Crypto Is Better – Until It’s Not
Are cryptocurrencies better than the monetary systems we now have in place?
In the view of crypto supporters, these blockchain stars will render traditional monies obsolete. They reference crypto’s strengths: decentralized, resistant to inflation, no national boundaries to contend with, speedier transactions, safer, etc.
Although cryptocurrencies are decentralized and bear no nationality stamp, several of the other strengths have been temporary. There have been huge hacks and losses that inform us their security is not impenetrable. Inflation isn’t concerned with what icon your money displays – if prices increase, you’re spending more. And money transfer apps like Venmo enable instant transactions to occur with all currencies, so that speed benefit has been erased, and also it’s hard to spend crypto at most stores.
All of that might not sully boosters on crypto, but recently another pillar these currencies have stood upon has been knocked out from under them: The idea that being decentralized and not included within the world’s national financial systems is a particular strength. The recent meltdown in the crypto markets indicates otherwise.
Banks And Money vs. Crypto
Keep your money in U.S. dollars in a U.S. bank? Well, the FDIC protects your deposits in case of bank failures and other losses. Need some of those dollars? Go to the bank (or its web portal) and withdraw or send money without an issue. Is that bank solvent? In contrast to crypto exchanges and vaults, there’s the Office of the Comptroller of the Currency (OCC), which can take enforcement action for unsafe or unsound practices, violations of law, rules or regulations, final orders or conditions imposed in writing; and breach of fiduciary duty by institution-affiliated parties.
In other words, while banks can have financial difficulties, bankruptcy is exceptional because the OCC makes certain that banks function with adequate reserves of money. The Federal government is also a watch dog to avoid money from being utilized for illegal activity, like terrorism or laundering.
This leads us to cryptocurrencies, crypto hedge funds, and crypto exchanges. The recent price crash in cryptocurrencies led to the failure of several crypto investment companies, the most recent being Three Arrows Capital. Last week, this hedge fund had filed for Chapter 15 bankruptcy. It had defaulted on a $667 million load due to Voyager Digital just days earlier. This has triggered crises at other crypto companies, especially lenders from whom the hedge fund took massive amounts of money.
What about withdrawing your money from crypto vaults? Voyager Digital initially reduced its withdrawal amounts from $25,000 to $10,000. (Does your bank place restrictions on how many of your dollars you can have?) Worse, Voyager has since temporarily halted trading, deposits, and withdrawals on its platform.