New Money Review podcast

New Money Review podcast

The crypto bubble is one of many

January 24, 2022

In the latest New Money Review podcast, technologist Martin Walker tells Paul Amery how the cryptocurrency bubble has wasted huge amounts of capital and is only one of several interconnected manias.

By contrast with the bubble of 1999/2000, says Walker, little of use may be left behind from the current irrational exuberance.

Here are some excerpts from the podcast:

‘Decentralisation’ in blockchain is meaningless

“The word ‘decentralisation’ in the fintech and blockchain world is a very confusing term. It’s turned into an excuse to avoid accountability for running businesses and financial infrastructure.”

What is bitcoin?

“Bitcoin is a rather bizarre payments infrastructure that uses a private currency. It has nothing to do with any of the problems that we saw in the 2008 financial crisis.”

Regulators struggle

“It’s frustrating on many levels that regulation always seems to be a long way behind the curve. Someone used the expression: ‘The regulators tidy up the bodies, rather than stopping people getting killed’.”

“But you can’t just put things at the door of regulators. They are always on the back foot when innovation occurs. And they can only do what’s determined by the law. There’s a responsibility on politicians and governments to look at what’s going on. When you have things bubbling away and potentially causing problems the regulators need to have the appropriate powers.”

“There’s a degree of reluctance by many regulators to be seen as anti-innovation. That’s one of the things I really find disturbing about the current age. The number one duty of the regulator should be to protect the public and the financial sector.”

The crypto lobby is powerful

“The crypto lobby has become so rich and so powerful that you’ve got senators, congressmen, MPs and even whole countries brought in.”

New rules will follow the crash

“To get things under proper control you need some degree of international cooperation. But I don’t see that happening until you’ve had a really major crash, where a lot of ordinary people have lost their money.”

Conflicts of interest in cryptocurrency

“There are so many conflicts of interest [in cryptocurrency]. In the traditional financial markets, an exchange can’t margin finance its own customers. A traditional exchange does not take trading positions against its customers. You have to have a level of operational resilience. But in the crypto markets, if prices go the wrong way, all the exchanges mysteriously switch off.”

Tether is propped up by crypto insiders

“The biggest weak point in the cryptocurrency ecosystem is stablecoins, notably Tether. It’s essentially a major bank and payments company that has no real financial regulation. I find it quite bizarre that if you compare Tether to its predecessors, like Liberty Reserve and E-Gold, in the past there were criminal prosecutions of those running these unregulated quasi-banks.”

“There’s a relatively [small] number of players in big crypto who really control this industry: the big exchanges, Tether, the mining pools and large investors. There’s no reason for a tether token to be worth a dollar. But it’s in the interests of a small group of very rich people to maintain this illusion.”

Many bubbles will burst together

“What’s different between now and the boom is that now we have a bubble of bubbles. There’s the fintech bubble, the crypto bubble, a meme stock bubble, there’s a real estate bubble, an electric vehicle bubble. And there are degrees of interconnection between them. It’s just mind-blowing to consider how this might play out.”

“Who would think that you’d have the electric vehicle bubble connected with the crypto bubble? And we do, thanks to Elon Musk.”

“There’s been a massive misallocation of capital. That money has just been wasted.”