Bitcoin worth US$15 quintillion is just another day in crypto

CHICAGO – Cryptocurrencies made a giant leap in 2021, expanding well beyond their niche among geeks and Redditors. Wall Street strengthened its embrace, with Morgan Stanley chief executive officer James Gorman declaring it no fad. New York Mayor-elect Eric Adams said he’ll initially get paid in Bitcoin. And tokenmania invaded pop culture, from sports, entertainment and gaming to high-end auctions. Even Major League Baseball umpires wore the FTX exchange’s logo on their chests.

Yet the industry often failed to get the basics right, still plagued by the same problems that have dogged it from the start: trading glitches, infrastructure snafus, hacks and other crypto weirdness.

Back when digital tokens fetched a pittance, this could be dismissed as a silly sideshow. Now, cryptocurrencies are worth real money – more than US$2 trillion, assuming the tally isn’t garbled by a data error – and their backers want to overtake traditional finance and revolutionize much more. Their ability to do so – and crypto’s staying power – may hinge on addressing and fixing basic plumbing and security issues, assuming they can.

The industry uses “the Facebook model of ‘move fast and break things,’” said Larry Tabb, head of market structure research at Bloomberg Intelligence. “There’s no regulatory push to solve these problems, so it just becomes more of an issue of competition. If I get fed up with one exchange, I’ll switch to some other player.”

Crypto believers argue that snags are to be expected in an industry that’s still in its early days. It will find its footing, they say. Perhaps. Whatever the future holds, there sure were a ton of major screw-ups in 2021.

Just this month, CoinMarketCap, a go-to source for crypto prices, spewed out incredibly wrong data for the entire market. Bitcoin prices exceeding US$800 billion were displayed on its website, which valued all tokens in circulation at US$15 quintillion – roughly 660,000 times US gross domestic product.

The company, owned by digital-asset exchange Binance, responded in typically wacky crypto fashion: with glib, meme-filled tweets. “How did it feel to be a trillionaire for a couple hours?” read one, followed by the tears-of-joy emoji. Some industry watchers weren’t as sanguine in their response.

While the CoinMarketCap incident didn’t appear to hurt anyone much, that wasn’t the case in other instances. Some mistakes sparked declines in Bitcoin, a situation compounded by the fact that automatic safety features – like the US stock market’s circuit breakers – aren’t common in crypto. In October, a trader’s algo went haywire, sending the world’s biggest cryptocurrency down about 87 per cent before it shot back up.

Then there were moments when the blockchain infrastructure that powers crypto posed problems. Solana emerged in 2021 as a competitor to Ethereum, which is effectively a global supercomputer running software called smart contracts. But Solana broke for 17 hours in September, crippling a small but growing corner of decentralized finance, or DeFi.

These are only a handful of the many examples.

Other asset classes have also gotten ensnared in technology drama over the years. For instance, squirrels were a recurring nightmare for stocks, causing power outages that took down Nasdaq’s market in 1987 and then again in 1994. The infamous 2010 flash crash, in which the whole US stock market dove to a trillion-dollar loss in minutes and then recovered just as quickly, badly spooked Wall Street.

Since a 3½-hour New York Stock Exchange outage in 2015, though, it’s been mostly smooth sailing for equities-market infrastructure, evidence a US Securities and Exchange Commission crackdown got traders and exchanges to make their software more resilient.

Crypto has much less oversight – at least for now – meaning the industry mostly gets to decide what, if any, safeguards to implement. Many Wall Streeters are now flocking there, bringing with them conventional ideas about protections. But the space was initially forged mostly by people without professional finance experience who may not have fully appreciated what it takes to build systems that can handle fast-paced modern trading.

Hacks are also a big problem in crypto, which is deeply connected to the internet – making it vulnerable – whereas in conventional finance computers are often walled off from the internet inside guarded data centre. Nasdaq was hacked about a ago, but its core trading computers weren’t infiltrated.

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