Is Crypto Just a Solution in Search of a Problem?
FTX executives are testifying about the massive crypto fraud committed by former CEO Sam Bankman-Fried, leading some to question the legitimacy of the entire industry. In an opinion piece for the Wall Street Journal, Adam Lashinsky argues that cryptocurrencies have failed to fulfill their promises and can be dismissed as “a solution in search of a problem.”
“More than a decade after cryptocurrencies were launched, the promise of these alternative currencies has amounted to little more than broken dreams. At some point, regular people need to start using them, which most certainly isn’t happening with crypto.”
Data from Statista reveals that only 16% of the US population owns or uses cryptocurrencies as of 2023, despite Bitcoin being around for 14 years. However, developing countries like Nigeria (47%), Turkey (47%), and Argentina (26%) have higher adoption rates due to crypto’s potential as an investment opportunity and protection against local currency devaluation.
Renowned investors such as Paul Tudor Jones and Bill Miller have compared Bitcoin to “digital gold” and believe it can serve as an inflation hedge due to its limited supply. Even Blackrock CEO Larry Fink, who was once skeptical of crypto, now sees it as “digitizing gold” and recently filed for a spot Bitcoin ETF in the US.
The Lack of Inherent Value
Lashinsky challenges the notion that cryptocurrencies have inherent value, echoing sentiments expressed by central banks like Canada’s Bank and England’s Bank, who argue that Bitcoin’s volatility makes it an unreliable inflation hedge. They also warn investors about the potential for total loss. European Central Bank chief Christine Lagarde even stated that cryptocurrencies are “worth nothing” in 2022.
Cryptocurrencies were also touted as a solution for cheaper cross-border remittances, but Lashinsky claims this promise has not materialized. In 2021, less than 1% of global remittance volume involved digital currencies.
Lashinsky concludes that cryptocurrencies are merely a concept existing in the digital realm and hold no tangible value. Once you turn off your computer or phone, you can’t even physically see them.
Hot Take: The Future of Crypto
While critics like Lashinsky question the purpose and value of cryptocurrencies, it’s important to recognize that adoption rates vary across different regions and demographics. The potential for crypto to serve as an investment alternative and store of value is evident in countries facing economic instability. Additionally, technological advancements and increased regulatory clarity may address some of the concerns raised by skeptics. As the crypto industry continues to evolve, it remains to be seen how it will overcome its challenges and find widespread acceptance.
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