In so many ways, I get the sense that the pain being felt by the crypto industry nowadays is pain that’s been felt, and treated, by traditional finance in decades past. Traditional finance gets painted as something of the “boring parentals” in this family drama, whereas crypto / DeFi (viz. decentralized finance) are the uppity teenagers who’ve got an answer for everything. Changing the world of money is the plat du jour, and one can safely ignore the harsh truths of human existence because this time, it’s different. Except not.
As it turns out, the regulations that protect US and global financial markets might have some value after all. They’re, of course, the worst solution to the problem…except for all the others. Take, for example, Title I of Dodd-Frank, the so-called “Living Will” requirement. In the wake of the 2008 financial crisis, Congress thought it prudent to require large banks to pre-plan how, in a dire scenario, they’d wind-up operations without creating a domino effect on the industry at-large.
Putting together these plans was brutal and mind-numbing. I should know——I was there. But forcing institutions to take a good look at themselves in the mirror, to picture the worst, and to figure out what to do about it, was a necessary penance to be in the business of making money for being entrusted to keep safe the money of the general public.
The “crypto kids” don’t have time for all that. Cataloguing every single MIS dependency within the entire global organization? “Uhh, we just use Slack, bro.” Cool. Analyzing day-to-day correlation risk vis-à-vis counterparty exposure and, potentially, dependency? “Nah.”
And so we shouldn’t exactly be surprised that when the crypto reckoning arrived, it wasn’t just one entity; it was lots.
There’s that quote, something like “Those who forget history are doomed to repeat it.”1 One of the crypto industry’s greatest sins is that it, at large, never bothered to consider whether the history of banking and exchanges was, in fact, their own history too. “We’re different,” we heard them cry out. “No, you’re not,” was the parental response that never came.
Moving past this difficult period, there’s three ways to look at the future of crypto: 1) keep it unregulated (though this would be truly deranged); 2) regulate it; or 3) ban it.
We can toss out the first option because it’s just too batty to consider. It’s maybe a matter of luck that crypto losses have robbed the crypto barons of the means to continue to lobby politically for an unregulated cryptoverse. In any case, it would take a case of global amnesia for an unregulated future to be the future that comes to pass. Impossible? No. Horrifying if true? I’m moving to Mars.
Between the second and the third, I’ll say this: there are enough people out there who still think that crypto is a good idea such that an outright ban would be politically unpalatable. Are these people wrong? Should we just get rid of crypto? It’s a tough question.
One of crypto’s most-touted use cases is in an area in which traditional finance continues to struggle: international remittances, or the typical way in which migrant workers send money back home. In the traditional finance ecosystem, international remittances are difficult, costly, and fraught with security concerns. Nevertheless, they are vital in the fight against global poverty. Blockchain technology may prove vital to a better solution in the future, but the crypto industry in its current state has yet to yield one (see here and here).
And international remittances are only one of several areas where crypto / blockchain present at least a model of a potential better path forward. Bad actors and unregulated wild west stories aside, it bears examining whether there’s a baby in all this murky bathwater. For regulators and market players, it’s time to take a hard look.
