Welcome to the latest edition of the FT’s Cryptofinance newsletter. This week, we delve into what comes next after the hype surrounding cryptocurrency fades away. I recently attended The Next Web conference in Amsterdam, a gathering that explores the intersection of technology and finance. Given the rough times that digital tokens have faced in the past year, I expected a subdued atmosphere compared to previous years. However, the overwhelming pessimism from finance professionals, tech startups, and C-suite executives took me by surprise. Many attendees expressed the belief that cryptocurrency has lost its momentum and has either been overshadowed by artificial intelligence or won’t recover from its previous collapse.
The prevailing outlook was somber. During a panel discussion on central bank digital currencies, Stephen Boyle of Lloyds Banking Group’s chief technology office opined that while crypto had interesting ideas, it should be handled by institutions more suited to it, such as central banks. He emphasized the need for a more regulated context, pointing out issues like currency instability, high barriers to entry, fraud, and financial crime. Mark Foster, EU policy lead at the Crypto Council for Innovation, when asked about the future of crypto and blockchain technology, highlighted that the technology may find more use in improving back-office operations for mainstream financial players rather than being adopted by everyday individuals.
These viewpoints are far from the revolutionary promises that were made in the past. Previously, venture capitalists and developers believed they would transform the global financial system, bring banking services to the unbanked, and revolutionize ownership of assets like art and real estate. The crypto bubble burst, revealing that the faith and goodwill behind it were unfounded. Venture capitalists have now shifted their attention to the next trend, and developers with transferable skills may not want to be associated with companies investigated by the SEC or plagued by hacks that expose their coding errors. This leaves the industry’s development in the hands of a smaller group of dedicated developers, which, while committed, may risk being derailed by technical debates that have little relevance to the wider world.
The CEO of Bit Digital, Samir Tabar, criticized centralized crypto companies like FTX for betraying the community’s trust. However, he still holds a passion for decentralized, permissionless technology. His stance is to trust the code rather than humans, but it raises the question of who will write the code we entrust with our trust.
What are your thoughts on the adoption of blockchain technology in 2023? Share your opinions by emailing me at [email protected].
Weekly Highlights:
In recent court filings, it was revealed that the US had agreed to temporarily set aside some charges against Sam Bankman-Fried, the founder of FTX. However, the reprieve is short-lived as the government still intends to pursue the charges separately. Bankman-Fried currently faces eight criminal charges, including allegations of bribing Chinese officials.
Andreessen Horowitz, a renowned venture capital firm, announced the opening of its new London crypto office, marking its first major expansion outside the US. Despite the decline in tech investment in the UK this year, the firm chose Britain for its expansion. Prime Minister Rishi Sunak expressed his excitement over the move.
The recent hack of Atomic Wallet, a compromised crypto platform, was attributed to Lazarus Group, a cybercrime syndicate backed by North Korea. Blockchain analytics firm Elliptic discovered that the platform’s losses exceeded $100 million.
Binance, the world’s largest crypto exchange, has ceased operations in the Netherlands after failing to register with the Dutch regulator. This decision follows a fine imposed by the Dutch central bank last year, accusing Binance of breaching rules and evading compliance costs.
Soundbite of the week: Three Arrows Capital founders face criticism
Kyle Davies and Su Zhu, co-founders of the collapsed crypto hedge fund Three Arrows Capital (3AC), have faced scrutiny and allegations of non-compliance with liquidators. Despite the fund’s failure, they have started a new crypto exchange called GTX where users can trade bankruptcy claims. In a recent interview, they described their post-collapse activities, which included traveling, painting, and surfing in Bali. Liquidators have now filed a motion arguing that Davies should be held in contempt of court for ignoring a subpoena and fined $10,000 daily until he complies.
Data mining: The instability of stablecoins
Tether, the largest stablecoin by market cap, experienced a detachment from the US dollar, falling to $0.99 instead of its intended 1-for-1 peg. This dip represents a low for the stablecoin this year. The chart below demonstrates previous instances of Tether’s peg breaking in May and November of last year, coinciding with the collapse of Terra and FTX, respectively. This instability, along with the brief de-pegging of Circle’s USDC stablecoin, highlights the frequent instability of stablecoins.
Cryptofinance is edited by Philip Stafford. Share your thoughts and feedback by emailing [email protected].
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