The FTX crash should serve as a wake-up call to everyone in the industry. And, no, regulation will not save us next time, any more than it did this time.
What a terrible few weeks. Few of us have not experienced some level of surprise, disbelief, shock, anger, sadness, fear, or betrayal. Many people have tragically lost life-changing sums of money during a period of extreme economic uncertainty. Even the fortunate are suffering from a toxic cocktail of dismay, disgust, and possibly depression.
We’ve also had to deal with a few outsiders who have said things like, “Told you so!” and “Crypto should die.” Critics are entirely correct in pointing out the hubris, ego, and lack of common sense that exists in our industry. Skeptics’ triumphant victory lap, on the other hand, adds to our embarrassment and shame.
Noelle Acheson is a former CoinDesk and Genesis Trading research director. This is an excerpt from her Crypto Is Macro Now newsletter, which focuses on the shifting crypto and macro landscapes. These are her thoughts, and nothing she writes should be construed as investment advice.
We must now consider how to proceed. No, it’s not too early.
The first step is to figure out what the first step is. It, in my opinion, entails dispelling one major misconception: that “we” will find “a solution.”
“How can we make sure this doesn’t happen again?” I’ve been asked several times in the last week. My response is, who exactly are “we” here?
Crypto has never spoken with a unified voice, and it is not about to start now. Even the notion that agreement for such a diverse ecosystem is an ideal outcome is unsettling. The industry’s origins are based on the free-market ideology that people should be able to choose their modes of transaction and value representations, and that experimentation can directly test new incentives and forms of governance in a real market. It is up to us to evaluate risks; we may be bad at it, but hopefully we will learn from our mistakes and gravitate toward more reliable actors.
The best we can hope for in the future is that we become smarter and more demanding.
And what exactly do we mean by “make certain”? Those words imply a level of control that contradicts the original ethos of crypto. How can we avoid making mistakes? By stifling innovation and requiring mass adherence to a rigid set of frequently impractical rules. Parents understand the dilemma: you can keep your children safe by allowing them to play only under your supervision, and even then with plenty of padding. But what kind of life does that make for them or you? Instead, teach them to do what they can to reduce risk, and to get back up and recalibrate when they fall.
The crypto industry will make mistakes again, as it should, because experimentation is a necessary part of the process. Participants can learn to be more cautious, to take less at face value, to distrust celebrity auras, to question established beliefs, and to research alternatives. But let’s be honest. We’re all human, and most of us prefer convenience over safety. We also have a natural tendency to trust our friends. So we can’t “ensure” that this doesn’t happen again, and we shouldn’t insist on it. The best we can hope for in the future is that we are smarter and more demanding, because no one wants to repeat the last few months.
The free market is required
So it’s time to reframe the question in terms of the free market. Instead of futilely searching for a collective answer, consider: What can I do to improve the industry? What can I do to better protect myself? How can I assist others?
Another frequently asked question is, “What should we do now?” This is entirely natural. We want a solution, and we want it from someone. Many people believe that regulation is the answer, which means we’re about to enter a situation that authorities have long predicted. Regulation is not the complete solution; rules did not prevent Enron, Bernie Madoff, MF Global, Archegos, and other disastrous examples from occurring. But our instinct is to seek safety from the powers that be.
Even from their perspective, there is no agreement. Last week, a Financial Times editorial suggested that “we should simply let crypto burn.” It’s unclear who the “we” in that phrase is. Who has the authority to simply “let crypto burn?” No one. Some regulators see a threat that should be mitigated. Many people (including the new House majority whip and the incoming chairman of the House Financial Services Committee) believe that innovation is important. Others simply don’t care. “We” do not exist.
This recent emphasis on the plural pronoun makes sense: In times of fear, we all seek solace in the company of others. However, it is also risky because emotional mobs can cause havoc. I noticed signs of an industry turning against itself while scrolling through Twitter over the last few days, a mass purge disguised as an attempt at community protection. History has shown that this is rarely useful.
So let us stop worrying about what “we” want because there is no “we” with the authority to determine what that is. What we can do is use our individual priorities and abilities to assist in the repair of what we believe is broken. We don’t need agreement or permission for this.
Speaking for myself, I intend to continue explaining our industry to anyone who is interested, to poke holes in easy conclusions, and to challenge investment orthodoxies. That’s what I’m capable of. And all of you reading this have skills that you can use, even outside of the cryptosphere, to advance whatever characteristics you want to see more of here.
It’s time to abandon doomscrolling and our irrational fascination with insane tweets. Is time to look beyond the doom of the current newsfeed. the time to get back to work and pick ourselves up. It is now time to consider what comes next.