November 25, 2022 | As we watch the collapse of the offshore crypto empire of Sam Bankman-Fried and FTX, America’s consumer obsessed media will focus on the victims of the fraud. Long, sympathetic feature pieces will be published in the NY Times and Washington Post about the victims. Tears will be shed. Yet the bigger picture beckons.
Despite all the hyperbole, the great crypto fraud was an insignificant game, like the small stakes poker many crypto enthusiasts share as a common background. Crypto was the aspirational nonsense atop the fringe of nonbank finance, enabled by techno hype and encouraged by the Fed’s decade long pursuit of higher inflation. Unbridled speculation in crypto (and money laundering) was one of the downsides of quantitative easing but certainly not the only or largest negative impact of QE.
Now that the “commoditized fraud” of crypto, to quote one observer, has met the proverbial kitchen torch of rising interest rates, we can turn our attention to the true message of the collapse of the broader sector of new technology: Fintech is dead and mainstream nonbank finance is an endangered species as interest rates rise and originate-to-sell loan volumes fall.