Crypto: A Failing Industry

The collapse of the FTX cryptocurrency exchange has investors, speculators, and finance experts all acknowledging the inherent danger and fragility of the cryptocurrency world.

“This episode highlights the vulnerability of the entire crypto edifice,” Eswar Prasad, a Cornell University economics professor told The New York Times. “Even large and apparently financially solid institutions turn out to have fragile and shaky foundations that crumble at the least hint of trouble.”

In an acknowledgement that its $213 million investment in the FTX crypto-exchange was now worthless, Sequoia Capital, a major venture capital firm told its own investors, “we are marking our investment down to $0.”

FTX was considered a bedrock of the cryptocurrency industry. It had aggressively marketed itself and lobbied in Washington for favorable regulation. Its Founder and CEO Sam Bankman-Fried, known as “S.B.F.” had even bailed out struggling crypto companies earlier this year. One journalist who had reported on the rise of S.B.F. and his FTX exchange, tweeted,  “It’s like if the person you thought was Hermione actually turned out to be Voldemort.”

Numerous cryptocurrencies have failed, and the most widely known, Bitcoin, has lost 70 percent of its value in 2022. Beyond the plunge in cryptocurrencies, a growing list of crypto-related companies have failed this year, including: 

  • Celsius Network. In June, the cryptocurrency lender prevented 1.7 million users from withdrawing funds. Celsius filed for bankruptcy the following month.
  • Three Arrows Capital. The plunge in crypto prices left the hedge fund unable to pay billions in loans and forced the founders to file for bankruptcy in June.
  • Voyager Digital. The crypto brokerage service filed for bankruptcy in July after failing to make a $350 million loan payment.

“There’s a confidence crisis here,” OANDA crypto analyst Ed Moya told The Times. “Whenever you have the instability of a key token or coin that is tied to one of the key crypto figures, there’s always concern that you could see contagion, and a much more significant moment of crisis.”