FTX collapse highlights the profound harms of cryptocurrency

The spruikers of cryptocurrencies — the politicians, the business geniuses, the “one in five Australians has bought crypto!” crowd in the media — have gone curiously quiet as FTX, once the most well-regarded cryptocurrency exchange, has imploded, sending $32 billion in valuation up in smoke and the value of bitcoin plummeting yet again. It has now lost two-thirds of its value since January.

There are a huge number of beneficiaries of these collapses — and the benefits will be all the greater if bitcoin falls further in value.

The biggest winner is the effort to control CO2 emissions and energy prices. As the Financial Times pointed out, bitcoin mining used to use around 0.5% of the entire world’s power output. But the lower the price goes, the less profitable mining becomes, reducing energy demand and CO2 emissions.

That’s good news at a time when global energy markets are experiencing turmoil as a result of the war in Ukraine.

It might also reduce demand for computer chips, another item the scarcity of which has played a major role in supply chain disruptions and inflation.

The collapse in bitcoin’s value is also the biggest crime-fighting outcome of recent years around the world. Cryptocurrencies are the lifeblood of the dark web and of the hacking world, and anyone holding substantial assets in crypto courtesy of criminal activities has suffered a major loss in wealth this year as a result.

Legitimate investors have lost a fortune as well, but they only did so as a consequence of ignoring a plethora of warning signs that cryptocurrency was a speculative bubble and that cryptofinance was a largely unregulated market populated by shonks and spivs — with the inevitable result of such markets. The lack of oversight by major institutional investors like Sequoia Capital, SoftBank, Temasek Holdings and BlackRock while giving FTX US$2 billion was astonishing. According to the BBC, Sequoia analysts happily signed off on an investment of more than US$200 million despite CEO Sam Bankman-Fried playing a video game throughout discussions.

That episode epitomises the profound dereliction of duty by major institutions in falling for the crypto scam — including Telstra here. Others, like the Commonwealth Bank, came perilously close before backing out at the last minute.

There has been literally nothing positive to emerge from cryptocurrencies — not in terms of financial markets, inflation, energy usage or carbon emissions. Those who spruiked them ought to be offering apologies for trying to encourage Australians to jump on a bandwagon to financial destruction.