Crypto investors lost $2 trillion. There’s a lot of blame to be had, but now what? — bobsullivan.net

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“You may not understand it, but it will make you money” is the oldest phrase in the financial industry quack’s handbook. It’s bad enough. But add mumbo jumbo technology to the conversation and you have a recipe for obfuscation and consumer harm – you have “FinTech” – well, you have cryptocurrency.

This nugget of wisdom was delivered today by Hilary Allen, Professor of Law at American University, during a panel discussion presented by the American Economic Liberties Project. This organization is leading the charge against monopolies in the US economy – if you don’t know about it, you should – but today a group of skeptics took on the fallout from the ongoing crypto market meltdown. . It’s simple, really: charlatans prey on naïve, easy-to-exploit “tourists”. If you’ve ever been taken for a taxi ride in a foreign country, you understand the tourist problem. Today, the Gotcha Capitalists create situations where almost everyone is a tourist, then exploit the easy cues. That’s what we’ve seen in cryptocurrency over the past few years, as people who couldn’t define crypto have been buying and selling trillions of dollars of what are essentially spreadsheet entries, encouraged by the most famous people in the world.

Indeed, $2 trillion in crypto wealth has vanished in the past 12 months, much of it lost to victims left largely unprotected by US regulators, who are now tasked with cleaning up the mess. It is (critical to note that so far the banking system as a whole has not been pushed to the brink by this mess – as it was by the collapse of the housing bubble – and regulators are to be commended for this.)

This is mostly old news for you, I guess. Today’s roundtable was more forward-looking: what now? I recommend investing an hour watching this replay if you can.

Recently, I asked another panel whether the collapse of FTX and the arrest of SBX was a Lehman Brothers moment or a Bernie Madoff moment. You can scan their opinions here. I have made no secret of my opinion that crypto is a Ponzi scheme, with no real product of value at its core, which means some lucky people might actually walk away with the money, but in the end most people are going to be hurt. Can I be wrong? Safe. But only people who truly understand finance and technology should even toy with the idea of ​​investing in crypto. I’m here to tell you that the Venn diagram overlap is very small.

It has long been said that crypto is a solution in search of a problem, a popular phrase in the world of tech startups. I now think it’s retrograde. The problem with cryptographic exploits is clear. People don’t trust governments. They don’t trust money. They don’t trust inflation. And they certainly don’t trust the banking system. And they are right ! There are good reasons for all this skepticism. Anyone who can turn all that distrust into action would be successful right now. Crypto arrived at precisely the right time (for the record, during the last financial meltdown).

Crypto was gold without the baggage and with very attractive features. You can send money across national borders without paying exorbitant rates! At once! With equal opportunities for all! And all the while, you could get that satisfying dose of dopamine for fucking the man, doing something outside of the prying eyes of your bank and government (or so it was).

Alas, while crypto galvanized the masses (even LeBron!) on the issue, it didn’t solve anything. Crypto was never really a currency, was never really private, was never really disruptive, and the gold rush was not evenly distributed. It was a problem looking for…. victims.

And now ? Is there a way to allow financial innovation to thrive, so that one day another vehicle (crypto 2.0? Gah) can truly solve these problems? I’ll be as happy as the next person when a new product comes along that warns Gotcha bank charges. Unfortunately, the strong libertarian bent for the FinTech world is not going to like the answer: only if strong government regulation goes hand in hand with financial innovation. The days of experimenting with grandma and grandpa’s retirement fund just to see what happens are over, or should be. Aggressive transparency is absolutely essential. Real-time monitoring of small FinTech companies should be required. It is criminal for US markets to let problems escalate to the size of a trillion dollars before the Fed steps in.

Meanwhile, as I have chronicled in several other places, the real problem – the real vulnerability – exploited by crypto snake oil vendors was poor customer service. There is a very good reason why people hate the banking system. After years and years of exploitation by companies like Wells Fargo, consumers are dying for a disruptor to make the transfer of money a little fairer. Remember, people hated Blockbuster and its late fees so much that they signed up in the millions to receive movies in the mail from the USPS! Imagine how ready they are for an alternative to constantly being fucked by the big banks. I’ve given examples time and time again: Companies that misbehave with poor customer service drive consumers into the arms of criminals. This is the real problem looking for a solution.

True innovation will not be an application. This will restore trust.

We’ll see how much America is learning from the crypto meltdown. Unfortunately, we have already seen this film. Some great reforms came out of the collapse of the housing bubble, like the Consumer Financial Protection Bureau, but wealthy forces nearly torpedoed it. And, as I’ve learned since covering tech stocks during the dotcom bubble, a crisis like this seems to happen about every 10 years – whenever there are new tourists in the world. financier, convinced that they can make money by investing in products that they do not understand. Since we know this will happen, it would certainly make sense to at least try to prevent it.

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