Digital Assets, Central Banks, and Regulators
Since Finance is one of the areas of our investment focus, and it is going through significant turmoil because of FTX and related bankruptcies, I wanted to comment on this situation.
This is still a sideshow compared to the significant opportunities created by the global disruption of finance.
Specifically, I am referring to digital assets and decentralized finance. Interestingly, J.P. Morgan, among other traditional financial institutions, is defending this asset class, and more importantly, the technology behind it.
The FTX event is not indicative of any failure of digital assets, but rather a failure of a centralized institution driven by corruption at the highest levels of leadership.
I continue to be skeptical of crypto as an asset class, and the collapse of FTX shows how easily crypto is manipulated and the “crypto ecosystem” is fundamentally driven by centralized players and not any true form of decentralized or digital assets. As I’ve been stating for a long time, cryptocurrency is a sideshow and benefits no one other than speculators hoping for a greater fool.
On the other hand, digital assets have been immune to bankruptcy and asset flight because digital assets operate under completely new decentralized systems compared to traditional finance. Entities, such as bankrupt lender Celsius, crypto hedge fund 3 Arrows Capital, and the FTX Group repeated some of the worst practices from traditional finance, including those that led to 2008 financial crisis — lack of transparency, unauthorized use of customer funds, and massive greed at the C suite and boardroom level that drove indefensible risk-taking — do not represent Defi.
All these events do not diminish my belief in the digital asset industry and decentralized finance. There will be greater regulation and, I believe, a digital asset platform must cooperate with central bank-issued currencies, such as a “digital dollar, digital euro”, etc., and that the industry will move forward as a result.
The combination of digital asset regulation, central-bank cooperation, and distributed assets via decentralized platforms still represents one of the most intriguing opportunities, and, with the potential disruption of global finance, one of the most exciting investment areas today.