Your Bitcoin and socialism
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The story of crypto exchanges gets curiouser and curiouser
WazirX, a prominent self-styled crypto 'exchange', has discovered socialism. A few days back, it made an announcement - and an X post - that said, among other things, "In response to the recent cyber attack that led to the theft of $230 million (45 per cent of user funds), we are committed to handling the situation fairly and transparently. We are implementing a socialized loss strategy to distribute the impact equitably among all users."
What an idea, sir ji! When the 'exchange' makes money from traders, it's capitalism, and it keeps the money. When the money in the exchange's custody gets stolen, then it's time for socialism, and the traders share the losses amongst themselves.
A few days back, this 'exchange' declared that North Korean hackers had stolen some $230 million from its systems. Have you heard of the phrase 'the dog ate my homework'? North Korean hackers have become the dog that eats the homework of companies that get hacked. Just like the teacher cannot go to the student's home and verify whether the dog indeed ate the homework, no one can go to North Korea and investigate these hackers. So once North Korean hackers have done their job, comes the turn of North Korean socialism.
Of course, I have no actual sympathy for those who are foolish enough to trade on these crypto 'exchanges'. For at least five years now, I have been writing in these pages that regardless of the merits of crypto, those who are trusting these self-appointed exchanges are taking a huge risk. In 2021, I wrote this here: "When I buy some stock, I go to a stockbroker. I transfer the broker some money from my bank account, and in return, I see some numbers appearing on the screen where I'm trading. These numbers claim to tell me that I now own some stock. What is the provenance of these numbers? How do I know that there is any underlying reality connected to them? I know that because the stock markets and all entities connected to them are minutely regulated. The brokers are members of an exchange, and there is a distinct entity, a stock depository, that connects all this to the underlying reality of the existence and ownership of what I gave my money for. I get live information about what's happening to my money from multiple independent entities under intense regulatory scrutiny. However, the entities that call themselves crypto exchanges are nothing of the sort in any legal sense. They are businesses that take your money and show you some numbers and a graph on your screen."
These exchanges are supposedly audited, monitored, etc., but all of it is done by other companies chosen by the exchange itself. It's a closed, self-reinforcing loop that uses words that sound authoritative but are nothing of the sort. It's as if someone just puts up a signboard saying 'Bank,' and people deposit their money there. This is what these so-called exchanges are like.
At this point, those who want to invest in crypto might ask how they should go about doing so. My answer would be that don't do it. However, if you insist, then for the sake of your own money, at least choose some vehicle that operates as a regulated entity. For example, the US markets have a number of SEC-approved ETFs that have holdings in Bitcoin and other cryptocurrencies. Many of these ETFs are operated by well-known parent companies like Franklin Templeton, Fidelity, and BlackRock. Since Indian investors can invest up to $200,000 a year in foreign securities, this route is open to those determined to invest in crypto.
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Regardless of how bad a crypto idea is, at least the foreign ETFs have some provenance as being real. In contrast, a self-declared exchange could be a black hole for your money.
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