Cryptocurrencies II: Last Week Tonight with John Oliver (HBO)

The Rise and Fall of Cryptocurrency: A Look at Three Major Collapses

Cryptocurrency has been a hot topic in recent years, with many people jumping on the bandwagon in hopes of striking it rich. However, as we’ve seen with the collapses of Terra, Celsius, and FTX, investing in crypto can be a risky endeavor. In this article, we’ll take a closer look at these three major collapses and explore the lessons we can learn from them.

The Terra Debacle: A Shaky Foundation

Terra, a cryptocurrency launched in 2018, promised stability in an otherwise volatile market. Its founder, Do Kwon, exuded confidence and convinced many investors that Terra was the future of digital currency. However, the company’s business model was questionable at best. Instead of backing its stable coin, UST, with actual dollars, Terra tied its value to another coin, Luna, which it had also created. This convoluted system raised red flags among analysts, who warned of the vulnerabilities inherent in Terra’s approach.

Despite the skepticism, Terra gained traction and even secured partnerships with major organizations like the Washington Nationals. However, in 2021, the company nearly collapsed. Panic ensued as both Terra and Luna holders started selling their coins en masse, causing their values to plummet. The implosion wiped out billions of dollars in value and left Do Kwon facing charges in multiple countries.

The Downfall of Celsius: A Betrayal of Trust

Celsius, one of the largest crypto banks, positioned itself as a friendlier alternative to traditional banks. Its founder, Alex Mashinsky, claimed that banks were not to be trusted and that Celsius would act in the best interest of its customers. Mashinsky’s charisma and promises of high-interest rates on deposits attracted many investors. However, it was later revealed that Celsius was engaging in risky lending practices and using customer funds to pay the yields it had promised.

The company even minted its own coin to inflate its balance sheets, a move that employees described as fraudulent. When Celsius eventually collapsed, customers found themselves unable to withdraw their funds due to the company’s legal loopholes. While Mashinsky and Celsius have not faced criminal charges, the collapse of the company left many investors disillusioned and betrayed.

The FTX Scandal: A House of Cards

FTX, a crypto trading platform, marketed itself as an easy-to-use exchange where users could buy and sell cryptocurrencies like stocks. With endorsements from celebrities like Steph Curry and Tom Brady, FTX gained popularity and held conferences that attracted big names in the industry. However, beneath the surface, FTX was a house of cards built on deception.

FTX’s founder, Sam Bankman-Fried, used his hedge fund, Alameda, to manipulate the price of FTX’s own coin, FTT. He created fake money, inflated its price, and then borrowed real money against it. Additionally, he used customer funds to finance his hedge fund’s operations. When FTX collapsed, it was revealed that the company had poor recordkeeping practices and relied on emoji approvals for millions of dollars in expenses.

The Lessons Learned and the Future of Crypto

These three collapses highlight the dangers and risks associated with investing in cryptocurrency. While some may argue for increased regulation to prevent such scams, it’s important to consider the unintended consequences. Regulation may give the crypto sector more legitimacy, but it could also entice traditional banks to get involved, exposing investors to even more volatility.

It’s crucial for individuals interested in crypto to do their own due diligence and never invest more than they can afford to lose. The current crypto landscape is akin to a casino, and caution should be exercised. While the future of cryptocurrency remains uncertain, it’s essential to approach it with a critical eye and a healthy dose of skepticism.

Frequently Asked Questions

1. Is cryptocurrency a safe investment?

Investing in cryptocurrency carries inherent risks. The market is highly volatile, and scams and collapses, as seen with Terra, Celsius, and FTX, are not uncommon. It’s crucial to thoroughly research and understand the risks before investing in crypto.

2. Should I trust crypto banks?

Crypto banks, like Celsius, may promise high-interest rates and a friendlier approach than traditional banks. However, as we’ve seen, they can also engage in fraudulent practices and betray the trust of their customers. It’s important to exercise caution and skepticism when dealing with crypto banks.

3. What can I do to protect myself when investing in cryptocurrency?

When investing in cryptocurrency, it’s essential to do your own due diligence. Research the company or platform thoroughly, understand the risks involved, and never invest more than you can afford to lose. Stay informed about the latest developments in the crypto world and be cautious of unrealistic promises or guarantees.

4. Is regulation the solution to preventing crypto scams?

While regulation may provide some level of protection, it’s important to consider the unintended consequences. Increased regulation could give the crypto sector more legitimacy, but it may also attract traditional banks and expose investors to more volatility. It’s a complex issue that requires careful consideration.

5. What does the future hold for cryptocurrency?

The future of cryptocurrency remains uncertain. While it has the potential to revolutionize the financial industry, it’s important to approach it with caution. As the market evolves and matures, we may see more stability and legitimacy, but risks will always be present. It’s crucial to stay informed and make informed decisions when dealing with crypto.