The New New Thing
The Winklevii are in hot water—yesterday, the New York attorney general brought a fraud suit against Gemini (a crypto exchange run by the Winklevoss twins), Digital Currency Group, and Genesis.
Now, there’s an old line of thinking in the markets, where each cycle or mini-cycle of hype brings a New Thing™ that everyone is obsessed with. This New Thing (whatever it may be) is often shiny and attractive, somewhat opaque and difficult to understand, and typically comes with a lot of shady promoters who sell promises of getting rich quick to the masses. Hysteria or mania of some kind is generally involved, and the obsession with the New Thing often prompts management teams of all varieties to discuss how their company has been working at the bleeding edge of the New Thing for years and years, despite never having mentioned the New Thing prior.
Here are just a few of the New Things that have graced the market over the past few years, in no particular order:
The Metaverse
Web3
Cryptocurrency
AI
Machine learning
The blockchain
Gene editing
Some of these are kind of useful! AI, machine learning, and gene editing all have had or are currently having a moment in the sun, and the payoff for humanity in their development is somewhat obvious or, at least, momentous.
Some of these are… less obviously useful, unless you believe in the tech-bro De-Fi fever dream, but they have indubitably captured the popular imagination (and wallet).
There’s a lot that could be said about Crypto, but anything I have to say is likely to be a re-hash of work that does a better job than I could hope to—particularly Doomberg’s great pieces “A Crypto Field of Dreams,” and, in what is perhaps the best piece available on the topic, “Dollars Ex Machina.”
I would argue that Crypto’s day in sun has passed, and that the technology, while useful for some things such as reducing friction in remittance payments, isn’t quite the 0 to 1 innovation it has been hyped to be.
And yes, I know, there are plenty of people who will disagree, and I’m well aware that Bitcoin currently trades around $30,000. But all this proves is that someone out there is willing to pay $30,000 for a Bitcoin. Sadly, it doesn’t make them smart.
A matter of less contention, I assume, is that Crypto has been unraveling for some time now. Here’s a brief history of some of the major collapses and crises in the space:
The collapse of Three Arrows (roughly $1 trillion in fallout)
The Terra/Luna debacle (wiped out about a half trillion of crypto)
The bizarre rapper and her boyfriend who stole billions of crypto from Bitfinex
The ongoing concern about Tether’s stability
The MyCoin pyramid scheme that ‘profited’ to the tune of €2.735 billion.
Countless hackings of different exchanges and organizations, resulting in the cumulative loss of billions.
All of this is setting aside some super basic problems that were long ago ironed out by the traditional finance system, but which rise anew in the Crypto landscape. Some of these problems include:
Security of funds: losing a dollar at a bank is a pretty difficult thing to do. Losing a dollar (or a million) on a crypto exchange (on your own, no less!) is pretty damn easy.
Custody of funds: in finance, custody is, like, a big deal. There is an enormous, boring, badly understood apparatus of financial plumbing— like Central counterparty clearing and the DTCC—that ensure money is where it’s supposed to be and goes where its supposed to be. Without these, the system would collapse. Crypto custodian Prime Trust recently filed for bankruptcy.
Ease of money laundering: the anonymity of crypto and the ability to make multiple transactions with only numbers to identify you has taken the popular imagination’s version of Swiss banking to a new, exponentially more wild level. (Silk Road, anyone?)
But who knows? Maybe crypto will clean up its act and deliver in the future. If the past is prologue, however, I won’t be holding my breath.
Final Thoughts…
Alex Jones won’t be let off the hook so easily. SBF was searching for legal ways to illegally take money. A primer on how generative AI works. You might be drinking too much without knowing it. Nationalized oil companies are still badly run. Much-hyped automaker VinFast gets a shot in the arm. Ruh-roh: the Fed won’t rule out higher rates.