Digital assets and cryptocurrency are going through significant turmoil because of FTX, related bankruptcies, and the call (mostly screams) for new and better regulation and oversight.
Even though this looks like an insurmountable train wreck, this mess is still a sideshow compared to the significant opportunities created by the global disruption of finance.
Specifically, I am referring to digital assets and decentralized finance. Interestingly, an increasing number of global financial institutions, investment firms, and asset managers (including J.P. Morgan, Franklin Templeton, BlackRock, and others) are defending this asset class, and more importantly, the technology behind it.
The FTX event is not indicative of any failure of digital assets, cryptocurrencies, or digitized securities but rather a failure of a centralized institution driven by corruption at the highest levels of leadership.
Digital assets remain an intriguing opportunity and could represent a disruptive force to some of the world’s largest industries – finance, asset management, and securities markets. While it is still appropriate to be skeptical of crypto as an asset class, and certainly the collapse of FTX shows how easily crypto is manipulated, and the “crypto ecosystem” is fundamentally driven by centralized players and not any true form of decentralized or digital assets, it should not deter from fundamental business cases, efficiency, distribution, and the disruptive nature of foundational digital assets. Cryptocurrency is a sideshow and benefits no one other than speculators hoping for a greater fool. However, a true currency that is digitized represents an efficient new force in the financial industry.
On the other hand, digital assets have been immune to bankruptcy and asset flight because digital assets operate under completely new decentralized systems compared to traditional finance. Entities, such as bankrupt lender Celsius, crypto hedge fund 3 Arrows Capital, and the FTX Group repeated some of the worst practices from traditional finance, including those that led to the 2008 financial crisis — lack of transparency, unauthorized use of customer funds, and massive greed at the C-Suite and boardroom level that drove indefensible risk-taking — do not represent digital assets or a decentralized financial platform in its true sense.
All these events do not diminish the prospects for the digital asset industry and decentralized finance. There will be greater regulation and a digital asset platform must cooperate with central bank-issued currencies, such as a “Digital Dollar, Digital Euro”, etc., and the industry will move forward as a result.
The combination of digital asset regulation, central-bank cooperation, and distributed assets via decentralized platforms still represents one of the most intriguing opportunities, and, with the potential disruption of global finance, one of the most exciting investment areas today.