Bitcoin mining: another capitalist scam

Regulation has failed

Gambling and swindling on a colossal scale. Hedge funds and bitcoin exchanges should be closed down, demands Michael Roberts

Last week, Sam Bankman-Fried was sentenced to 25 years in prison. He ran the highly successful FTX bitcoin hedge fund that supposedly made millions for his clients. But Friedman was exposed and convicted of stealing $8 billion from his FTX customers. He was found to have siphoned billions in customer funds into FTX’s sister hedge fund, Alameda Research, to keep it solvent and line his pockets with clients’ money.

Friedman lived the good life, spending more than $200 million in Bahamas real estate and in speculative investments. The Manhattan US attorney Damian Williams said after the conviction:

Sam Bankman-Fried perpetrated one of the biggest financial frauds in American history - a multibillion-dollar scheme designed to make him the king of crypto - but, while the cryptocurrency industry might be new and the players like Sam Bankman-Fried1 might be new, this kind of corruption is as old as time. This case has always been about lying, cheating and stealing and we have no patience for it.

Currently bitcoin and other cryptocurrencies have been experiencing a massive rise in price. Supposedly, they have now escaped their image of involving fraudsters, scams and wild speculation to join the ‘respectable part’ of the financial world. The Friedman case has shown that to be a joke - along with a succession of other such ‘Friedmans’ over the last decade of the rise of crypto.

I wrote on blockchain technology and the crypto craze several years ago.2 I argued then that, although bitcoin supposedly aims at reducing transaction costs in internet payments and completely eliminating the need for financial intermediaries like banks, I doubted that such digital currencies could replace existing currencies and become widely used in daily transactions - as their proponents forecast.

Money in modern capitalism is no longer just a commodity like gold, but instead is ‘fiat currency’, either in coins or notes, or now mostly in credits in banks. Such fiat currencies are accepted because they are issued by ‘fiat’ by governments and central banks and are subject to regulation. In contrast, bitcoin - conceived by an anonymous and mysterious programmer, Satoshi Nakamoto, just over a decade ago - is not localised to a particular region or country, nor is it intended for use in a particular virtual economy. Because of its decentralised nature, its circulation is largely beyond the reach of direct regulation or monetary policy and oversight that has traditionally been enforced in some manner with localised private monies and e-money.

Now for technology enthusiasts (and also for those who want to build a world out of the control of state machines and regulatory authorities) this all sounded exciting. Maybe communities and people could make transactions without the diktat of corrupt governments, and control their income and wealth away from the authorities - it might even be the embryo of a post-capitalist world without states. (!)

Such futurist hopes have been dashed. Bitcoin’s value is not backed by any government guarantees, by definition. It is backed just by ‘code’, and the consensus that exists among its key ‘miners’ and holders. As with fiat currencies, where there is no physical commodity that has intrinsic value in the labour time to produce it, the cryptocurrency depends on the trust of the users. And that trust varies with its price, relative to a state-controlled fiat currency like the dollar. Its price is measured in dollars or in what is called a ‘stable coin’ tied to the dollar. Indeed, while the crypto craze has exploded, the US dollar has entrenched itself ever more firmly as the world’s premier currency (67% of all settlements, followed by the other fiat currencies, the euro, the yen and yuan).


The price of bitcoin measured in fiat currencies like the dollar has violently fluctuated, but more recently has rocketed to stratospheric heights, as financial assets shoot up to record highs in the expectation of falling interest rates and economic recovery. Indeed, for that very reason, cryptocurrencies are no closer to achieving acceptance as an everyday means of exchange.

So far, its main use has been for speculation. It has become yet another form of what Marx called “fictitious capital” - a financial fiction for real value. The Friedman case shows that nothing has changed from when Marx wrote about

a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance, and stock speculation.3

With the rise of fictitious capital, he said,

All standards of measurement, all excuses more or less still justified under capitalist production, disappear …. since property here exists in the form of stock, its movement and transfer become purely a result of gambling on the stock exchange, where the little fish are swallowed by the sharks and the lambs by the stock-exchange wolves.

The nature of cryptocurrency culture was summed up by a firm led by Lord Hammond, a former UK finance minister, sponsoring a party to promote crypto where guests were served sushi off two scantily clad models.

Finance capital is ever-ingenious in inventing new ways of speculation and swindles. In the last 20 years, ‘financial fictions’ have been increasingly digitalised.4 High-frequency financial transactions have been superseded by digital coding. But these technological developments have mainly been used to increase speculation in the financial casino, leaving regulators behind in the wash.

Rather than protecting investors from these predatory crypto schemes, financial regulators and enforcers have only stepped in when “it was time to pick up the pieces and comb through the rubble of millions of people’s shattered investments”.5 Politicians funded by crypto companies have helped to block regulation: the US Congress has been deadlocked on bill after bill, as industry interests pressure them to codify the current state of lax regulation with carve-outs and loopholes: “The crypto industry argues this will allow for continued ‘innovation’ - despite little innovation to date from the sector, aside from finding new and inventive ways to scam people out of their money.”6

Yet again, regulation has failed to stop financial speculation, crashes and swindles:

Regulators and lawmakers have failed to make any changes to proactively protect the public, while allowing crypto firms to advertise and recruit new customers who seem far more likely to wind up as victims of yet another collapse as they are to become the next crypto-millionaires. How many people will have to lose how much money before we stop believing the lies from an industry that has preyed on people’s trust and hopes for financial miracles, only to dash them on the ground in failure after failure?7

Back to Marx here:

The two characteristics immanent in the credit system are, on the one hand, to develop the incentive of capitalist production, from enrichment through exploitation of the labour of others, to the purest and most colossal form of gambling and swindling.8

So the finance sector carries on just as before, engaging in speculation and regulators cannot and do not stop them.

The answer is not regulation (before or after the event), but the banning of fictitious capital investment. Close down hedge funds, bitcoin exchanges and exchange trade funding. Instead, banking should be a public service for households and small companies in order to take deposits and make loans - not funding for a massive financial casino where criminals and swindlers gamble away our livelihoods.

Michael Roberts blogs at thenextrecession.wordpress.com

  1. See www.theguardian.com/business/sam-bankman-fried.↩︎

  2. See thenextrecession.wordpress.com/2017/09/17/blockchains-and-the-crypto-craze.↩︎

  3. K Marx Capital Vol 3, part 4: www.marxists.org/archive/marx/works/1894-c3/ch27.htm.↩︎

  4. See thenextrecession.wordpress.com/2021/04/09/financial-fiction-part-two-the-new-ones-spacs-nfts-cryptocurrencies.↩︎

  5. www.theguardian.com/global/commentisfree/2024/mar/28/sam-bankman-fried-prison-crypto-regulation.↩︎

  6. Ibid.↩︎

  7. Ibid.↩︎

  8. Capital Vol 3, part 4: www.marxists.org/archive/marx/works/1894-c3/ch27.htm.↩︎