Blain’s Morning Porridge May 20 2022 – The Crypto Bubble is Bursting – Open Your Eyes And Spot the Ugly Naked Truth
“Buttcoin is about the worst idea in 7 Millenia of a Financial Stupidity.”
This Morning – Crypto has fallen 30% through May. The headlines about scams, illegality, and outright theft obscure the key facts; its overly complex, vulnerable and doesn’t actually do anything we can’t already do better. It’s terribly clever, but a pointless, busted bubble.
It’s been an “interesting” and challenging week for markets. Thankfully, we have the light comic relief that is the Church of Crypto to distract us from real world pain.
I’ve been watching the Crypto narrative of stupidity, skulduggery, naivety and downright illegality develop for years. At first I was genuinely enthused and intrigued, but the excesses, the self-importance of players, and the utter nonsense spouted about its applications beggared my belief. I’ve thought about it long and hard, and concluded Crypto is utterly pointless. But… the mythos around it means it’s become an opportunity to make money – which is why Bitcoin uses as much electricity as a mid-size nation even though it contributes absolutely zip to the sum of human utility.
If there is one thing the market excesses of the Twenty-Teens has demonstrated it’s great ideas are not necessarily great businesses. For instance; the CEO of one of the largest Pizza companies was asked about food delivery start-ups: “We’ve been delivering Pizzas for 50 years. We make all our money from the ingredients and cooking them. We’ve lost money on every pizza we deliver. What do these guys know that we don’t?”
And, that neatly encapsulates Crypto. What’s the point?
Yet, the crypto sector just keeps delivering; getting ever more complex and more detached from reality. I’m not even sure I should even be writing about the crypto ecosystem – but since lots of institutional investors say they are interested.. they I suppose I must remind them of the rules of financial common sense…
If you can’t understand it… don’t invest. If it makes no sense… walk away.
If you bought the story Terra was an utterly reliable stable-coin backed by confidence in the upward price trajectory of Luna on its ever widening adoption, then more fool you when it crashed. If you can explain why a stable coin is better than a dollar – I am all ears. If you read the tale of an 18-year old mathematical misfit being able to overwrite and optimise code to very cleverly rip holders of a crypto index for millions – then explain why would you still invest in something so insecure? If you think crypto can do anything the financial world doesn’t already do, better… please elucidate us all…
The brutal reality is Crypto might be terribly clever, but it has little to do with the investment rationales of real financial markets. Maybe its genesis was in finding a problem for “blockchain” tech to solve… (still looking).. Maybe it was just an intellectual curiosity that got out of hand. Intellectual curiosity can be a dangerous thing…
Whatever, Crypto has now morphed from an interesting concept into a classic confidence scam: using complexity, jargon and fast-talk to create a marketable vision, exploiting the behaviours and fears of weak-minded greater-fools wanting to get rich through the power of FOMO (Fear of missing out) and FOBSAS (Fear of being shown-up as stupid).
Crypto is broadly down 30% through May. The papers are full of hard-luck stories; the Nigerian student who lost all his life savings and his dream of an education in Canada by betting on Luna. Sorry, but It’s hard to find much sympathy for those impacted by the immolation of crypto as the credibility of the sector unravels.
Clearly, I am not a fan of crypto. But it does make me giggle..
Earlier this week there was a very funny RyanAir tweet photo-shopping a “crypto-bro” from a private jet into the hell-on-earth that is Ireland’s contribution to air transport. On Monday the cryptosector was still worth over $1 trillion. I don’t know or particularly care what it’s worth this morning, but I do wonder where all the Greater Fools’ money has gone. Some folk have just made off with the loot from one of the most successful Ponzi schemes history – will we ever know who?
Beating up cryptotards is the financial equivalent of baby seal-clubbing. But, unlike cute furry sea puppies, cryptotards absolutely deserve it. Yep. Its cruel, but removing eejits from the financial gene-pool who can’t recognise a Ponzi will be a long-term benefit!
Harsh, but fair.
Let’s not make it too easy. If any cryptocurrencyologist can tell me even one single thing that Bitcoin can do, or enable, in a way that isn’t already done better, and is legal, then I shall tap dance round the office. Naked.. if it’s a particularly useful and good thing raising the level of human happiness.
No takers? Thought not.
It’s easy for me to gloat. I’ve been writing about just what b*llsh*t crypto is for years.. I regard myself as the small ignorant child who spotted years ago the Crypto Emperor in his fantabulous suit of multi-strand cloth only clever people could understand has been essentially naked since its inception.
But, and there is the big BUT! We need to understand why and how it garnered such a following.
It has been absolutely fascinating to watch how the idea, the concept, and the belief systems behind crypto emerged, insinuated and established themselves into financial orthodoxy. The church and reach of Crypto has developed, evolved, spread and embedded itself at extraordinary speed right across the entire economy. In a world with so many financial geniuses running funds, banks and in senior regulatory positions, how did Crypto ever thrive? (US readers – Sarcasm alert.) Probably, because no one asks the obvious questions… FOMO and FOBSAS mean people are afraid to ask the downright bleeding obvious.. Like… Please, explain what the point of crypto is?
I will get trolled for asking that very simple question. The trolls will call me stupid and say I don’t understand. They will say I haven’t done the work to understand. Nope. I am just asking the obvious question. Again: Please, explain what the point of crypto is… ? (And to counter Central Banking tyranny is not an acceptable answer.)
I’m a believer that markets and economics are largely about the behaviour of crowds. As we’ve seen right through the TwentyTeens markets are susceptible to “glamours” that make participants behave in extraordinary and improbable value myths – like Cathie Wood, SoftBank, Tesla and Crypto. My own financial belief systems are based in my definition of common sense, and that if it quacks it’s probably a duck. Simples and it works..
Crypto works because the more plausible a “get rich quick” scheme sounds, the more likely it will attract a strong following. You can enhance plausibility by spicing it with spurious complexity and jargon to boost credibility. It’s been fascinating to watch crypto evolve from complicated (but utterly nonsensical) mathematical proofs right the way down into nonsense that is DogeCoin… (originally a spoof to expose crypto). Each iteration is progressively dafter than the last… each attracting the next level of greater fools by appealing to a progressively a lower financial IQ threshold.
I’ve taken this quote from one of the articles cited below: Dogecoin creator Jackson Palmer concluded: “After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight, and artificially enforced scarcity.”
There you go then…
Since I started in markets nearly 40 years ago I’ve watched dozens of unlikely corporate scams, from Enron, RBOS, Madoff, We-Work and Theranos and many others, unravel and tumble. Some were honest mistakes brought on by hubris, but many were plain and simple scams, given scale for multiple reasons. Like any Ponzi scam the key to crypto’s spread has been opening a quadratically expanding number of “marks”, the greater fools to be relieved of their pennies.
But I’ve never seen a scam of such proportions as Crypto. Its multiplied and thrived like an alien virus, spawning its own ecosystem of tokens, stable-coins, NFTs, digital assets. It’s fuelled a whole industry, community and belief system in crypto – and 99.9% of the participants don’t seem to get it, and just don’t know how completely they are being scammed.
The crypto-bubble is bursting. On Monday I met with a team to discuss a blockchain based carbon trading system. They laughed and told me never to mention blockchain again because its credibility has been utterly burnt by crypto. Blockchain is a 20 year old solution still in search of a problem – and there are far better, easier, more secure approaches to data than distributed ledgers.
Even if we could spray the weeds of crypto with financial paraquat, you can bet new crypto shysters and Libertarian eejits will swiftly emerge from the wreckage. We have to understand why it’s been such a successful scam. Like all great cons, Crypto has thrived because it contains the germ of a solid idea, a perceived problem to be solved and new technology to enable it.
- Is crypto money? No. You can’t transact in crypto – you exchange into money. You can’t store value in crypto because it’s too volatile.
- Is crypto freedom money – as the libertarians claim? No. It’s not money. It is simply a way to transact invisibly with one single USP: its ability to hide criminality and facilitate money laundering. The idea crypto will remove the evil of political or financial oversight is utterly flawed. (Some idiot will ask how…) Regulation could kill it tomorrow, but regulation would also give it credibility.
- Is crypto an inflation hedge? Patently not based on the recent price action.
- Is crypto green? No. The idea crypto mining will spur renewable energy is a Cathie Wood level of stupidity.
- Does crypto work? No. 10 transactions a second while PayPal manages billions?
The list of what crypto is not goes on, and on, and on. No one has ever demonstrated why we need crypto. Yet crypto has generated its own financial gravity, has sucked millions of not-completely-stupid people into its orbit.
Although we fear what we don’t understand, we are also greedy. When we see implausible wealth being generated and we don’t understand how or why, that’s when the most important financial power in the Galaxy kicks in: FOMO.
We might not understand it… but if others are getting rich.. what’s to miss?
Five Things To Read and confuse yourself about…
New Statesman – What the Terra crash means for the future of crypto
Have a great weekend…
Strategist – Shard Capital