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A “Catastrophic Crypto Crash” or a Classic Case of Cherry Picking?

The mainstream press loves to preach and “predict” the demise of crypto. A recent example was the essay “Great Crypto Crash” in The Atlantic that “warns” of  mass foreclosures and losses following institutional movement into the space amid softer regulations and a loosening of the structures of Wall Street. A main point is that the integration of crypto into the traditional financial system, rather than it staying separate, will have “trillion-dollar consequences.” 

The author, Annie Lowrey, who is a leading UBI proponent and even wrote a book on how it’ll remake the world, alluded to the impending crash being akin to ‘08. 

Lowrey wrote: “First, a boom. A big boom, maybe, with the price of bitcoin, ether, and other cryptocurrencies climbing; financial firms raking in profits; and American investors awash in newfound wealth. Second, a bust. A big bust, maybe, with firms collapsing, the government being called in to steady the markets, and plenty of Americans suffering from foreclosures and bankruptcies.” 

Someone reading Lowrey’s story who isn’t familiar with crypto would undoubtedly be frightened, without even getting past the headline. But there’s much more to the story. 

Many of her data points are flawed. She said that many crypto companies cannot or choose not to comply with American financial regulations. Having covered crypto for nearly three years, I’ve connected with hundreds of people in the space – most of whom have been crying out for regulatory clarity in order to operate within the bounds of U.S. law. 

To her point about crypto investors being vulnerable to illicit activity, she used a stat that Chainalysis tallied:  $24.2 billion in illicit transactions in 2023. Lowrey failed to mention that Chainalysis made very clear that that dollar amount equated to 0.34 percent of all crypto transaction volume. Instead, she pulled a single data point to make her point that “the situation is a security nightmare.” 

Illicit activity also exists in the traditional financial system. Nasdaq recently released its 2024 Global Financial Crime Report, which revealed $3.1 trillion in illicit funds flowing through the global financial system. That’s 2.9 percent of the $106 trillion in global GDP for 2023, as reported by the World Bank. For Lowrey’s benefit – that’s 8.6 times the amount of financial fraud in the traditional market than in crypto. In 2023, fraud scams and bank fraud schemes totaled $485.6 billion in projected global losses, according to Nasdaq. 

Crypto markets are much more transparent by nature, as blockchain transactions are public and traceable. Greater institutional involvement could actually reduce volatility and violations. Regulated venues could be safer than the current offshore exchanges. Smart contracts could automate compliance and reduce operational risks. 

Portraying all crypto innovations as potential threats is short-sighted and simply incorrect. Hypothesizing that investors might have to pull from their 401(k)s to make up for losses or have their assets seized, or using gains to take out mortgages, is not a well-thought-out argument. Lowrey is assuming all Trumpsters will follow their leader and invest in crypto, just because of his political posturing. Again, another “what if” scenario. 

She calls out Terra and Tether but fails to discuss fully regulated stablecoins like USDC. She talks about how the FIT21 bill will create a passage for bad actors to exploit loopholes through “tokenization” to move out of the SEC’s purview – putting the broader capital markets at risk. 

Instead of balancing with likely scenarios, neither all catastrophic nor all positive, she builds worst-case-scenarios one after the other, creating a moral panic in those who might be interested in the market. 

Yes, there’s a lot that could go wrong, but there’s a lot that could go right, too. Reality is a lot more nuanced. It seems as though the author has pinned crypto onto other problems today’s consumer is facing – the cost-of-living pressures, stagnant wage growth and growing unemployment – to further the fear. She calls for the administration to do nothing, meaning to leave the SEC in control of crypto and to have companies play by existing rules. Which, as we all know, not only do not work for crypto, but stifle innovation. 

Mainstream narratives tend to oversimplify or catastrophize crypto. 

As one of my sources, Todd Ruoff, recently said in an interview: “While a significant crash cannot be ruled out, it's also possible that the market could experience a more moderate correction or consolidation. The increased maturity of the market, institutional involvement, and potential regulatory improvements could help stabilize prices to some extent.” 

Mainstream media must realize that they are part of the problem. Instead of fearmonger about a market, as Lowrey does, they should support ongoing efforts to regulate crypto, not shut it down altogether. How un-American. — Amanda Smith, Decential Media

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