Crypto is Going to Disappear on Monday

The FTX disappearance is going to take the entire industry down with it.

I’ve always believe crypto was a Ponzi scheme that one day would crash. Because of that I never invested in it and I refused to consider working for a crypto company.

And there’s nothing behind it. It is all built on people assigning an arbitrary value to some numbers on a computer. If people’s faith & belief in those numbers vanishes, then that value is gone.

Let me explain (very briefly).

When you own a stock or bond, there is something physical anchoring that piece of paper. The value may go up or down but at the end of the day, it is tied to the value of the underlying physical entity. The value of your financial instrument is tied to the value of that underlying entity.

Compare that to crypto. The value assigned to any crypto token is whatever the market presently assigns to that token. There is no underlying physical entity. If everyone selling a token today can get a price 100% higher - you win. If the only price people can get selling a token today is 50% lower - you lose. With no anchoring entity the price is totally based on buyers faith in the token. If that faith evaporates - the value is gone.

On top of that you have the incestuous relationship between all these crypto exchanges, funds, etc. And FTX as the 2nd largest exchange and their recent acquisition of other crypto entities, has tendrils that reach into everything.

And on top of that it has its investment arm that was then leveraging the deposits in its exchange to purchase other tokens. It leveraged its customer’s tokens to make additional bets on crypto.

So what happens on Monday? People are going to panic and want to exchange their tokens for cash. Any tokens. FTT to start but also Bitcoin, Ethereum, every & any. And what will first happen is even in the best situations, it takes time to cash out tokens. There has to be a buyer. It can take days to reconcile the trade.

Some of the exchanges will be dependent enough on FTX/FTT that they’ll have to freeze all transactions. And they may have enough exposure that the exchange, and all of its holdings, that’s customer holdings, are zeroed out in balance.

In others you will be told that you will have to wait as this plays out, but then you’ll be able to withdraw. Will you be able to someday? Maybe. Maybe not. But at present you have no access to your holdings.

And the prices for these tokens will crash. Remember, there’s nothing they’re tied to so there’s no inherent value to them. And as more and more people come to realize this, fewer and fewer will be willing to buy tokens. If there’s no buyer, even on an exchange that’s still open, how do you cash out.

There is one bit of good news. So far crypto has been kept distinct from the rest of the economy. Basically it’s been Las Vegas where you can go to gamble and so this elimination of trillions of dollars in value will have no direct impact on the economy.

But for those that put their retirement funds in crypto, it’s going to suck.