We're Missing the Monetary-Forest for the Crypto-Trees
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning" - Henry Ford
As a woman who respects scientific fact, I am comfortable to admit that I biologically, in blank slate form, experience higher emotion and lower rationality than the average male. Which leaves me perplexed; as to why so many guys are into crypto and why they’re so damn emotional about it.
Now before the Bitcoin Bros and Crypto Karens start peppering my inbox with spam, understand this - this article is not pro/anti crypto but rather a discussion above crypto. I’m interested in the reason crypto exists, because its existence doesn’t make sense to me. I believe it’s getting in the way of an important debate, posing as a fake solution, and wasting a lot of time, capital and energy in the process.
To the Pro-crypto - If we care about a superior functioning monetary system, shouldn’t we do it properly? Not just buy Bitcoin and cross our fingers?
To the Anti-crypto & Bystanders - If we could have a financial system which was as trustworthy as a Berkshire balance sheet, but we all just throw our hands up and say ‘oh the systems broken’ - is that good enough?
My Views on Today’s Crypto
My personal view is that the crypto assets in existence today reflect the first elementary attempts to build alternative money in an alternative monetary system. Its cute, they’re really excited about it but honestly, I have not found one single person in the industry who can explain the intricacies simply - and that’s a worry. When a group gets excited about something they don’t exactly understand, and then get religiously excited about it - some bells should be alarming.
I believe crypto marketplace participants have misaligned incentives towards fast growth and mass adoption, which has:
1. Decoupled the industry from its original theoretical objective and;
2. Pumped out assets that are incompatible with practical applications in the real world
Too much attention and capital has been thrown at this industry in its infancy, before any of these technologies have really been tested for merit or usability. This activity has hinted to the market that these assets have value: ‘Look at the price multiplication!’, ‘Look at the adoption curve!’, ‘It’s had 3 recovery’s and continues to exist!’. And some of the most intelligent among us have fallen for it.
But, when you:
Have a population staying home on their devices + Have a population who seem genetically susceptible to conspiracies theories + Offer them thingy-ma-bobs and whats-a-woos to decentralise their finance and stick it to the man and see their money go to the moon + They’ve got free money (stimi’s!)
= Dumb money meets crypto
And, over on Wall St:
When you flood a system with liquidity - You get mega speculation - People start to get big returns really quickly - People want bigger returns even quicker - Wall st runs out of IPO’s and SPAC’s, indices/bonds are tapped out, commodities are boring, emerging markets are looking dicey, smart money needs somewhere to go - Where’s the dumb money going?
= Smart money meets crypto
The price appreciation and adoption curve argument must be calibrated to the above reality. Which is why this doesn’t suffice as an argument for me, and I continue to come up short on my search of finding anything of value in the crypto space.
My Views on Tomorrow’s Crypto
You can’t really blame the technology and finance hustlers collaborating together on a crypto-something, when there’s dumb money falling from the sky and everyone is saying the C-word. This is where it becomes blatantly clear that incentives in this new industry are mis-aligned.
If incentives return to the original purpose (which was to actually build an anti-fragile monetary system which is superior to what we have now), then fin-tech will be focused much less on quantity and far more on quality and a viable crypto technology which works on all practical levels in reality might come to exist.
For crypto to be a serious solution though, its technology will require a much greater robustness with practical application, a method to fund maintenance and oversight, a framework for decision making, some mode of recourse for users, a 1300 help-my-money-has-disappeared line? From the crypto in existence today, we will need multiple destructive cycles of natural selection before it could possibly become something anti-fragile enough to propose itself to be a superior option to our current system.
If history has taught us anything at all, it’s that a flurry of speculation and feverish hype only works to create waste. An environment of quiet reflection where the only objective is to solve a problem at its very root in a consistent and dependable way, is where creation of value occurs.
But Crypto is a Superior Storehold of Wealth!
If you’re not concerned about transactional practicality and value crypto for the storehold of wealth argument only, then let’s dig into Bitcoin. I mean, what’s a crypto discussion without the B-word anyway!
Bitcoin was created in 2009 by Satoshi Nakamoto, the first actor of our time to recognise the monetary system was flawed, be technologically literate to create a first draft solution and just the right balance of crazy and pragmatic to test it out in reality.
I liken that to the first person who used shells as money. It offered a solution to a problem, it was simple, people seemed to get on board with it, but it couldn’t scale. Shells served well as a token of payment as long as people trusted each other but the shells themselves had nothing intrinsically valuable about them. In order for this simple idea to scale - the shells needed to become coins made of finite metals. Coins were the sustainable and scalable solution because they were not only transactional but retained trust, as the value was always contained in the raw material.
So - what will Bitcoin prove itself to be? Digital shells? Digital coins? Digital gold? A digital reserve currency? Or simply its raw material - nothing? No one can answer this question. The future of Bitcoin is still pixelating, therefore any investment into this asset should be calculated with the same level of risk as a lottery ticket or slot machine.
Whilst Bitcoin continues to be in the middle of hype-mania, and its perceived value is being distorted by the hype-manic participants, a case for it being a storehold of wealth will require a much longer time frame over multiple market cycles to adequately determine its resilience. Which brings me to something society prepared earlier for this very purpose. Real gold. For this, I can’t make a better investment case than G. Garrett himself:
My Biggest Concern
The biggest concern I have with this crypto-mania trend is not the misplaced and probably destroyed capital, time, energy and human inspiration.
It’s that crypto is a lazy answer to a very important question. Which is, is there a better alternative to our flawed monetary system?
By suggesting we have a solution prematurely, it has effectively narrowed peoples focus down to re-iterating Satoshi Nakamoto’s first draft solution instead of coming up with a new prototype altogether.
I believe there is not enough people in the industry going back to first principals, looking at the biggest failures in our monetary system, targeting those areas specifically, and designing a new system resistant to those faults.
To be continued…