Crypto’s lofty ideals of freedom taking a beating

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Earlier this year, the crypto community rioted over the news that Canadian banks had frozen financial accounts linked to protesting truck drivers who had blocked a key border crossing. The truck drivers were angry about vaccine mandates and other Covid-19 measures, but as the story went, you didn’t have to agree with them to admit Prime Minister Justin Trudeau had used the financial system to punish political opponents, an episode that the need for cryptocurrencies that were completely resistant to any interference.

That was all well and good, until it wasn’t anymore.

Just months later, the interference-proof money industry begins to engage itself in locking up people’s assets without permission. On Thursday, Voyager Digital Ltd. the latest crypto firm to restrict customer withdrawals from its platform, contributing to similar actions recently taken by Celsius Network, Babel Finance, CoinFlex and others. The moves show an industry that isn’t standing up for many of its core ideals when it comes down to it.

To hear the fanatics talk about it, crypto was supposed to be an antidote to state hegemony, meddling central banks, and a financial system that failed Americans in the run-up to the Great Recession, and some of that was arguably true for fundamental innovations like Bitcoin, provided owners have stored their coins outside of centralized exchanges. A major wrinkle in Canadian truck drivers’ protests was that the government was actually going after crypto, which baffled some people who thought they were beyond the reach of the state. In fact, that is rarely the case when you entrust the keys of your crypto to a third-party custodian.

Of course, not everyone likes to keep their coins in “cold storage” hardware wallets, and an industry has sprung up to bring crypto access to the masses, which turned out to be far from the ideal without permission.

Certainly, the latest problems in the industry are not entirely of their own making. It all started when global central banks, including the Federal Reserve, pledged to aggressively raise interest rates after a late start in tackling the worst inflation in 40 years. That has simultaneously torpedoed every financial market in the world, and crypto is particularly vulnerable. Major coins trade as high beta technology stocks, meaning they fall when the Nasdaq 100 does – only more.

The industry would have slipped through this mess with only a few scrapes if the ecosystem that emerged to take advantage of the coins hadn’t gotten themselves entangled in it in an interdependent labyrinth of risky leverage, but that’s exactly what happened. Many of these not-so-permissionless platforms promised dazzling “yields” on crypto deposits by lending money to high-risk speculators whose positions have inflated in the downturn in the market.

Certainly, the restrictions on withdrawals today are of a different nature than what happened in Canada. Ultimately, these platforms look like they are taking steps to avoid the crypto equivalent of bank runs, without expressing a political stance. The people behind many of these crypto lending operations are scared and their true nature is starting to show. But you don’t take the stand about financial ‘freedom’ when it suits you and then get a free pass if you become everything you criticize. It turned out that the values ​​of money without permission mattered, until they didn’t anymore.

More from other writers at Bloomberg Opinion:

• Crypto is not too big to fail. Even with FTX: Lionel Laurent

• The Ancient System Better Than DeFi: Andy Mukherjee

• Senators Treat Crypto Like the New Jersey Turnpike: Aaron Brown

This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.

Jonathan Levin has worked as a Bloomberg journalist in Latin America and the US, covering finance, markets and M&A. Most recently, he was the bureau chief for the company in Miami. He is a CFA charter holder.

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