How bitcoin bounced back after FTX
One of the major exchanges has gone spectacularly to pieces. Billions of investors’ money has been lost. There have been allegations of widespread fraud, and one of the biggest corporate lawsuits in modern history is set to dominate the business pages for the rest of the year. The collapse of FTX, and the arrest of its high-profile founder Sam Bankman-Fried, was meant to end bitcoin and the rest of cryptocurrencies. And yet this year, digital money is staging a dramatic revival – making a fool of its critics once again.
When FTX went down, there was no shortage of people telling us, with poorly disguised glee, that bitcoin was done. The lurid tales of partner-swapping millennials trading billions in a Bahamian penthouse, while under the guise of ‘effective altruism’, certainly made gripping reading. Charlie Munger, Warren Buffet’s right-hand man, claimed it proved crypto was a “demented” business that “was full of fraud”, while the EU, somewhat predictably, decided it was evidence that more EU regulation was needed.
Well, maybe. However, there is only one problem. You can see evidence of the demise of bitcoin everywhere except, funnily enough, in the price. So far this year, bitcoin has increased by 50 per cent, rising from $17,000 (£14,122) to $25,000 (£20,767) a coin. It’s true that it’s a long way from the pandemic peak of $60,000 (£49,841) everyone in finance is reaching. stuck at home trading crypto because they had nothing else to do. But there are many other assets as well: bitcoin is now trading above the level it was at when FTX went down. Despite all the hype, it has made no difference to the value of the actual coins.
In reality, bitcoin has been through four crashes now, recovering each time. That makes it different from a pure asset bubble. Tulips never recovered in price, nor did the South Sea company ever recover from its collapse. People are too quick to dismiss it, and they’re also way too quick to start celebrating every time it gets into trouble. The truth is, we don’t yet know what kind of asset it is. It could be a replacement for gold, or for government-issued cash, or a way to shop online, or something entirely new. But if it can survive FTX and still rally, then it clearly has real and lasting value. While regulators in Brussels and Washington are still celebrating their demise, the city should keep trying to make itself a crypto hub – it’s going to take a lot longer than most people think.
