Even by the extreme standards of volatility, commentary, and newsworthiness of the crypto space, the last week has been remarkable - and sadly, not for good reasons. The collapse of FTX and Alameda Research, while just the latest in a string of widely visible crypto-finance scandals, generally seems to be viewed as a shocking new low for a sector that has had a controversial reputation since inception. Look no further than this piece in The Atlantic; it is direct, judgmental, and unstinting in declaring crypto - finally, for real - to be over. The title alone (“You Can Forget About Crypto Now”) says it all. And in fairness, with FTX’s insolvency pulling over 100 companies into some kind of receivership and what appears to be illegal use of customer funds as well as poor asset diversification, the criticism is understandable.
It is in these times when we must take a step back, review the events, and give an honest assessment of what this means for the future of the sector. Our own Sam Peurifoy does a typically thorough job of explaining a more measured and longer-term view. As we echo elements of his analysis here, it’s worth repeating that we condemn all the same issues cited in The Atlantic - and in particular the further erosion of trust. Trust sits at the core of finance. Financial markets - whether on chain and decentralized, or off-chain and centralized - run on trust. Even so-called “trustless” aspects of the blockchain embed the concept by implication. When dominant people and companies betray that trust, it’s a problem for the entire market and all its participants.
At the same time, while the fallout will no doubt continue for some time and ensure that skepticism also persists, in Hivemind’s view, it’s always wise to avoid throwing out the baby with the bathwater. Contrarian though it may be, we remain advocates for the crypto market. In reality, this kind of disaster, avoidable and unacceptable as it is, may be the catalyst needed to refocus on building once more. Failure is as central an attribute of markets as is trust - and the resilience of an ecosystem and market in the face of failure, whether of ethics or competence or both, is essential.
While many will state firmly that FTX sounds the death knell for institutional-grade crypto, we couldn’t disagree more. If anything, it may accelerate the maturation of the space. This is small comfort to the hundred-plus companies, thousands of employees, and tens of thousands of investors impacted by the apparent greed and incompetence of a handful of bad actors. But the overall structural opportunity here in our view remains powerful.
While investment in the space has been slowing recently, billions of dollars were still put to work over the past year, funding thousands of initiatives and builds that have yet to come to market. As dismaying as the current situation is, and as likely it is that the FTX situation causes an unfortunate extension of this “winter”, the reality is that the underlying, multi-faceted utility of blockchain technology simply isn’t implicated here.
What appears to have happened at FTX - misuse of customer funds, over-concentration of related-party assets, and aggressive competitor opportunism - is in no way native or unique to crypto. Indeed the various analogies in market commentary to situations at Lehman, MF Global, and Enron underscore that point.
This is one of the reasons that Hivemind has built itself from the ground up to combine the best of mature, institutional-grade risk management, governance, custodial and due diligence procedures informed by deep technology expertise. Web3 and digital assets are different from traditional financial markets - but that difference should never translate into a lack of governance, tested experience, or risk management. The debate over centralized finance vs. decentralized finance deserves to continue, and the investment community’s ability to innovate on top of a genuinely useful software protocol can, over time, still create tremendous value.
The adage "not your keys, not your coins" is axiomatic to crypto participants. Unfortunately, the dream of a fully decentralized trustless environment is harder to realize than it is to say, and there is always the real-world challenge of a $5 wrench attack which must be addressed. This is a painfully significant speed bump that will reverberate for some time; however, we remain committed to redoubling our efforts in investing to shape the ecosystem and provide a robust path for institutional capital to access digital assets when they are ready.