The effects of the situation with FTX are sending shockwaves through the cryptocurrency industry. It is hard to miss what is taking place. Billions are at risk with another firm looking like it is going to face bankruptcy.
We are seeing many people learning a hard lesson. Not your keys, not your coins is a saying that extends back to the earliest days of this industry. By trusting centralized entities, we enter counterparty risk to the equation. Repeatedly, we see this step up and bite people.
Storing coins and tokens on exchanges is a great way to get oneself in trouble. The laws concerning cryptocurrency exchanges is different as compared to, say, stocks. If a firm does go under, one becomes a plaintiff in the bankruptcy filing. He or she is no different than any other creditor. One's assets are for the court to decide. Do not believe you can withdraw them like you can from other entities.
Alas, we see people making the same decisions.
The challenge is that, when scanning the cryptocurrency headlines, we are led to believe that cryptocurrency is going away. Just like the Terra-Luna situation, the typical FUDsters are out in force.
For this reason, it is best to step back and ground ourselves. A bigger picture is always helpful.
This Is Not The End
As FTX continues to face implosion, the crypto markets are going for a ride with it. However, do not believe this is the end.
Market price is not reflective of what is going on with the industry. Instead, we have to focus upon what is being build as the answer to this chaos. That said, we can learn some valuable lessons from situation such as this. Apply the lessons and we will find ourselves in a stronger industry.
The main problem is the one we faced all along. Since the overwhelming majority of crypto participants only care about price, we are confronted with the fact that extreme greed is running things. This is evident at every level. People focus on price, deeming that the metric for all.
Lambos and mooning are still the primary focus. When taken to the level of these companies, we see how leverage and other risky behavior is undertaken in an effort to maximize returns.
In this regard, people are acting like bankers. That is the sole concern of these financial institutions, nuking the economy on numerous occasions without any penalty other than some fines. Remember, bankers never end up in jail. It is unlikely that crypto people will be so lucky.
Like storing digital assets on centralized exchanges is a lesson unlearned, the focus upon greed follows a similar pattern. We can only hope the masses start to understand the implications of their actions.
Nevertheless, do not believe for a second that this is the end of cryptocurrency. It is not even close. As long as there are some builders to fall back upon, we will see the industry grow.
Decentralization
We discuss the Eurodollar system and the blueprint it provides for cryptocurrency. Here we have a global system that operates outside the reach of any government or central bank. It was established by the banks as a way to get around the central bank system of money which was limiting on an international scale. Basically, where the system was constrained, the bankers developed around those flaws.
This is what decentralization allows. While the Eurodollar system is not open, it is decentralized. Ledgers are run by numerous participants around the world. We can think of this like a number of blockchains. While there is no overriding ledger, each maintains the information that is pertinent to it.
Notice how much of the disruption to the industry in terms of the headline trainwrecks all stem from centralized entities. This should be something everyone in cryptocurrency should be pointing out.
Like Mt. Gox, these companies will end up as a footnote in history. They will not take down the industry. Instead, it is simply a clearing out. There are many people who are watching this and taking note. Their role is to develop around this and that is exactly what they are doing.
Confidence comes from understanding the vulnerabilities that exist and how to protect against them. Decentralization is a powerful mechanism in this battle. It is something we touch upon consistently because it is the core of what is needed. We all know the dangers posed by the centralized financial system. Unfortunately, many were willing to adopt the same structure in cryptocurrency.
This is now biting us in the caboose.
Just Noise
Over the years, we will find this is just noise.
Think back to the bursting of the ICO bubble and the ending of that craze. Many thought it was the end. What ensued was more development that provided an even greater run going forward. This brought us concepts such as DeFi, NFTs, and DAOs. Unfortunately, these were infected with the greed factor, creating another bubble.
And so it continues.
With the clearing out of the excess, which is exactly what bear markets do, we see the builders still going forward. These are the projects that will be the next "winners" when the bull market takes over. Many will be amazed how they appeared suddenly, a reality that we know to be different.
Noise instills fear in people. It makes markets crash and puts participants on edge. The long run reality is that, if the industry survives, these periods only provide strength. Getting rid of the insanity is imperative.
There is no secret of how success is achieved in this realm. Those who allow outside noise to dictate what they do end up losing. It is really that simple. For those who are able to separate that from what is really taking place, and focus upon those projects that are building for the long term, it is rather clear where success comes from.
This is not rocket science. It does, however, require one controlling his or her emotions, something that is rather difficult for the masses.
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