by Temple Melville, CEO of The Scotcoin Project Community Interest Company (CIC)
Now that FTX has shown itself to be a mere scam, all eyes are turning to the main crypto markets once more, and what the future holds for them.
The first thing, of course, is that regulation will now come to the crypto industry in double-quick time. It is worth comparing and contrasting the differences between FTX and Lehman Brothers, the bank that became synonymous with the 2008 financial crisis.
Lehman was highly regulated, its officers were properly vetted and played by the rules – so much so that, in the end, pretty much everyone received all of their money back. FTX, despite claiming to be highly regulated, was no such thing and what the company called ‘regulation’ was just a label it managed to apply in different jurisdictions to trade.
Allied to this was the fact that it appears that no-one was actually overseeing very much within the company. In fact, some of the actors involved were previously tainted from being involved in a gambling scam.
The list of misdemeanours is breath-taking – not least the fact there was software in the system that allowed Sam Bankman-Fried to move assets around without anyone else knowing. The new FTX boss, John Ray – who oversaw the Enron bankruptcy, no less – has said he has never seen such a lack of corporate governance.
It seems those in a position to do so were able to more or less take anything they wanted out of the company. Corporate governance within crypto firms looks likely to be a subject of much greater scrutiny in the future.
The price of many cryptocurrencies has fallen significantly on the back of the revelations about FTX, and markets remain volatile. The next biggest foreseeable event coming down the track that could affect prices is the Bitcoin halving in the early part of 2024.
For those unfamiliar, the Bitcoin halving is when the algorithm halves the reward for being a node (i.e. a computer in the blockchain) and completing a block.
In 2024 it will drop from the present 6.25 Bitcoin per completed block to just 3.125. This halving will continue until the reward is infinitesimal in about 120 years – at which point all 21 million Bitcoin will have been mined. This is deflationary as there are fewer and fewer Bitcoin being added to stock.
But now look at this chart:
Notice anything? The pattern repeats every time. Ignore the actual numbers, concentrate on the shape of the graphs.
In very rough terms, if you take the day of the halving and look at the next 15 to 18 months, Bitcoin climbs and creates a new all-time high. For the following 12 months, with various ups and downs, the price drops until an equilibrium is reached and then for the next 15-18 months it starts to climb again to the halving. At which point, the cycle repeats.
Now, past performance is no guide to future returns. However, as the chart above suggests, history does have a tendency of repeating itself.
The same applies here. What has happened in previous cycles is a pretty good pointer. Cathy Wood of Ark certainly seems to think so, as she has been adding Bitcoin and upping her fund’s stake in crypto-related assets at present levels, and so have many others.
People have been asking me about whether now is the time to buy and, although I cannot and do not give financial advice – and there may still be some horrors to come – I’m sure in two years’ time we will look back and wonder why we didn’t do something in the current situation, rather than merely waiting.