The 'Crypto' Obsession : Boon or Bane?

Louis Althusser introduced the term 'interpellation', a term used to explain the way in which ideas get into people's heads and have an effect on our lives, so much so we believe they are our own. The philosopher deems interpellation to be a mediator between systems of power and individuals, positing that the process works best when it's invisible when people accept cultural notions as though they are obvious or natural when it seems natural. How relevant this phenomenon seems when it comes to our evolving relationship with money and our growing mindset of how inconvenient it can be.

In November 2021, Jack Dorsey stepped down as the CEO of Twitter and one chunk of the platform's user base was particularly pessimistic and despondent. That chunk is fondly referred to as "Crypto-Twitter", which is a vast subset of startup founders, influencers, developers, speculators and influencers who spend all their time talking and tweeting about cryptocurrencies like Bitcoin, blockchain and decentralization. And why were they morose? Because Dorsey is a major crypto and Blockchain ally, having "bitcoin" in his Twitter bio, telling investors in July 2021 that Bitcoin will be a big part of Twitter's future, launching a Bitcoin fund with Jay-Z and more.

But what's with this obsession with cryptocurrency? Are they all that people like Dorsey make them out to be? Sure, this whole concept of decentralization sounds intriguing, but is it really the future? Is this all some kind of rose-tinted euphoria surrounding crypto?

We live in a world where people want instant gratification. You're probably conjuring up some images in your head of what kind. It's the kind of fixation that is quite troublesome and creates all kinds of hype cycles, now and in the future.

We had the dot-com boom and bust a couple of decades ago be caused by short-sightedness. Huge valuations came out and society believed it would continue to grow up and everyone wanted a guaranteed lottery payout. That didn't happen. Remember when Bitcoin and other cryptocurrencies recently had their big tumble and it fell more than 20%? It's probably because the investors seem to be pulling back from riskier bets and would rather not trade or hold their coins in any crypto. They'd probably prefer a fiat format, especially in a market where Bitcoin and other currencies can be bearish. If these coins are being sold or withdrawn, there's definitely going to be an overall bearish trend in the crypto-verse.

Whether you're for it or against it, that kind of crypto volatility is here to stay. The handwringing and hesitancy we're seeing when it comes to its regulation or lack thereof aren't helping. India is going to have a proposed bill to ban cryptocurrency and there could be jail time for violators. The overall worry with the recent flash crash, where a fifth of Bitcoin's value was wiped out and caused $2 billion worth of positions to be liquidated and soured investor expectations of a massive run-up, is only validated by the one the USA had about 11 years ago where there was a trillion-dollar stock market crash. Is history just constantly repeating itself? Because the one thing I have learnt about history is that people are refusing to learn from it. There are guardrails to be put in place, here and in the US and the issue is: while crypto may be decentralized, trade venues aren't and if there are no safety measures in place, it's going from the frying pan into the fire.

Remember in August 2021 when Poly Network got hacked for about $600 million worth of various cryptocurrencies and was the biggest crypto hack ever? That crisis highlighted just how tense the cryptocurrency ecosystem can be, especially when a core tenet of crypto is “trustlessness”, both philosophically and technologically. With the stakes, competition and complexity being as high as it currently is, how much we need to trust the people behind crypto has exponentially grown, as well as the ramifications of misplacing that trust. The consumers of the Poly Network who entrusted their funds who had entrusted the tokens which were stolen to the protocol and this was meant to be a custodian as part of its cross-chain functionality. A devil's advocate may argue that trust placed in stable and secure blockchain systems has not been tarnished yet; instead, one can blame selfish and fallible individuals. But all of it just validates the idea that the system wasn't being trusted, it was the coders and designers of the network being trusted and the flaws in their code belied the trust placed on them. So, the argument can be made that decentralized finance (DeFi) systems can be vulnerable, maybe inherently more than a simpler system like Bitcoin.

Thus, for all their technological razzle-dazzle, cryptocurrencies suffer from fundamental weaknesses that stand in their way of becoming a viable medium of exchange for financial transactions. Case in point: Bitcoin transactions can be slow and expensive and its network cannot process large transaction volumes. And its unstable value leading to its wild price fluctuations continue to make it unreliable for day-to-day transactions. Another aspect is its decentralization, a system many endorse, but it also means that transactions cannot be reversed and mistakes cannot be rectified. Remember the guy who had about $220 million locked away because he forgot his password? Let's also not forget the enormous computing power and energy with terrible environmental consequences that induced Elon Musk to retract his support from Bitcoin.

And lest we forget the original purpose of facilitating transactions, which Bitcoin has failed to adhere to. Now being seen as a secure investment due to its scarcity, it's become a financial asset. Unlike fiat currencies which are printed at will by central banks, the computer algorithm that manages Bitcoin can only mine 21 million of those. To base the value of an asset with no intrinsic use, solely on the degree of scarcity seems to be a dubious notion and yet, investors have continued to pour money in, creating a massive speculative bubble. As of November 2021, the total market value of all cryptocurrencies is about a stunning $2.8 trillion.

Then there's also the prospect of digital countertrade. Let's say you hold onto some Bitcoin and you find a bookstore that accepts Bitcoin. You get a book you like and the store allows you to toggle between fiat prices and Bitcoin prices. The fiat price toggle is about 500 bucks but the Bitcoin toggle says the book is about 0.7 BTC. You stroll around the bookstore for a while and when you come back to the same book you wanted to buy, it has reset to 0.15 BTC and after five minutes, 0.11 BTC, but the fiat price toggle is still 500 bucks. Why is this? Because the real price of the book is 500 bucks but the Bitcoin amount fluctuates.

What could you also do is sell some of your Bitcoin for 500 bucks and give it to the bookstore. What's happening here is the bookstore is offering to sell the Bitcoin for you and the reason why the fiat price for the camera stays constant while the fluctuating Bitcoin price doesn’t is that the latter is not a price; it's a countertrade ratio. The fiat price for the book is being offset against the money price of a Bitcoin, thereby, leaving a residual swapping ratio between them. This is because Bitcoin’s money price constantly changes through the speculative market upon which it is traded and so, the bookstore has to constantly change the ratio to maintain the 500 bucks selling price. Well, what is the key hallmark of money? It can be held in your hand and it does not constantly change, unlike crypto tokens, which come from the digital ‘shelves’ of digital 'bookstore'.

There's an overall worry that cryptocurrencies like Bitcoin could crash various economies.?It's not predominant in India as much, but in other countries, people are borrowing more money and even mortgaging their homes to invest in Bitcoin futures. That's clearly a red flag, to begin with, and therein lies the significant risk of a collapse. When those markets correct, it's probably going to spell a run on the banks. And when there's no central regulating body to regulate pricing or close exchanges, how is the currency not going to exponentially decline more rapidly? Isn't that inevitable? It's not just a single currency, the market is getting crowded with thousands of unregulated virtual coins and even the ones created for fun or for hate are catching on. How are people not tempering their expectations?

Sure, it's a welcome change to have so many people take finance more seriously and so many novice investors take part in the market. But is this all some kind of FOMO where people want to be part of the next big thing without a care of how it affects them on different levels? There is some consensus that these cryptos may not have long-term value and would probably fall after a period of a rapid surge. Low-value cryptos are put on a pedestal and it's only breeding of awareness that can bring them down again.

Because Bitcoin and other cryptocurrencies are unlike most assets and currencies: their only value is their perceived value. With so many people diving headfirst into the deep part of the pool, there's a major cause for concern, because they're the ones blowing the bubble that they're going to have to run in. It's getting easier to be defrauded and people have to stay cautious because it's pragmatic to posit that this is getting overhyped.?

That being said, I don't condemn cryptocurrencies or their underlying technology Blockchain. All I want is for more people to be cognizant and know what they're getting into before hedging their bets so profligately the way they're doing it right now. Blockchain is probably going to be part of the future and it's probably going to be world-changing tech, all I can hope is that Blockchain's feet would be held to the fire. Sure, but it'll probably have its place in the world, there is some merit to it all and a niche will certainly be carved. Just look out for yourself, is all.

Let's stay aware of evolving trends and remain calm, informed and patient. Because while we're being rash, the volatility is getting high. So, who's going to hold the line?