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Voices: As you mourn Lehman, spare a thought for crypto

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Everyone remembers where they were a decade ago, right? I'm not talking about the collapse of Lehman Brothers. I mean the Bitcoin white paper of Oct. 31, 2008.

It outlined a type of online peer-to-peer electronic cash that would bypass financial institutions, which the author blamed for abusing people's trust, creating credit bubbles, and charging big fees.

Ironically, Bitcoin and its hundreds of cryptocurrency imitators went on to show the world how to replicate the worst excesses of the financial system they were supposed to displace.

We have seen breaches of trust, from exchange hacks to elaborate scams, which have cost $2.3 billion over the past seven years, according to research firm Crypto Aware. We have observed painfully high and volatile fees dissuade merchants who had been told crypto was the answer to fat bank charges. And we have witnessed bubbles: at 80%, the peak-to-trough decline in the latest collapse exceeds that of the dotcom crash.

The expense ratios for these funds were closer to that of the average actively managed equity mutual fund.
September 12

There are obvious differences in terms of size and risk. Crypto is hardly systemic ― its total market capitalization has fallen from about $800 billion to $200 billion without triggering an economic crisis or requiring the intervention of central banks. Winding down Lehman's $600 billion balance sheet proved legally complex and painfully protracted.

But the $600 billion of value destroyed in crypto still blew a hole in individuals' savings, burned investors who were convinced this was a “new asset class,” and led to more reliance on centralized institutions ― the very thing Bitcoin was intended to discredit ― to clean up the industry.

Regulators are being called on to punish fraud; Wall Street is being pressured to sell crypto like a retirement product; once-hated investment banks are feted as crypto market-makers-in-waiting.

And just as Lehman's bankruptcy process hasn't quite finished, we haven't even conducted a full reckoning of where all the money in crypto has gone. There are 900 cryptocurrencies listed as “deceased” ― the investors who backed them have lost out, but the founders who raised the cash might still have walked away with the proceeds.

There are also still plenty of ICO firms selling crypto for cold, hard cash, keeping up pressure on prices. A review of a basket of such firms by research firm Diar this week showed their holdings of cryptocurrency Ethereum had dropped from an initial 9.7 million to 3.4 million, or $685.8 million, in September.

Bitcoins still exist, and change hands for about $6,200 apiece these days. Supporters will say that's six times more than the price in early 2017, and that there's no need to call an undertaker.

But something has died. We have seen plenty of glimpses over the past decade of a future where technology erodes banks' ability to make money ― just look at how the market value of payments firm Adyen NV's now surpasses that of Deutsche Bank. Yet those hoping that Bitcoin's 10-year anniversary would be much sweeter than Lehman's have been proven wrong.

Bloomberg News