Crypto Crashes and Gresham’s Law

The failure of FTX and troubles with other cryptocurrencies reflect Gresham’s Law; bad money drives out good.

https://cointelegraph.com/news/blockfi-files-for-bankruptcy-as-many-expected-cites-ftx-collapse-for-its-troubles

With the profusion of cryptocurrencies it was inevitable that some would collapse. There are about 22,000 cryptocurrencies of which 9,314 are active. In the United States 1,600 banks were allowed to issue paper money from 1793 to 1861 with 7,000 different bank notes. Some of those notes were of little value. Eventually the United States became the exclusive issuer of paper money. Between 1863 and 1929 “thousands of banks” were allowed to issue notes that resembled federal greenbacks on official paper before that too ended. It should be noted that 1929 was a notable year for the economic crash getting under way.

It wouldn’t be surprising if cryptocurrencies followed the evolution of paper money in as much as some may be transacted with some sort of federal seal to guarantee their value. Financial fraud, tax evasion and money laundering may be implicit facets of crypto currencies. Like the Internet tech dot-com crash of 2000-1 one would expect shakeouts of the field periodically.


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