Sam Benkman-Fried was recently sentenced to 25 years in prison. Fried managed the very successful Bitcoin hedge fund Future Exchange (FTX), which allegedly made his clients millions. However, he was suspected and convicted of stealing $8 billion from his clients. He was found to have transferred billions of client funds to Ef-Ti-Ex's sister hedge fund Alameda Research, in order to keep it solvent and line its pockets with client money.
Fried lived comfortably, spending more than $200 million on real estate in the Bahamas and speculative investments: “Sam Benkman-Fried perpetrated one of the biggest financial scams in American history – a multi-billion dollar scheme designed to make him the king of cryptocurrency. However, while the crypto industry and players like Frid might be considered new, this type of scam is as old as time", Manhattan US Attorney Damian Williams said after the verdict: "This case has always been about lying, cheating and stealing, and we will not tolerate it."
The prices of Bitcoin and other cryptocurrencies are currently experiencing tremendous growth. Reportedly, cryptocurrencies have now distanced themselves from their image of scammers, scams and rampant speculation, joining the "respectable part" of the financial world. The Frida case – along with a number of other such “Fridova” during the last decade of the rise of cryptocurrencies – has shown that this is a hoax.
I wrote about blockchain technology and crypto fever a few years ago. At the time, although Bitcoin was supposedly intended to reduce transaction costs in online payments and completely eliminate the need for financial intermediaries such as banks, I expressed my doubt that such digital currencies could replace existing fiat currencies and become more widely used in everyday transactions - as they predict their advocates.
In modern capitalism, money is no longer just a commodity, like gold, but instead "fiat currency”, expressed in coins or banknotes, or today mainly in the form of loans in banks. Such fiat currencies are accepted because they “by decree” issued by governments and central banks and because they are subject to regulation. In contrast, Bitcoin, which was conceived by the anonymous and mysterious developer Satoshi Nakamato just over ten years ago, is not limited to a specific region or country, nor is it intended for use in a specific virtual economy. Due to its decentralized nature, its circulation is largely beyond the reach of direct regulation or monetary policy and supervision that have traditionally been applied in some form to national private and electronic money.
For tech enthusiasts (and also those who want to build a world without state apparatuses and regulatory bodies) this all sounded exciting. Perhaps societies and people could transact without the dictates of corrupt governments and manage their incomes and wealth away from the prying eyes of government – it might even be the germ of a post-capitalist world that would know no states.
Such futuristic hopes have been dashed. Bitcoin's value, by definition, is not backed by any government guarantees. It relies only on “Code” and the consensus that exists among its most important “miners” and owners. As with fiat currencies, where there is no physical commodity that derives its intrinsic value from the time spent in its production, cryptocurrency depends on the trust of its users. And that trust varies depending on its price relative to a government-controlled fiat currency like the dollar. Its price is measured in dollars or in what is called a "stable coin", which is pegged to the dollar. Indeed, at the time of the explosion of the crypto-fever, the US dollar was increasingly entrenched as the world's main currency (67% of all settlements, followed by other fiat currencies such as the euro, yen and yuan).
Bitcoin's price, measured in fiat currencies like the dollar, has fluctuated wildly, but has recently risen to astronomical heights as the financial asset, in anticipation of falling interest rates and an economic recovery, has hit record highs. In fact, it is precisely for this reason that cryptocurrencies are no closer to achieving acceptance as an everyday medium of exchange.
So far their main use has been limited to speculation. They became another form of what Marx called "fictitious capital” – financial fiction for real value. Fried's case shows that nothing has changed since Marx wrote about “to the new financial aristocracy, a new type of parasite in the form of designers, founders and purely nominal directors; a whole system of subterfuge and fraud in regard to the establishment, issuance of shares and trading in shares". With the rise of fictitious capital "all standards, all bases of explanation that are more or less still justified within the framework of the capitalist mode of production disappear. […] Since property exists here in the form of an action, its movement and transfer become the pure result of a stock market game in which sharks swallow small fish and stock chickens eat sheep.".
The essence of crypto culture was summed up by a company run by Lord Philip Hammond, the former Chancellor of the Exchequer of the United Kingdom, sponsoring a party to promote cryptocurrencies where guests were served sushi from the bodies of two naked models.
Financial capital always shows ingenuity in inventing new ways to speculate and cheat. In the last 20 years, "financial fictions” are increasingly digitized (SPAKs, En-Ef-Tis). High-frequency transactions have been replaced by digital coding. However, these technological advances are mostly used to increase speculation in the financial casino, leaving the regulatory bodies behind.
Instead of protecting investors from these predatory crypto schemes, financial regulatory and enforcement bodies stepped in only when “the time has come to pick up the pieces and dig through the ruins of millions of wasted investments". Politicians, funded by crypto companies, helped prevent regulation. With each bill, the US Congress found itself at an impasse, as industry interests pressured it to systematize the existing state of loose regulation with clippings and loopholes: “The crypto industry claims this will allow for continued 'innovation' - despite the sector's lack of innovation so far, other than finding new and devious ways to rob people of their money".
However, regulation again failed to stop financial speculation, crashes and fraud: "Regulators and lawmakers failed to make any changes to protect the public in time, while allowing crypto companies to advertise and attract new customers who, in their quest to become the next crypto millionaires, seem far more likely to end up falling victim to yet another crash. How many people will have to lose how much money before we stop believing the lies of an industry that has exploited people's trust and hopes for financial miracles, only to crash them into the ground in flop after flop?"
Let's go back to Marx: "The two-sided character that is immanent to the credit system: on the one hand, to stimulate capitalist production, enrichment by expropriation of other people's work, develops into the purest and most colossal gambling and cheating system". Therefore, the financial sector continues as before, engaging in speculation, and the regulatory bodies do not and cannot prevent it.
The solution is not in regulation (before or after the event), but in banning the investment of fictitious capital. Shut down hedge funds, bitcoin exchanges, and exchange-traded funds. Instead, banking should be a public service for households and small businesses to collect deposits and make loans – not a service to fund a vast financial casino where criminals and fraudsters gamble away our livelihoods.
The Next Recession (respublicacasopis.net; translation: N. Bradonjić)
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