Bitcoin: the anti-fragile asset class 

Bitcoin is dead. Really. This time, for sure. It has perished. Gone the way of the dodo. Extinct.

As the FTX saga lurches from the catastrophic to the criminal, the epitaphs are again being etched into the tombstone of the world’s foremost digital asset.

The fears are not unfounded. The crypto winter has flipped into a full-blown ice age. FTX is Lehman’s on steroids, and contagion is ripping through the heart of the digital asset world like a Californian wildfire. And amid the smoke and carnage, more exchanges and counterparties continue to get subsumed by the FTX blaze.

FTX is not bitcoin

While the latest crypto debacle has seared a Jupiter-size hole in the credibility of digital assets, there is also cause for perspective. A good place to start is with bitcoin.

Bitcoin is not the entire crypto world, but it is a foundational pillar. It acts as the philosophical cornerstone of the entire movement toward financial decentralisation espoused by early blockchain innovators.

If the credibility of bitcoin was to be seriously challenged, the crypto world would be in serious trouble. And yes, before you ask, a lot more serious trouble than it is in now.

While bitcoin has no relation to the nefarious antics of ponzi scheme savant Sam Fried-Bankman, bitcoin will always suffer from any scandal that garners mainstream media attention. It will always be the victim of indiscriminate selling.

The scars of FTX will take a while to heal. While HODLers will keep the faith in Satoshi’s vision of monetary independence, some institutional investors may not return to digital assets now or ever (see Sequoia Capital).

Custody is king

But this is not a bitcoin issue. This is a custodial issue. It has zero relation to bitcoin. In fact, it was revealing just how much FTX held in bitcoin assets. The scale of the criminality of what has happened would not happen in the traditional regulated financial exchanges – and that is a huge shame and a major dent in the optimism of the early Defi evangelists. Instead of creating a new world – the crypto world risks conceiving a digital dystopia that can only be saved by the bankers and regulation.

Holding digital assets on an exchange is again many of the founding principles of DeFi advocates, but the reality is that mainstream blockchain adoption means novice or cautious investors will want to use the exchange to get exposure to digital assets. The crypto world needs to take custodial responsibilities seriously. This means the proper reporting of collateral – no ifs or buts. Only then can the crypto world consider regaining the trust of institutions.

And if the crypto world can’t do it, banks will. They are already sensing an opportunity, for example, Swiss wealth manager, Bank Syz last week launched a custodial and trading service for its global clients. The message is: it is smart to diversify into digital assets but don’t take custodial risk with exchanges having a lifespan less than a mayflower, nor risk management processes of high-stakes gamblers.

And what about bitcoin. There is a concept in investment lexicon called anti-fragile. This means that instead of an asset getting weaker through volatility, it actually grows more resilient. We believe this is happening with bitcoin. There is a strong argument that if the wild west elements of crypto can be lanced, bitcoin will not only survive intact – but it will emerge unblemished and stronger.

For now, we, at The Block Republic, are happy to report bitcoin’s death has been widely exaggerated.

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