Flames blaze in fire bowls, ice stocks rumble in their wake, lamps glow purple. Enthusiasts of cryptocurrencies and other crypto technologies will gather that evening at a beer garden in Munich. Wrapped in thick coats and hats, they treat the bankruptcy of FTX, the online exchange that speculated billions in their clients’ money, with mulled wine. Ever since FTX went down dramatically, everyone in crypto has suffered a loss of image. But the mood in the beer garden is despite a little ideological trench warfare – is Bitcoin the only real cryptocurrency or not? – quite well.
“I’m happy about FTX’s bankruptcy,” says Nicole Nowak. “FTT was a made-up token. We Bitcoiners have always criticized that.” FTX’s balance sheet has been embellished by large holdings of their local digital currency called FTT (more on that here). Bitcoin enthusiasts mainly criticize the expansion of crypto technology to many other complex cryptocurrencies, coins and tokens. The founder of the start-up Christian Adler defends the young industry: “No, FTX was not crypto, it was CeFi. They committed crimes.” CeFi is kind of a dirty word in the scene, it stands for “Centralized Finance”, which are centralized financial platforms like FTX. The cryptocurrency system is actually decentralized and proud of it – and yet players have settled here that act like exchanges and banks. This is suspicious for many crypto fans. When Adler calls FTX CeFi, he insinuates: Crypto technology is not to blame, only FTX scammers.
Christian Adler founded a start-up that builds “digital twins” of objects on the blockchain. For example, a bike pass with a serial number that can be used to digitally prove that a bike is yours. Even though investor sentiment has generally cooled, he says, “I feel as affected by FTX as any online retailer by the Wirecard scandal.” It means: a nice story, but which actually has nothing to do with me.
Blockchain is seen by its followers as the path to perfect money
The virtual cryptocurrency is not in the bank, but is listed on the blockchain: a non-manipulable digital repository that is always updated with special software on very many computers around the world – i.e. say decentralized. All computers “know” every change. This should be the string (chain) on tamper-proof data records. The blockchain is, in theory, the perfect proof of everything. Since money, to put it simply, is just the proof of a number in a directory, for example in bank accounts, blockchain is seen by its followers as the way to perfect money. It aims to make intermediaries, especially banks, superfluous.
He was only partially successful. Whenever crypto investments become suitable for the masses, intermediaries appear here too. They facilitate entry into the world. More recently, Sam Bankman-Fried was one of those with his FTX exchange. The 30-year-old used the money deposited by customers to be able to trade cryptocurrencies. He used it to fund his own speculative venture. When this came out, millions of customers withdrew their money. In November, FTX, valued at billions of dollars, collapsed. Bankman-Fried was arrested in the Bahamas and extradited to the United States with the first class action lawsuit filed. FTX – the three letters have become the number for the rise and fall of the crypto industry.
And now? For now it is winter.
Insiders call the crypto winter the phases in which belief in the great future of cryptocurrencies and coins wanes and prices fall. Which implies: Yes, it will be difficult, but spring always comes, and then the next boom.
Virtually all cryptocurrency prices have crashed. The market is down 70% from its peak a year ago. The Dax lost only 13% in the same period of crisis. Skeptics argue that this is not all a revolution in the financial system, but a pyramid scheme in which only those who quickly pass their numerical “values” to the next idiot at the highest level win.
Financial professionals here in the beer garden, who continue to rely on crypto, don’t want to hear anything about it. Beside the flames, the eyes of believers like Nicole Nowak shine. “Once I started looking into bitcoin, I couldn’t think of anything else,” she says. Interest is currently at an all-time low. “But we still believe in technology, bear market or not.”
Boerse Stuttgart even counts itself among the winners of FTX’s bankruptcy
Daniel Seifert is cold through the glass facade of his Berlin office. Before the video call, he put on his gray sweater with the C logo, he says. The C stands for Coinbase, and Seifert is the head of the Europe and Middle East region at the crypto exchange. His employer’s share price: down almost 90% in one year. He is already sobered up: “The FTX affair is a major setback for the industry. But you can only survive the crypto winter if you both warm up like a hot graphics card. As Seifert: “We could survive a very, very long crypto winter. We have already experienced four such cycles, which have been equally extreme in their eruptions.”
Coinbase is subject to oversight rules, unlike FTX founder Sam Bankman-Fried. Coinbase has a Bafin license like four other crypto platforms. You have to stick to the rules, otherwise there will be problems with the German state. A bank rush like with FTX, where all the clients want their money back but there isn’t enough money, that’s not possible, says Seifert: “We hold clients’ funds 1:1. Clients could withdraw everything , we would still be liquid.”
On the Stuttgart Stock Exchange, we explicitly count ourselves among the winners of the bankruptcy of FTX. It is one of the few exchanges that has ventured into cryptocurrencies. FTX’s collapse will not negatively impact crypto trading through the exchange’s Bison app, a spokesperson said. On the contrary: “Since the events surrounding FTX in early November, the increase in new users at Bison has been about 15% higher than the previous five weeks. Trading volume has increased by almost 100% since the beginning November compared to the previous five weeks.” The spokesperson also said, “FTX is a scam in appearance and this one is technology independent. Blockchain and individual cryptocurrencies have nothing to do with it.”
The position can also be heard at the Munich Crypto Meeting: FTX? Nothing to do with cryptography. However, this is only half true: FTX’s alleged billion dollar value was largely based on the FTT cryptocurrency invented by Bankman-Fried. When their value was publicly questioned, the house of cards came crashing down.
Even the pros haven’t forgotten the technology yet
Among those who got their fingers burned is the world’s most powerful wealth manager. Larry Fink shrugged when asked on a New York stage recently how much money his company lost in the FTX bankruptcy. $24 million is a “very small investment”. Fink is the head of Blackrock, the company holds nine trillion dollars in value for its clients. He still believes that blockchain is a revolution: “This technology will be very important.” And Wall Street bank Goldman Sachs checks which crypto companies are currently available for less. For comprehensive professionals, however, crypto represents only a fraction of their diversified portfolio. Many individuals who believed the promises made by crypto sellers lost their life savings this year.
There are also victims at the crypto meeting in the beer garden. “I also lost money on FTX. We all fell at the feet of Bankman-Fried,” says one participant. However, she does not regret quitting her job and is now fully dedicated to crypto. Next to her is Tung Nguyen-Khac. He is working on a computer game in which players are supposed to buy purely virtual clothes, which then “belong” to them and are stored on the blockchain. He says of crypto technology: “We have passed the point of no return.”