From WSJopinion: What is the future of crypto? Students discuss the fallout from FTX’s meltdown in this week’s Future View column.
Currencies traditionally derive their value from two sources: the materials they are tied to and the organizations supporting them. The story of the U.S. dollar includes both sources. In the late 19th century, Americans debated whether the dollar’s value should be backed by silver or gold. The Federal Reserve was established in 1913 to manage the value of the then-gold-backed currency. In the 1930s it began shifting to a fiat currency, with the value backed solely by the prestige of the Fed.
And yet, while Sam Bankman-Fried’s corruption has exposed the dangers of an underregulated, centralized cryptocurrency exchange, the future of crypto is still hopeful. It’s a shame that FTX has caused public perception of crypto to crater, as there are many places in the world that desperately need it. Traditional financial and legal systems require an enormous amount of trust. This trust has been betrayed time and time again, from tame regulators to rogue central bankers to corrupt politicians. From Argentina to Venezuela, Turkey to Yemen, Britain to the U.S.
The selloff from FTX’s bankruptcy will force a reckoning. These assets already lack the benefit of speculative gains of cryptocurrencies and the reduced risk of traditional currency. In fact, some stablecoins have already started to drift below their face value after the selloff. With the perceived risk of these assets only going up, public-facing stablecoins may fall like a line of dominoes, undermining trust in the crypto system as a whole.
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