Why Bitcoiners don’t want to be lumped in with other cryptocurrency enthusiasts

“I do think crypto’s and Bitcoin’s reputation as a whole is definitely shattered, at least for a little bit.”

By Shelly BrisbinJanuary 3, 2023 2:51 pm, ,

The downfall of Sam Bankman-Fried’s FTX cryptocurrency exchange has brought a lot of focus to the inner workings of the crypto marketplace, even among folks who hadn’t previously paid much attention to this world.

The FTX crash also exposed rifts among crypto enthusiasts, some of whom say that Bitcoin – the cryptocurrency that started it all – should not be viewed in the same light as FTX, or linked to what they believe to be less stable currencies. 

Slate associate writer Nitish Pahwa wrote about the divide between Bitcoin and other parts of the crypto world. He told Texas Standard that Bitcoin “maxis” or maximalists, believe other cryptocurrencies are too closely connected to the traditional finance system Bitcoin was instituted to avoid. Listen to the story above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: What did you see as the significance of the FTC’s failure for the crypto industry overall? I mean, if you had to put your finger on what the significance was, what would you say?

Nitish Pahwa: I think there are several planes of significance, but to really harp on the biggest ones, I think one – it was just a huge shock to a lot of people over the past couple of years who finally got interested in cryptocurrency because Sam Bankman-Fried, the man at the center of it all, had presented himself as this very ethical, very smart, very savvy operator who was doing a lot of fundraising through cryptocurrency for the greater good of the world. And then it turns out he may have been just doing a lot of the same fraud as anybody in the traditional financial system. We obviously don’t know yet. The criminal charges and civil charges are ongoing, but it is definitely plausible.

And as for other parts of the crypto world, especially the Bitcoiners, the ones who have been sticking firm to Bitcoin from the very beginning – they view this as a vindication of their principles, because they never wanted to see their technology or the very concept of their Blockchain-based digital currencies reach a level that it had with Sam Bankman-Fried. They wanted it to be its own thing. So when they see this particular flame out, they’re looking at this like, “okay, this is why we were right all along.”

To be clear, and correct me if I’m wrong here, the term “Bitcoin” sometimes gets used sort of generically like “crypto,” but “Bitcoin”  actually refers to a specific currency that started in 2008. What, then, was happening with FTX and can Bitcoin be sort of walled off from FTX’s failure?

Yeah, Bitcoin really kicks off 2008-2009 after the financial crisis. It’s envisioned as a peer-to-peer currency with a certain amount of coins in existence, a certain amount of blocks from which to mine those coins, and done in a way where a lot of people are cut in at all times running their own systems for mining and working together in Bitcoin trades. Now crypto, on the other hand, has become this umbrella term for everything else that Bitcoin has basically led to or inspired. And so that means any other big digital currencies that are not named “Bitcoin,” or any of these big exchanges or companies like FTX that are now very much enmeshed within the traditional financial system. They’re publicly traded on the stock market and they’re gaining typical venture capital investment and such.

But Bitcoiners always want to stay outside the traditional financial system – or as they call it, “TradFi” – because they viewed TradFi as being responsible for disasters like the financial crisis or myriad other economic crises before them. So they don’t want Bitcoin to get caught up in the way that it has through exchanges like FTX. But then of course it is businesses like FTX through their aggressive publicity marketing, partnering with celebrities like Tom Brady and so on, that ended up getting more attention to this world.

Well, now, of course, Bitcoin has not emerged from this unscathed, even though I hear what you’re saying and I understand what the community is doing when they’re drawing the distinctions. But Bitcoin was already way down in 2022. What sort of headwinds do they face now with confidence among the population at large sort of being hammered and shattered?

So you’re absolutely correct that Bitcoin has been affected a lot by economic travails from the hike in interest rates,  general stock market crashes, tech layoffs, you name it. A lot of people do trade or store Bitcoin on these exchanges, which, to really generalize and oversimplify it a bit, do kind of operate like banks. You store some currency in there. It’s supposed to be backed by collateral. They’re doing some other lending. And in return for your investment, you’re supposed to get a pretty decent yield percentage. Now, for all this, there are a lot of people who held Bitcoin and did not want to just stick to the traditional system. They wanted to try to see what they could do with Bitcoin on all these other exchanges. And so when these exchanges have been hit, Bitcoin’s value falls as well. And right now, Bitcoin is definitely not doing well.

That being said, a lot of ‘maxis’ – the term for Bitcoin maximalists – will tell you that this is not as bad a crash that they’ve seen before. There’ve been plenty of Bitcoin crashes over the years and their mantras are always, “hold on for dear life, buy the dip because eventually it’ll still pan out.” I do not foresee the currency regaining a ton of its value anytime soon, but I also don’t see it totally going away because its hardest adherents are going to keep their faith in it.

Well, I also wonder how much FTX has turned the spotlight on Bitcoin and the possibility of government regulation.

Oh, absolutely. There is going to be some regulation for sure. The White House is weighing in, Congress is weighing in from both sides of the aisle. There definitely has to be something that comes out of this, because with Sam Bankman-Fried’s downfall, now, there’s a lot of scrutiny on lawmakers who got donations from him. And they’re going to be very eager to prove that they were not just like stooges on his behalf. And this could be anything with regard to fraud control or just designating whether like a certain digital currency is a commodity or a security or some other sort of financial instrument. But I’m like 99% positive that there will be some sort of government action on cryptocurrency in the new year.

Is Bitcoin now liberated to move forward independent of FTX or not so much?

Oh, that’s a great question. Yeah. I think there’s definitely going to be a chill and I think a lot of the Bitcoin maximalists are going to take the opportunity to really push for their way of things. How convincing that is going to be, I have no way of knowing. That being said, I do think crypto’s and Bitcoin’s reputation as a whole is definitely shattered, at least for a little bit, and we’ll see what it actually takes for them to recover in any conceivable way.

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