Crypto Benefits Lose Their Appeal
Are cryptocurrencies preferable to the current monetary systems in place? Crypto advocates claim that these blockchain superstars will render old currencies obsolete. While cryptocurrencies are decentralized and bear no nationality stamp, many of the other advantages have proven fleeting. They list the benefits of crypto: decentralized, immune to inflation, no national borders to contend with, faster transactions, more secure, etc. Major hacks and losses have occurred, proving that their security is not impenetrable. No matter what symbol your currency displays, inflation always causes you to spend more money.
Furthermore, the speed benefit has been nullified by the availability of instantaneous transactions with all currencies through money transfer apps like Venmo, and it is challenging to use cryptocurrency at most merchants. All of that might not deter cryptocurrency supporters, but recently one of their main pillars has crumbled: the idea that being decentralized and apart from the world's national financial systems is a distinct advantage. Contrary evidence has recently emerged from the crypto markets.
Banking versus cryptocurrency
Have you deposited your money in a U.S. bank in dollars? Your deposits are protected by the FDIC from losses due to bank failures and other events. You want a portion of those dollars? You can easily withdraw or transfer money at the bank. Is that bank a viable one? The Office of the Comptroller of the Currency (OCC), as opposed to crypto vaults and exchanges, has the authority to take enforcement actions for violations of laws, rules or regulations, final orders or conditions imposed in writing, unsafe or unsound practices, and breaches of fiduciary duty by parties connected to institutions. In other words, even though banks may experience financial difficulties, bankruptcy is uncommon because the OCC makes sure banks maintain adequate cash reserves. The federal government also acts as a monitor to stop money from being utilized for nefarious activities like money laundering or support for terrorism.
This brings up digital money, cryptocurrency hedge funds, and digital currency exchanges. A number of bitcoin investment companies, most recently Three Arrows Capital, have failed as a result of the current slump in cryptocurrency values. Last week, this hedge fund filed for Chapter 15 bankruptcy. It had defaulted on a $667 million load to Voyager Digital only a few days prior. Other cryptocurrency businesses have experienced issues as a result, notably lenders from whom the hedge fund borrowed substantial sums.
What if you obtained your money via cryptographic safes? The initial reduction in Voyager Digital's withdrawal caps was from $25,000 to $10,000. Even worse, Voyager has now temporarily banned trading, deposits, and withdrawals on its site (does your bank put limits on how much of your cash you can have?). Vauld, a cryptocurrency lender, is the most recent victim, announcing on Monday that it has suspended withdrawals, trading, and deposits. However, Bancor hasn't restricted withdrawals from any accounts despite announcing in June that it would stop one of its investor safety mechanisms. On June 23, CoinFlex stopped allowing any withdrawals.
Key Takeaway
Is the latest meltdown simply the weaker cryptocurrencies being shaken out, or is it a sign of things to come? All investments carry some level of risk, so use caution. But it's clear that all the hoopla around cryptocurrencies' benefits, which seem to be nearly invincible, isn't true. Most importantly, cryptocurrency hasn't yet developed into a secure, well-liked method of trade because there aren't any laws in place to protect your money or control crypto exchanges.
