50 cent performing in a Miami nightclub

Apparently the crypto boom has burst for the Miami nightclubs that prospered on the extravagance of crypto nerds who made and paid for their parties in bit coin.

The new partygoers were “95 per cent men, young . . . with a kind of nerdy style,” he said. “You couldn’t tell they had a lot of money if they were just walking around.”

A little more than a year later, the phones have stopped ringing after the collapse of Bahamas-based exchange FTX roiled the market and cast a pall over the industry. The crypto revellers frequenting Miami’s clubs have “completely disappeared”

It’s good to see that the FT can mix it with the rest of them, we all love a tale of hubris , from Dr Faustus to Bankman-Fried , history and the theatre have celebrated “epic fail”.

There will be many articles , books and I expect the odd play devoted to the failure of Crypto and it will be worth remembering that unlike Dr Faustus, who duped a few, there were and are millions of crypto-millionaires right now , wondering if the value of crypto will ever recover to make their new found wealth sustainable.

Certainly we will not mourn the loss of revenue of Miami nightclubs. Though we’ll miss stories of crypto nerds bathing in vintage champagne, there will be another bubble to burst.

This of course is a distraction from the main business. I had a warning yesterday from friend to this blog , Brian Gannon, who is wondering whether my linked in group should be advertising a conference debating the value of investing in Canadian Farmland.

I can think of no investment further from cypto, unless that land is underwater (see GlenGarry GlenRoss). The terrestrial investment become confused with the ethereal because it is “alternative” and this shows how hard it is for us to engage with “private markets”.

For FTX was attracting the institutional investors that manage our workplace pensions

Jon Cunliffe of the Bank of England, speaking to Warwick business school  said the (crypto) industry is not “large enough or interconnected enough with mainstream finance to threaten the stability of the financial system” but its links with traditional finance have been growing rapidly.

Cunliffe argued that it is time that crypto is bought into the regulatory perimeter. Others see this as recognising crypto currency for the opposite that it set out to be. Here the dictum is that crytpo is an outlaw and “to live outside the law you must be honest“.

Writing in his unhedged column, Robert Armstrong quotes Stephen Cecchetti and Kim Schoenholtz….

Just let crypto burn. Actively intervening would convey undeserved legitimacy upon a system that does little to support real economic activity. It also would provide an official seal of approval to a system that currently poses no threat to financial stability . . .

[regulation] will encourage banks both to purchase crypto assets and to lend against them as collateral, making the banking system vulnerable to plunging market values . . . new rules would lead to a migration of financial activity from traditional finance to the still less regulated, but newly sanctioned, crypto world . . .

I agree. Here the questions are “who is buying, what are they buying and where are they buying”. Sadly we cannot stop people from buying nonsense outside the regulatory perimeter – we are not going to regulate let alone shut-down the dark web.

The Elizabethans knew that necromancy was both evil and funny (Kit Marlow’s Dr Faustus is in its midst a bunch of gags). The FT sell copy , asking for spoof concern about Miami nightclubs. I write a blog about crypto as if I bought the stuff or write code. Those who have the perspective to comment are not the people who have been burned.

The alternative regulators to the Bank of England are the Wall Street trading platforms such as Jane Street.Bloomberg says of Jane Street

The more-than 2,000 employee powerhouse based in lower Manhattan is known among peers for its obsession with risk and preference for stealth. It digs into the health of trading partners, models potential catastrophes, autopsies losses and restricts staff from commenting publicly, because even that poses a danger.

Whether it be ETFs or crypto, any form of finance that depends on secondary or shadow banking gets the once, twice and thrice over from Jane Street and since the FTX executive were Jane Street alumni, they were taken seriously. But Jane Street didn’t invest in FTX and retains the reputation that FTX lost – as honest brokers.

Why I side with Robert Armstrong is that unlike Canadian Farmland – which is only too terrestrial, crypto assets have yet to define themselves in terms that most people can understand.

The securities/investment regulatory machinery has been developed to protect a bunch of stuff we have hundreds of years of experience with, and which has proven social value.

The Cecchetti/Schoenholtz insight is that we don’t even know if crypto assets are investment products at all, but if we regulate them that way, that’s what they will become, and as a result investor appetite for crypto risk will grow.

I will never go to a Miami nightclub, nor bathe in champagne. I might invest in crypto-currency as and when I understand what it does and how it helps. But I don’t want to be confused into thinking that all alternative assets are either good or bad because the good regulator loves them all. Everything is not “bright and beautiful” and so long as we have a regulator , I want a regulatory perimeter that leaves crypto outside and ensures that what is bought by people like me, is sold with a consumer duty .