So why am I still smiling? Plus how to think about crypto with Trump & Musk in charge
(This is the opening essay from this week's edition of my Sunday Note, which is produced with Zach Peterson.)
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IN 2011, I WAS GIFTED TWO BITCOINS when they were worth two Big Macs each. I promptly forgot about them and eventually lost access to the digital wallet they were in. Now, at $100K each, they are the price of five Teslas.
Everyone who has heard this story has become upset for me — and with me. “How could you?” is a common question. Usually implying how could I be so stupid?But I’m not upset. And not just because I wouldn’t buy one Tesla, let alone five.
Don’t get me wrong. I’d love to have an extra $200K right now, or $20K, but I’m not upset because:
I know I would have sold when Bitcoin hit $10 or $100 or, surely, $1,000. Anyone who tells you in my place they would have held onto their two Bitcoins past $10K or $30K or $50K or whatever is fooling themselves.
It’s money I didn’t earn at all. Call me old-fashioned, but I think money is something you earn through hard work or smart investments, etc., not by gambling.
This milestone of $100K means millions of people are now paying more attention to Bitcoin and other cryptocurrencies, and with Trump being hailed as “the first crypto president,” get ready for nonstop coverage of crypto and fortunes made and lost (more of the latter than the former).
Crypto isn’t mainstream yet. If you’re terminally online, it’s easy to think that cryptocurrency is a major financial asset class that is taking the world by storm (the global crypto market is worth about $3 trillion, around 1% of the total financial market of $255 trillion).
Crypto markets are so volatile and risky that they naturally exclude most would-be investors. Larger, more established financial firms have some sort of crypto holdings, but the entire asset class represents a statistically insignificant share of financial markets overall—and most of that is Bitcoin, the one shining example amid a sea of shitcoins and/or memecoins, ponzi schemes, and pump-and-dump scams that cost people, in some cases, everything.
That’s the thing—it’s all speculative. The entire crypto industry is speculative. The real-world use case of paying for groceries is difficult and painfully long at present, and the complexity of the system actually relies on that complexity for legitimacy. It’s at odds with itself.
I really like this piece from Annie Lowrey in The Atlantic last year when the U.S. Securities and Exchange Commission charged the crypto firm Binance with a dozen or so major financial crimes. A couple of passages from the piece that stood out to me:
On volatility:
Then there are the volatility and the bubbles. Financial assets go up in price. They go down in price. This is their nature. But few things go up and down quite like crypto. NFTs came out of nowhere, sucked up billions of dollars, and collapsed. Initial coin offerings came out of nowhere, sucked up billions of dollars, and disappeared.
Wealthy investors might be able to tolerate these kinds of losses. High-risk investors might be able to tolerate this kind of volatility. So too might crypto true believers, for whom HODL, or “Hold on for dear life,” is a common refrain. But most people don’t want to hold on for dear life.
This gets to what’s most interesting to me about crypto—if the major players would simply play ball and submit their assets and products to the same regulatory scrutiny that the rest of the global financial system generally adheres to, it would probably lead to more trust, more innovation, and real adoption of the technology. As it stands now, the vibes are off and the industry is represented publicly by nihilist crypto bros who can stand to lose a few million dollars here and there for the lolz if nothing else.
In October, Pew Research Center published new survey data on Americans’ views of crypto, and the industry has severe trust and image issues:
Roughly six-in-ten Americans (63%) say they have little to no confidence that current ways to invest in, trade or use cryptocurrencies are reliable and safe. This includes three-in-ten adults who say they are not at all confident, and a third who say they are not very confident.Just 5% of adults are extremely or very confident in cryptocurrencies, and 18% are somewhat confident.
These numbers have really not changed in the last 18 months.
I am not, however, here to pour cold water on crypto as a whole. Web3 (described by Wikipedia as “an idea for a new iteration of the World Wide Web which incorporates concepts such as decentralization, blockchain technologies, and token-based economics”) is interesting, and I think there is a future where the technology has real-world applications beyond being a lottery for people who just want to buy another boat.
For an easily accessible description of crypto’s shortcomings, I highly recommend this speech by Fabio Panetta, member of the Executive Board of the European Central Bank, from June 2023. It’s plain-spoken and a fantastic overview.
For a slightly more scathing view, “Why Crypto Just Won’t Die,” by Gilad Edelman for The Atlantic, is pretty good too.
Finally, with the news that David Sacks will be Trump’s “AI and crypto czar”—more on Saks on my roundup of three deplorables with South African connections who have Trump’s ear—and the crypto bro universe flocking to Trump, read Ellen Ioanes and Nicole Narea on Vox for a good rundown on what it all means for us.
I asked a worldly-wise friend about his thoughts on Bitcoin and here’s what he wrote:
I never bought any Bitcoin or crypto — my logic was the US would not give up the US dollar, Great Britain would defend the pound, and India would hang on to the rupee — so Bitcoin and other cryptocurrencies would forever be relegated to the fringe, the province of drug dealers and speculators and Ayn Rand types. Now with a US president so big into crypto it’s going to be different.
Please be careful out there, and don’t lose the keys to your crypto wallets! Like so many other things crypto, it could really cost you.
NOTE: One of the best ways to understand crypto and the decentralized web is to read Decrypt.co, a news site founded and run by my friend Josh Quittner, a pioneering tech journalist who helped millions of us understand the early web. Each writer discloses how much crypto they own (Josh “owns less than 1 BTC and less than 3 ETH”) and Decrypt has a manifesto worth reading.
💵 Last week, I made the case for the funding of new media outlets. Am working on some ideas and looking for collaborators and partners. Ping me: sree.sreenivasan1@gmail.com.
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