Five things investors should ponder on crypto

{"text":[[{"start":null,"text":"

"}],[{"start":8.66,"text":"A decade ago, half a dozen mavericks assembled in a Swiss house to launch Ethereum — a piece of the crypto ecosystem that acts as a distributed computing platform, using the ether token. "}],[{"start":19.72,"text":"It initially looked likely to fail: the founding tribe imploded after bitter internal fights; Ethereum suffered a massive cyber hack; scandals erupted and, like bitcoin, ether’s price became crazily volatile, surging from nothing to $5,000, before collapsing. "}],[{"start":35.82,"text":"But this week something striking occurred: just as the White House was issuing a report about the “Golden Age of Crypto”, the Nasdaq exchange celebrated Ethereum’s tenth birthday. "},{"start":45.124,"text":"“Ethereum has demonstrated itself . . . as the definition of antifragile,” enthused Joe Lubin, one former inhabitant of that founding house, who presents the platform as “a reliable trust layer for our fast-growing digital world”. "}],[{"start":58.019999999999996,"text":"Cynics will undoubtedly wince in horror, while enthusiasts will cheer. "},{"start":62.273999999999994,"text":"No wonder: crypto is arguably the single most divisive issue in finance today. "},{"start":67.12899999999999,"text":"However, I would suggest that this anniversary should spark a more realistic — and subtle — judgment. "},{"start":72.797,"text":"For the past decade has revealed at least five key points about crypto that investors should ponder. "}],[{"start":78.83,"text":"First, and most obviously, digital assets are not homogenous (even if detractors hate them all). "},{"start":84.822,"text":"Bitcoin is a one-dimensional phenomenon that fans liken to “digital gold”, while Ethereum is a multi-faceted infrastructure. "},{"start":91.42699999999999,"text":"Memecoins (like $TRUMP) only float on crazy hype, but stablecoins are supposed to be backed by assets, like Treasuries. "},{"start":99.057,"text":"This matters. "}],[{"start":101.17,"text":"Second, we need to move beyond black-and-white thinking with crypto. "},{"start":105.299,"text":"The evangelists who declared a decade ago that distributed finance would transform the world were wrong — thus far digital assets are still too clunky, costly and energy-guzzling to displace most mainstream payment options, and too volatile to be a reliable store of value. "},{"start":119.32900000000001,"text":"Criminality has been rife. "},{"start":121.122,"text":"Just think of the saga of Sam Bankman-Fried, or regulatory censure of the tether stablecoin. "}],[{"start":127.35,"text":"But doomsayers who predicted crypto’s demise were equally wrong. "},{"start":131.242,"text":"Digital asset prices have just soared (again), pushing Ethereum and bitcoin’s market capitalisation up to $455bn and $2.3tn respectively. "},{"start":141.22199999999998,"text":"And the $270bn-odd worth of stablecoins in circulation are supported as many transactions as the Visa credit card network in the last year, as Glenn Hutchins, a longtime tech investor, tells me. "}],[{"start":153.39,"text":"Why? "},{"start":154.494,"text":"Greed (or speculation) is one factor. "},{"start":157.66199999999998,"text":"But crypto is founded on an interesting innovation (blockchain) that can sometimes be useful (say, for some cross-border payments). "},{"start":165.254,"text":"Moreover, some key players and regulators are raising standards in response to past scandals and networks like Ethereum are slashing energy usage. "}],[{"start":173.98,"text":"Third, mainstream finance is moving in. "},{"start":177.12199999999999,"text":"This is ironic, given that early crypto evangelists promised that distributed finance would depose incumbents. "},{"start":183.01399999999998,"text":"But it is driving the current boom. "},{"start":184.994,"text":"Consider the fact that a top BlackRock executive has just joined an Ethereum investment group; or that traditional asset managers like Fidelity, BlackRock and Vanguard are launching crypto funds; or how mainstream investors are increasingly using crypto as a diversification play, while banks such as JPMorgan are running their own blockchains and launching stablecoins. "}],[{"start":204.39,"text":"Fourth, the geopolitics of crypto are shifting — fast. "},{"start":208.64399999999998,"text":"In the past decade, most innovation occurred outside America, in places such as Hong Kong. "},{"start":214.124,"text":"But this week Paul Atkins, Securities and Exchange chair, said he wants to pull it onshore. "},{"start":219.45399999999998,"text":"Why? "},{"start":220.309,"text":"One reason is that the Trump family itself is invested in crypto. "},{"start":224.01399999999998,"text":"Another is grubby politics: crypto groups were such big Trump donors in 2024 that luminaries tell me they they won the election for him. "}],[{"start":231.77999999999997,"text":"But geofinance matters too. "},{"start":234.07199999999997,"text":"Treasury secretary Scott Bessent hopes that dollar-based stablecoins will create a new source of demand for Treasuries, and promote more dollar-usage around the world. "},{"start":242.43899999999996,"text":"Consider this a new policy twist on Bretton Woods in the Silicon Valley age. "}],[{"start":247.14,"text":"Finally, crypto’s second-order effects could turn out to be even more striking than the digital assets themselves. "},{"start":253.319,"text":"For what the innovation does is enable us to imagine alternatives to the financial and geopolitical status quo — for instance, by asking if we need to rely on the Swift payment system, or dollar dominance. "}],[{"start":264.68,"text":"Don’t get me wrong: by making these five points, I am not downplaying the risks. "},{"start":269.572,"text":"The Trump administration’s conflicts of interest with crypto are shameful. "},{"start":273.439,"text":"The potential for consumer harm is real. "},{"start":275.944,"text":"There are financial stability risks due to crypto’s growing links with mainstream finance, and the use of Treasuries to back stablecoins. "},{"start":282.974,"text":"Criminality and grift exists. "}],[{"start":285.92,"text":"But it is possible to worry about these risks — and want better regulation — but at the same time to recognise that the underlying technology can be useful as a geopolitical and financial diversification tool. "}],[{"start":296.92,"text":"For these reasons, Ethereum’s “birthday” should prompt enthusiasts and doomsayers alike to realise that neither of them is entirely right. "},{"start":304.099,"text":"Life is rarely black and white — in finance or anywhere else. "},{"start":307.80400000000003,"text":"That will not change even if (or when) Ethereum turns 20. "}],[{"start":311.90000000000003,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1754037927_1902.mp3"}