Crypto influencers told NR they see this as the industry’s dot-com bubble moment, which means they’re not wrong, they’re just early.
The spectacular collapse of FTX has crypto skeptics comparing the industry and the dynamics surrounding it to the dot-com boom and bust of the late 1990s. Crypto enthusiasts and influencers who spoke to National Review agree with the diagnosis — they just don’t see it as a bad thing.
As the new millennium approached and panic spread about Y2K, virtually any company that made a vague digital promise or had a “.com” in its name was able to surf the wave of enthusiasm surrounding the Internet. Short-lived unicorns such as Pets.com and eToys.com promised to reshape the consumer experience only to flame out, torching investors in the process. But, as crypto die-hards are quick to remind anyone who will listen, Apple, Microsoft, and Google hung on and eventually fulfilled many of the promises that the techno-utopians made ahead of the dot-com bust — it just took them a while to do it.
The crypto market “is certainly going through something similar to [a] dot-com bust or Lehman crisis in 2008,” Tascha Che, a Twitter crypto influencer with nearly 200,000 followers, told National Review. “Despite the price crash, actual activity levels on public blockchains have dropped only moderately this year. The underlining activity/building in the space is very much alive.”
A former portfolio manager turned crypto influencer who goes by @Deadgladdy on Twitter agrees, telling National Review that he sees parallels between crypto’s current predicament and that of early Internet adopters. The dot-com bubble, he argues, didn’t reflect weaknesses in the underlying technology, just as the collapse of FTX and founder Sam Bankman-Fried’s fall from grace — he was arrested in the Bahamas Monday night — doesn’t reflect poorly on blockchain technology. Rather, both are indicative of a developing marketplace sifting out imposters from legitimately profitable businesses.
“Whether people see it like that or not, I think we’re in the early stages of something that’s going come to really impact virtually every aspect of our life. When you have companies like FTX or Celsius or Three Arrows Capital that have really created a lot of doubt and uncertainty in the market, unfortunately, I think that’s just how this is going to go for next little bit as regulation catches up and adoption becomes mainstream,” the ex-portfolio manager told National Review.
While regrettable, the collapse of FTX did not shake the underlying confidence of crypto enthusiasts. Despite Bankman-Fried’s impromptu exit, early crypto adopters remain steadfast in their conviction that the future of finance and technology will be paved by features pioneered on blockchains, including smart contracts, decentralized autonomous organizations (DAOs), and non-fungible tokens (NFTs).
Nowhere is this more apparent than on the rising star network, Solana, which was caught in the crossfire when FTX liquidated much of its SOL reserves (the digital currency used across the blockchain) to cover investors withdrawing funds. According to one report, Alameda held over a billion dollars’ worth of SOL before the liquidity crunch brought the firm down.
Investors’ alarm bells first sounded when CoinDesk revealed that billions of dollars worth of assets owned by FTX’s trading arm and sister company, Alameda Research, derived from a digital token FTX created. Billions of dollars on Alameda’s balance sheet “rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto,” journalist Ian Allison observed at the time.
The revelation sent shock waves across the crypto world as it dawned on many that Alameda was bloated with illiquid tokens. In order to cover depositors running for the exits, Alameda and FTX dumped their SOL holdings, triggering a market crash. Between its peak and trough in November, SOL shed over 70 percent of its value. Investors and developers followed suit, fleeing the platform as overall deposits slumped from 68.2 million SOL in June to 24.74 million SOL in mid November.
Josh, one of three Solana investors who spoke to NR on the condition of anonymity and is referred to using a fictitious name, sees the collapse of FTX and the resulting drain on Solana as part of the crypto industry’s growing pains.
“It’s really too early to tell. I don’t think we’ve seen the extent of the damage, which is why we’re in more of a crypto winter than a traditional bear market,” said Josh, who goes by @thejonnyjpegs on Twitter, where he has more than 17,000 followers.
The stampede of crypto enthusiasts running for the hills in the wake of FTX’s collapse hasn’t changed Josh’s long-term crypto thesis.
“Long term though, it will be labeled as another substantial yet unfortunate event much like Mt. Gox,” Josh wrote, referencing the Bitcoin exchange that was hacked in 2014 and robbed of nearly half a billion dollars. The infamous hacking ultimately led to Mt. Gox’s bankruptcy and has been a prominent signpost in the minds of crypto investors since FTX’s sudden demise rattled markets in early November.
“Every community has to have a crucible moment,” Avichal Garg, a managing partner of Electric Capital, told NBC after the FTX fallout. “There’s a moment where either it’s going to work or it’s going to die…This is that moment for Solana.”
Many initially flocked to Solana due to its lower fees and capacity for rapid transactions stemming from its Proof of Stake (PoS) verification model. As opposed to the Proof of Work (PoW) process popularized by Bitcoin, PoS is dramatically more eco-friendly, offering greater efficiency and scalability. Consequently, despite the famed blockchain Ethereum slowly transitioning from PoW to PoS in recent years, many tout Solana to be an “Ethereum killer.”
Still, the hype and underlying fundamentals didn’t make Solana invulnerable. Major market actors have already signaled that proximity to SBF is toxic. On November 25, the world’s largest crypto exchange, Binance, announced it was suspending trading on its platform of a joint FTX–Solana project, Serum. Binance and its founder Changpeng “CZ” Zhao have had a tense relationship in recent years. CZ appeared ready to bury the hatchet and rescue FTX in early November but ultimately backed out of the deal after conducting his own due diligence.
It’s tough to fault jittery Solana investors.
SBF has cast a pall across Solana, sowing fear, uncertainty, and doubt (known as FUD in crypto spaces) and making it difficult to separate his fraudulent activities from his glowing praise of Solana. When Solana lost millions of dollars during a recent hack, SBF rushed to commend the blockchain’s response, publicly defending the network’s handling of the security breach. “Any blockchain would have broken if it tried to do what Solana had done,” SBF told Fortune, calling SOL “the most underrated token now.”
Sorting through the confusion hasn’t rattled David, an NFT investor and creator who goes by the handle @TurntUpDylan on Twitter, where he has nearly 18,000 followers. Despite the prevailing bearish sentiments, David believes the Solana ecosystem is not wilting as many expected.
“I initially thought the effects of FTX would absolutely shatter NFTs, but that hasn’t been the case,” he wrote to National Review. Instead, the demise of FTX will be “a paradigm shift. People will finally be more willing to accept some regulation, even if it comes with some downsides.”
Harold, another Solana investor, believes Bankman-Fried’s downfall will actually benefit Solana in the long-term since there will no longer be one young, volatile man serving as its public face.
“I think removing Sam Bankman-Fried as a single point of failure for Solana has made it more resilient. The strength I’ve seen within the Solana community alongside the pure fundamentals and technical aspects of the network,” lead him to believe Solana is a good bet going forward. “To me, this means there’s just an overwhelming amount of fear in the market.”
Traditional investors who have been wary of the crypto space since it emerged seem to have been vindicated by the chaos Bankman-Fried unleashed, but for the true believers who spoke to National Review, FTX and its ripple effects are just a challenge on the way to an economy transformed by blockchain technology. But as the industry matures, its early adopters will have to soften their anarcho-capitalist impulses if they hope to emerge from the crypto winter.
“As much as we love to preach decentralization and free economy in crypto, without rules in place, bad actors will always disrupt the system,” David wrote.