The cryptocurrency world is melting down, much as the subprime market did in 2007. Back then, scarcely understood financial products in high demand pitched the world into crisis. Is that about to happen again?
This is one question raised by the spectacular fall of FTX, a massive crypto exchange started by Sam Bankman-Fried, a press-loving billionaire (well, as of two weeks ago), generous financier of Democratic politicians and effective-altruism causes (as of two weeks ago), and young guy known as a good guy in the scammy world of crypto (you get the idea). Exactly what happened at FTX remains unclear, and how the sudden death of a $32 billion firm might affect the financial markets and the real economy remains unknown.
Yet, for now, the situation is demonstrating two things. The first is that, for all the hype about bitcoin, and for all the speculative money pouring into firms such as FTX, the crypto world remains a fringe niche within the larger financial system. And the second is that, precisely because regulators in the United States and other countries understood crypto’s risks, traditional financial institutions—the creators of the subprime mess—are walled off from the current meltdown.
The central problem is that cryptocurrencies remain little more than speculative assets and the crypto markets are little more than a casino, rife with fraud. For years, though, Wall Street has been desperate to pour money into…
