Jordan Belfort.
Robin Van Lonkhuijsen/AFP via Getty Images
This article originally appeared on FN London.
Critics of the cryptocurrency industry have long said that Bitcoin and other digital assets are barely discernible from a Ponzi scheme.
Is that fair? Yes and no.
Some recent headlines surely don’t help crypto’s image. Take Jordan Belfort, a convicted felon whose penny-stock scams were dramatized in the movie The Wolf of Wall Street.
On April 15, The New York Times reported that Belfort held a crypto and NFT workshop in Miami earlier this month, charging one Bitcoin to attend, roughly equivalent to $40,000.
That’s a sharp change of tune from 2017, when Belfort called Bitcoin a “huge scam.”
Belfort, like so many others, might have experienced his own share of FOMO when he spotted the growing flood of money flowing into the sector, the flashy startups, and the big hires from the banking and legal worlds.
Meanwhile, the sector is fending off not just verbal onslaughts, but real ones too. In one of the biggest heists in the crypto industry’s history, a startup that operates an online game called Axie Infinity said last month that hackers stole $540 million worth of cryptocurrency. Crypto exchange Currency.com said on April 17 that it had also been the target of a cyber attack that eventually failed.
Fans of Bitcoin and other digital currencies tout their long-term value and say they are a haven asset like gold, protecting against inflation. But time and again, crypto markets have tracked high-risk tech stocks.
To many pro traders and investors, crypto is a punt—a fun-to-have, not a need-to-have. As central banks including the Federal Reserve warn that another round of rate hikes are coming, crypto has come under pricing pressure. Crypto exchange Coinbase on April 14 saw its fourth-largest day of Bitcoin net outflows on record.
Crypto proponents like to point to the financial crisis of 2008, noting that traditional finance, or “tradfi,” is hardly squeaky clean. Legacy institutions including Barclays, Credit Suisse, Deutsche Bank and Standard Chartered have all paid fines for infractions ranging from money laundering and sanctions violations to tax fraud since.
And pump-and-dump schemes are nothing new. Just like with fiat money, scammers and grifters are eager to prey on the latest investment hype.
But such arguments are hardly an advert for crypto.
As the industry develops, Wall Street is dipping its toes in, offering derivatives and other digital asset instruments for clients. But it seems more and more that it is the underlying tech that Wall Street is after.
JPMorgan built its own payments and digital-assets unit without Bitcoin or other common cryptocurrencies. And Jan van Eck, the head of the eponymous asset manager that offers crypto exchange traded funds, holds the view that blockchain technology “will completely revolutionise” the financial world.
That can be true with or without the digital assets themselves.
The industry sooner or later faces a reckoning if that is the case.
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