This discussion post was previously published in Finansavisen. We reproduce the post with permission from Robert Næss.

Ten Reasons Why Crypto Has Failed

The year 2022 has shown that crypto is the emperor's new clothing and barely enough so. Here are ten reasons that prove crypto has failed.

1. The New Gold

In troubled times, bitcoin was supposed to be the new gold. That is, something that protects you from falls in the financial markets. This year, stock markets have fallen by 20 percent and bitcoin has fallen three times as much by a whopping 60 percent.

2. Inflation protection

What is often considered bitcoin's main strength is that the number of coins is predetermined so that inflation will be avoided in the years ahead. When traditional financial markets are shaking due to high inflation this should be a period where crypto shows the way. After all, that hasn't happened. In the crypto world, we have had the deepest crisis ever.

3. “As safe as the bank”

Bitcoin came just after the financial crisis as a counter response to faltering banks. This year, a number of crypto institutions have gone bankrupt. In just two of these, Voyager and Celsius, more than five million customers have lost large portions of their crypto wealth and there is no bank hedge fund to help them.

4th. “Piggy bank managers”

Several of the crypto giants described traditional bank managers as pigs. But this year, we've seen behavior from crypto bank managers that we haven't seen in a hundred years in traditional finance. Do Kwon who led Terra and sent the stablecoin Terra into zero is under investigation for running off with values for a three-digit number of millions.

5. The Heroes Who Faded

Su Zhu and Kyle Davies of the hedge fund 3AC were seen as the most successful traders in crypto. But after a few months of headwinds, they were undressed and the house of cards unraveled. After the collapse, they have gone into hiding and are under investigation. By the way, Su Zhu had time to order a yacht for half a billion kronor just before the collapse

6. The Stable Coins That Collapsed

Stablecoins are coins that should be both digital money and at the same time completely secure. One of the biggest was Terra's stablecoin. It was tied to an underlying cryptocurrency and, using ingenious calculations, was supposed to hold its value at one dollar. Creating a stable value against the backdrop of an airy cryptocurrency is inherently unnatural and it went as it should; this spring it all collapsed and over 400 billion kroner worth of assets were lost in a matter of days.

7. The digital banks that were robbed

To take advantage of all the amazing opportunities in decentralized finance, cryptocurrencies must sometimes be stored in digital money bins, so-called crypto bridges. They were supposed to be sure, but they haven't been. The most publicized was the looting of Ronin, where some people brought with them six billion kronor worth of assets. But there were several before and many after. Just over a week ago, Binance itself was robbed of $1 billion. According to Chainalytics, there are well over twenty billion dollars that have been stolen in this way this year. Very few have been caught and Chainalytics has indications that the state-funded IT hackers in North Korea have escaped by more than half. That's welcome revenue, after all, for a country where official export earnings are only a fraction of that.

8. Regulation

Many view crypto as the hippie movement of the financial world. It'll probably end soon. In the US and in Europe, there is a lot of regulation on the way. Now it is no longer allowed to hide transactions using the Tornado Cash service and in Europe one must gradually document the crypto holdings so thoroughly that in practice it becomes difficult to use crypto as a means of payment

9. The Art Hype That Swallowed

Last fall, everyone was supposed to have digital art (NFT) and more people were supposed to pay millions of dollars for a digital drawing of a monkey. This year, turnover and value have collapsed.

10. It does not help to introduce bitcoin as official currency

Just over a year ago, El Salvador introduced bitcoin as its official currency. They quickly gained several million users. After all, users were paid $30 to use it. But once they had used up the free money, the interest extinguished. President Nayib Bukele himself had faith in bitcoin and used one billion of the treasury to buy bitcoin. It has made the poor country even poorer and now the effective interest rate on the national debt has jumped from six to thirty per cent in just over a year.

It is often smart to buy things that have become cheaper. If the price has fallen and the underlying value is the same one can make a good purchase. But in some cases the value has fallen for good reasons. That's the case with crypto. These ten points show that crypto simply does not work and then the downside is still significant.

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