32 billion dollars was FTX’s valuation in January of 2022.
400 million raised.
1.8 billion was raised in total.
1.2 million registered users as of September 2022.
FTX has now ten months later filed for bankruptcy, had a 515 million dollar hack, and lost over 1 billion dollars of clients’ money, where hundreds of thousands are at risk of losing some or all of their money.
Before diving into what went wrong with FTX, it’s important to look at why this might be the case that bitcoin and cryptocurrency as a whole aren’t that novel of an idea.
46 million Americans own bitcoin, making up 22% of all adults.
$23 is the cost of doing any transaction in bitcoin, due to the low efficiency of the blockchain.
$56 was high in 2021, showing this cost changes heavily.
This makes it impossible to do smaller transactions with bitcoin or other popular cryptocurrencies off of the blockchain. In fact, a transaction would have to be over $800 currently to compete with the costs of PayPal or a traditional bank.
Due to this inefficiency in Blockchain, well over 90% of crypto holders rely on third-party groups such as FTX.
Coinbase-73 million users
Crypto .com-70 million users
Binance-29 million users
These third-party groups have transaction rates that average .5-4%, which are the same as a normal bank, which stores crypto, and transfers it not involving the blockchain, similar to how any bank or financial firm would transfer currency/stocks.
This makes a case that crypto is useless.
It is expensive to transfer.
It has most users operating with a centrally run system.
It has the same vulnerabilities to fraud as banking.
The only difference is it’s easier to hack, whereas banks do keep some physical cash on hand and have the rest stored in value from assets in the form of loans.
This case is why I don’t really believe there’s a future for crypto, but back to FTX, it’s pretty simple.
1 billion dollars was Coinbase’s revenue in 2017.
520 million was the 2018 revenue.
Coinbase fell 60% short of revenue expectations that year, due to price and the bubbles.
December 2017, $13,062 was the average price of bitcoin.
$3,689 was the price average for December 2018.
A 72% drop in a period of 12 months, which caused wallet creation to drop, as well as trade activity.
That could be okay, but the problem is trading activity is only high when a bubble happens. The rest of the people store the money, and keep it there, which means security risks still happen and the companies are sitting there waiting for another bubble after they spent hundreds of millions expanding their teams, marketing, and more.
This is why FTX failed.
If Bitcoin could constantly grow, it’d be fine, but it’s in a bubble, so it’s not going to.
Some people are hoping for a 2023 bubble, but my gut feeling is we’re going to start seeing a crypto end. We might get a couple more bubbles over the next decade, but the rushes won’t have the power/get rich quick returns of 2011, 2013, 2017, and 2020/2021. This crowd of investors won’t wait five years for a hope of a 3-month window at a 30% return.
And the final point, the marketing for all these companies is so shady, it’s not even funny.
Every time I see a crypto ad during a boxing match or a generic hot girl promoting one on Instagram, it just reminds me of the strip mall stock exchange in Wolf of Wall Street, bragging about how they scam postal workers by putting ads in the back of Hustler. That’s bitcoin!
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