The writer is an FT editor and writes the Chartbook newsletter
In a now infamous TV ad for trading platform Crypto.com, Hollywood star Matt Damon uttered the following lines: “History is filled with almost. With those who almost went on an adventure, who almost achieved, but in the end it turned out to be too much for them. Then there are others. Those who embrace the moment and commit. And in these moments of truth. . . they calm their minds and steal their nerves with four simple words that have been whispered by the intrepid since the time of the Romans. Fortune favors the brave.”
The bombast was not incidental. For true believers, a technology like crypto is never just a technical solution or a get-rich-quick promise. It has something of a historic mission. Going into the vision, Joseph Schumpeter’s idea of ”creative destruction” is obvious, with his confident promise that something better will emerge from the ruins of the old.
There are circumstances where this unforgiving view of history is appropriate, but the trillion-dollar question is which historical experiments are worth the expense and which are not. Distinguishing between the two requires the ability to differentiate between things that seem daring and sexy and things that actually make sense.
The Roman who is believed to have first uttered the words “fortune is for the brave” was Pliny the Elder, when he witnessed an eruption of Mount Vesuvius in AD 79. Rather than do the obvious and run for cover, Pliny ordered his fleet to head straight for the inferno in hopes of rescuing survivors. He died amid plumes of poisonous volcanic gas.
No such fate will befall Damon, nor Tom Brady and Gisele Bündchen, who endorsed FTX, the affected cryptocurrency exchange. Nor will true believers in the crypto crowd be deterred by a few bankruptcies. It is up to US authorities not only to clean up the mess left behind by FTX, but also to pass judgment on crypto’s self-proclaimed historic mission. This is inevitably political.
Stopping every hyped-up technology project that promises to disrupt the status quo and deliver a bright new future takes decisiveness, courage and factual authority. And there is no guarantee of success.
In the case of crypto, the politics are particularly tricky. The inconvenient truth is that in the recent midterm elections, FTX corporate management was some of the largest donors to the Democratic party. It is far-fetched to suggest that this materially affected the outcome. But try telling that to Republican Senator Josh Hawley, who seems determined to turn Sam Bankman-Fried’s dealings into a cause célèbre.
The Democrats didn’t just take money from FTX either. A vocal faction in the US Congress pushed for legislation to define a new regulatory regime for crypto. While banking regulators stood aloof and the Securities and Exchange Congress watched suspiciously, the Commodity Futures Trading Commission seemed eager to take on the task. It received encouragement from the summit in the form of an executive order from President Joe Biden declaring digital assets an area where the US should not fall behind international competitors.
By the summer of this year, it seemed that the drive to recognize and regulate crypto would gain the same kind of momentum that led, in the name of modernization, to Wall Street’s disastrous deregulation in the late 1990s.
The mess revealed at FTX should stop that cart. The most radical alternative would simply be to allow crypto to self-ignite. Let the Ponzi schemes collapse under their own weight. Pursues fraud through the usual judicial channels, but does not provide regulatory oversight. Make it clear to anyone involved in crypto that they do so entirely at their own risk.
Given crypto’s isolation from the rest of the financial world, such malicious neglect may not pose serious systemic risks, but the cost to retail investors can be severe and with it the political ramifications. Letting crypto burn down may no longer be realistic. If that is the case, it is urgent that regulators no longer close their eyes, but instead draw as clear a line as possible. They should not simply deny regulatory approval, they should discourage regulated financial institutions from getting involved with crypto at all. If there is to be regulation, it should come under the heading of gambling, not banking. That will antagonize the crypto lobby, which will accuse regulators of squandering America’s priceless lead in a world-changing technology.
The best response to this rhetoric of historical necessity is to address it directly. If it’s true, as Damon warned, that history is “almost filled,” then it’s not simply due to a lack of guts or luck. Most historic ventures, like most businesses, fail because they are ill-conceived or because they meet with too strong opposition. Blockchain can have a number of limited uses. Crypto tokens in their most basic form will never be money. Sensibly scaled down, they can serve as a form of online gaming. However, what they should have no part in is serious finance, let alone complicated and opaque financial engineering. It is time to consign that chimera to the dustbin of history.