices fell on October 24, recovered briefly, then fell on October 28 and 29. The Dow Jones fell 25% on what became Black Tuesday. Subsequently, the market lost 85% of its value.

why it happened

During the Roaring Twenties, a rising speculative spiral, coupled with overproduction in

factories made investors too dizzy. They took on excessive and uncontrolled debt, apparently thinking there was no end to the highs the market could reach. Until they realized the market was overheating and the smart ones were cashing in en masse.

Black Monday, 1987

On October 19, 58 years, almost to the day, after the debacle of 1929, the Dow Jones lost 23%, while the S&P lost more than 20% and the Nasdaq lost 11%. Around the world, stock markets also fell. (Historically unimportant but interesting, in Australia and New Zealand it was called Black Tuesday, as they are on the other side of the International Date Line.)

why it happened

More than plummeting oil prices and escalating tensions in the Middle East, the relatively new and largely unchecked prevalence of trading by supercomputers has paved the way for brokers well positioned to place huge orders and execute them. so quickly that they were completed before most other investors knew they had started. Unfortunately, they also made it difficult to stop trading soon enough once prices started breaking the cliff. It was more chaotic than an elementary school playground during recess. The result was the biggest one-day loss in Dow history.

The dotcom bubble burst of 2000 and beyond

During the internet-revolutionized 1990s, you couldn’t help but see and be tempted to invest in just about any company with a .com at the end of its name. Their stocks soared, with 12 large-cap stocks up more than 1,000%. It was fun while it lasted. For too many investors, the idea that this kind of growth had a limit was simply unthinkable until it became a reality. The sell off started, accelerated, became a rampage and by October 2002 (that fateful month again) the Nasdaq had fallen over 75% from its March 2000 peak of just over 5,000 .

why it happened

Along with loose financial policies, passion dominated the day, sending the equivalent of 500 volts through a 100 volt circuit.

The subprime mortgage crisis of 2007-08

The real estate market was white hot and lenders, smelling blood in the water in the form of obscene commissions, all but started giving out mortgage money, mostly to unqualified borrowers. Investors bought mortgage-backed securities and other subprime loans. It quickly spiraled out of control, and massive defaults led to plummeting house prices, followed by a tumble in investment. The stock market lost 20%. Unemployment hovered around 10%. Before it was over, Bear Stearns and Lehman Brothers were gone. Other giants survived, but barely. The result was the Great Recession of 2008-09.

why it happened

Greed, the absence of strict regulations or their complete disregard for them, the repudiation of good business practices and, underlying it all, an appalling lack of understanding of historical precedent, as noted above. You know what they say about history, right?

And that brings us to

FTX and Sam Bankman-Fried, 2022

Isn’t this, frankly, just another SSDD situation? Young Sam’s story is nothing more than a reiteration of the vignettes above: greed, unfettered activity, deceit, subterfuge, hyperbole, fraud, contempt, recklessness, belligerence, self-centeredness, and a because I can attitude. .

Still comfortable?

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