Offchain: A Matter of Speculation

The savage nature of the crypto crash offers a stark warning about the dangers of rampant speculation. But is it a necessary evil?

The details of the 3 Arrows Capital collapse has made for riveting reading. A recently released 1,100-page auditor’s report revealed a world of mansions, US$50m yachts, loans being taken out to pay margin calls on other loans and, at the end of the rainbow, around US$3.7 billion in debt – two-third of which appears to be owed to Digital Currency Group, the company behind troubled crypto lender Genesis and the mighty Grayscale Bitcoin Trust.

It’s testament to the arrogance and avarice of not only 3AC themselves – pro tip: when you’re hundreds of millions up it’s time to ease off the leverage, not vice versa – but also of all those doing business with them, blinded by an “up only” mentality that spurred them to ignore the possibility that a downside might actually exist.

This is what unhinged speculation looks like and it’s a pattern humanity has played out again and again and again. We are, at the base of it, greedy monkeys. The question is: what does crypto stand for with the speculation stripped out?

It’s databases all the way down

Peel back the hype and bluster and crypto is basically a bunch of glorified databases. Sure they’re databases that can self-verify their contents and be shared between people all over the world, but they’re still repositories of numbers being transmitted from one place to another.

Talk about crypto as building a new protocol layer for finance or the internet and, I dunno, it’s hard to imagine anyone outside of a very particular subset of the computer engineering world giving much of a damn.

But crypto was never just about that. Money is built into its DNA; the ability to move money quickly, easily and seamlessly has been the primary selling point for most of crypto’s history. Talk to BitMex founder Arthur Hayes and he’ll tell you that Bitcoin is the last pure money market on Earth.

The result has been a decade-long speculator’s paradise (and/or hell).  The barrier to entry for both builders and investors has never been lower. The volatility is wild, the returns eye-watering and the losses devastating. Money and ideas move at relativistic speed.

It mightn’t be pretty, but the sheer giddy chaos of it all has made crypto enticing to tens of millions of people. It’s hard to imagine we’d be paying this much attention to some distributed databases if we didn’t have our own financial stake in the outcome.

But for most emerging technologies, money comes at the end of that decade, not the beginning. At the beginning crypto’s tech drove the money. Is the money now driving the tech?

There’s gold in them thar hills

The Wild West of finance is crypto’s great cliché of itself. It’s usually invoked in reference to crypto’s seeming lawlessness and anything goes ethos – just replace opium and brothels with memecoins and 1,000% APY food-themed DeFi lending protocols.

But the Wild West was, in essence, a speculative mania of its own, where a rush for gold and verdant farmland made and destroyed fortunes, while simultaneously shaping the economic geography of the world for centuries to come.

Crypto’s speculative mania may have finally overstepped itself. Too much money is at play and the collateral damage has grown too large. (The collapse of Celsius is likely to leave its retail customers shouldering billions in losses). The long arm of the law is coming.

Speculation bought crypto the time, resources and interest it needed to prepare itself for the main stage. Soon we’ll start finding out if it took us the right way.

Luke from CoinJar

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