Blog: FTX Debacle Cryptocurrencies will survive, but only the most robust and regulated ones | Zoran Bogdanovic – NewsBreak Original

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Will cryptocurrencies remain completely decentralized, immune to regulation and government diktat? What does this mean for those who have invested in NFTs?

The sudden demise of one of the most prominent cryptocurrency exchanges, FTX, has thrown the crypto world into disarray. The value of Bitcoin, the most well-known cryptocurrency, has dropped by 16%, bringing it to 75% of its peak value from a year ago.

Several cryptocurrency companies have declared losses and suspended client deposit redemptions. The FTX bankruptcy proceedings revealed an alarming disregard for basic accounting and fiduciary responsibility, related party lending, and general anarchy, if not outright fraud. There is growing pressure to regulate cryptocurrencies.

While the fortunes of FTX and its once-charismatic founder, Sam Bankman-Fried (yes, the name carried with it happy tidings for those who deal with money) are an interesting story in and of themselves, the future of cryptocurrency itself is more pertinent.

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In May and June, repeated rises in central bank interest rates caused significant deleveraging in the crypto world, causing cryptocurrencies to lose substantial value and bursting the bubble in which grown-ups had allowed themselves to believe in financial versions of tall tales of magic beans sprouting to produce vines that shoot up, overnight, into the sky, piercing through the clouds to reach a magical world far above the earth.

Will cryptocurrencies survive the ongoing squeeze, or will they only exist as officially sanctioned central bank digital currencies? Will they remain completely decentralized, immune to regulation and government diktat? Where does this leave investors in non-fungible tokens (NFTs)?

Cryptocurrencies are a genuine financial innovation with the potential to significantly reduce the cost of cross-border transfers, eliminate settlement uncertainty and associated bank guarantees, and simplify and automate contractual action contingent on receiving funds. These advantages will ensure the survival of cryptocurrency.

But not the entire, thriving undergrowth of ever new tokens issued by the next group of bright kids with a savior complex, to whose oozing charisma venture funds rush to swoon, somehow managing to write million-dollar cheques before they hit the ground (a Sequoia partner wrote a 13,000-word paean to Sam Bankman-Fried after listening to his pitch). Some coins would probably continue, but only a few.

But it is safe to say that those who survive, as well as the platforms through which they are transacted, will be the ones who submit to regulation. Coinbase is likely to grow even as Binance, the largest crypto exchange at the moment, struggles. Of course, central bank digital currencies would emerge as the safest, most trusted, and eventually the most widely used cryptocurrencies.

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Most jurisdictions have fragmented financial regulation, and only a few have unified rules like the United Kingdom. As a result, central banks and securities and derivatives trading regulators are all likely to play a role in regulating the issuance, trading, holding, and lending of cryptocurrencies.

In India, the Reserve Bank of India (RBI) has opposed recognizing cryptocurrencies other than its own digital rupee, which was recently experimentally released for use in the debt market.

So, if anyone loses money on digital currencies, for example, by keeping money in wallets whose issuer folds up, or with an exchange like FTX that goes bankrupt, or in currencies that lose most of their value, such as the FTX coin, they will have no recourse.

However, there is a compelling reason for the RBI to accept digital currencies other than its own. To settle international payments, the world requires an alternative to the US Dollar.

Even if there is no American counterparty, the transaction will almost certainly be settled in dollars. This enables the US government to weaponize the dollar, threatening to cut off access to New York’s dollar pipelines for anyone deemed unacceptable by the US government.

Cryptocurrencies have a bright future in moving money across borders, according to an experiment involving the United Arab Emirates, Thailand, and China’s digital yuan, which used a framework built on the Ethereum blockchain by the Bank for International Settlements (BIS) Innovation Hub in Hong Kong.

It’s difficult to say what shape this would take. JP Morgan has its own coin system to help its clients make quick, cost-effective payments. The RBI cannot but agree to join the party, with its own digital currency and possibly digital currencies issued by regulated entities in accordance with its rules.

What about non-traditional tokens? These use the same blockchain technology that underpins cryptocurrency, but they are very different from cryptocurrency. They have value because people believe they have value, just like cryptocurrency. They would become worthless if people stopped believing they had value, as happened with shady coins.

NFTs, on the other hand, are not money; they are certificates of uniqueness. The first song released from an album, the “original” version of a piece of digital art that can be copied indefinitely, and so on.

NFTs will retain value as long as their uniqueness has intrinsic value, regardless of what happens to digital currencies.

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