I read a long Bloomberg article about cryptocurrency last night and I think I understand how the crypto economy is thriving in spite of all the corruption and nonsense involved. The answer is gambling – people love to bet, and the crypto markets have become the equivalent of unregulated dog races held a billion times per day.
There are professional
investors gamblers who have made billions in the market, mostly by creating the very infrastructure that all the rubes use to invest gamble. The article I read was about the founder of FTX, Sam Bankman-Fried, a very interesting billionaire. Fried made his first millions by noticing that Bitcoin was consistently worth 10% more on Japanese markets than on US markets. It isn’t unusual for currencies to have slightly different values at the same time in different regions or markets, but it’s usually a penny or a tenth of a penny. A 10% variation is a gigantic arbitrage opportunity. So Bankman-Fried set up a system where his company bought bitcoin in the US and sold it in Japan, daily. Take $1000, multiply by 1.1 every day and at the end of 90 days you have $4.8 million. After 6 months you have $23 billion! (Illustrates the power of geometric growth.)
Eventually the US-Japan arbitrage window was closed, but Bankman-Fried created hundreds of new betting opportunities with his second company, FTX. It’s ostensibly a crypto exchange, but in reality it’s a virtual world betting platform. Buys and sells, options, futures, swaps, complex derivatives…bets can be placed on every cryptocurrency combination imaginable. It’s a 24×7, lightly regulated virtual currency
trading betting platform. And that’s what accounts for the growth in crypto – the desire of the masses to bet.
I have a lot of respect for Bankman-Fried and what he’s done, the genius in how he’s done it, plus more respect for his philanthropy. We need more entrepreneurs like him.