The Specialist Dispatch #9 : The Buck Stops Here

What’s wrong with regular money? It has its own problems, sure. People keep it in banks and those banks have been fragile in the face of attacks and crises. If you need to move money, it can take days and go through vulnerable and hackable networks. Furthermore, there are also cumbersome fees associated with the sisterhood of travelling money.

One of the earliest cryptocurrencies, Bitcoin, was meant to combat that. If you had an Internet connection, the idea was you could set up an anonymous account controlled with a private key. Digital tokens could be sent anywhere anytime using Blockchain with sturdy cryptography and decentralization defending against fragility, abuse and vulnerability. That sounds great.

The premise of decentralization has been promising. The promise of crypto, on the other hand, has been... well, it’s hard to say. If you own 10 shares in a startup, for instance, and it becomes successful, the value of your shares increases and when that startup does poorly, the share value tanks. A cryptocurrency like Bitcoin is more obscure when it comes to explaining how it would function in a portfolio.

One of its core principles is trust. People did not have faith in the traditional financial system, which they felt had failed them. They wanted a safe place to put their money and so, they turned to cryptocurrency. It may not have even been for the purpose of speculating, they just wanted to save through a digital asset.?That has led to more than 80 million people investing in it and bringing its market capitalization to about $443 billion in August 2022. Sure, it used to be $1156 billion in October 2021.?Remember, remember, the crypto crash of 2022. The crash seemed to be the opposite of what crypto seemed to stand for: trust.

Though, is it possible that people gave their coins to someone else, so they could do their mining? Is it possible they used wallets, which may not be what crypto stands for?If a USP of cryptocurrency is cutting out the middleperson, then isn't using wallets or giving the coins to someone else creating the very problems crypto may set out to eliminate?

French philosopher Louis Althusser has a theory associated with him called interpellation. The idea is that certain thoughts get into our heads and impact us, so much so, we’re led to believe it’s our very own belief. It’s what has been presented for us to accept.?

For example, you may think, “I like the TV show ‘Friends’. I have always loved it’, when it may have just been introduced to you with raving reviews and word-of-mouth. The show now belongs to you and is suddenly your favourite thing to re-watch on Netflix. Does this apply to cryptocurrency? There is a huge machinery of validators which want us to believe that crypto is good for us.?

But what’s Bitcoin like as an investment? In the olden days of cryptocurrency, Bitcoin would soar by hundreds of percentage points and then, abruptly drop. And then, the COVID-19 pandemic ushered in one of crypto’s greatest spikes, leading many to fervently become ‘Bitcoiners’ without entirely understanding what it entails or what its premise is. But, then again, who’s stupid enough to turn down the idea of investing, if it would exponentially grow their wealth? Or wait, is that how a bubble works? Is a Bitcoin bubble its worst-kept secret?

The questions have to be posed: what is the endless and hopeless premise of cryptocurrency? Who’s betting on it? Are cryptos like Bitcoin for the masses or for the top echelons of investors?

Andrew Bailey, the governor of the Bank of England, remarked, “Cryptocurrencies have no intrinsic value. Buy them only if you’re prepared to lose all your money”. Once peaking at $2.9 trillion in November 2021, the global crypto market lost a trillion dollars in revenue in 2022. Still, it’s close to $1 trillion in market value, close to some of those of the FAANG club. And that’s despite the fact that the currencies aren’t attached to any tangible assets. The value of the crypto market seems to stem from the indomitable belief that the price will rise even more. So, no one told you life was gonna be this way.

Can the common person get rich off it? Sure, the same way they could make a lot of cheddar playing the slots at a Las Vegas casino. It’s a zero-sum game: you win, because someone else loses.?Crypto seems to be like that: the you of the present becomes the enemy of the you of the future.

Can you name another financial craze people were so emotionally invested in without having any intrinsic value? And yes, maybe a Bitcoin bro may tell you it’s akin to gold, having its value bred from its scarcity. Yep, a cryptocurrency like Bitcoin can only be issued 21 million times max. With more than 19 million digital coins already in circulation, as of June 2022, an eyebrow may be raised. But, can scarcity, on its own, have value? Doesn’t it need to complement other factors? It seems like William Gates of Microsoft may have had something there when he said crypto was based on the Greater Fool Theory, where the market will always have investors foolish enough to shell out money for an overvalued investment. All that’s needed is someone gullible enough to buy an asset at a higher price and boom!

You could also think about the way stablecoins were heralded. They were believed to be super-powerful, speedy and importantly, stable. It was supposed to provide stability to the volatile world of cryptocurrency. And, then, it all, kind of, fell, crashing all over the world.

In May 2022, stablecoin Terra (UST), which is supposed to match the US dollar, was subject to an alleged financial “attack”. LUNA, its partner coin, collapsed subsequently; if it was once $100, it ended up at something like 10￠. It was not the only victim, with other cryptocurrencies going down by about 30% at the time. It makes one think how stable stablecoins really are. Aren’t they meant to employ zero volatility as a ‘pegged coin’? Isn’t this a matter of concern for the future of crypto??What’s the kind of education investors need in a space as risky and volatile as cryptocurrency?

With so much doom and gloom, surely the VCs are backing out and running away. It’s a bleak winter, right? Nope. Venture capital money is pouring into digital currency. In just the first half of 2022, VCs bet $17.5 billion on crypto and Blockchain firms, according to PitchBook. Compare that to the $26.9 billion raised in all of 2021, back when Bitcoin and crypto were having a sweeter time.?Despite a supposed crypto downturn, VCs seemed to shrug their shoulders, utter, “It happens” and continue to deploy their war chests. The crypto carnage didn’t seem to slow them down.

Why, though? According to some reports, Andreessen Horowitz, also known as a16z, believes that the digital status quo is broken and giant tech gatekeepers seem to profit off everyone’s data and creativity. VCs seem to be putting in money to seemingly create an alternative world of finance and commerce. But, is this faith in cryptocurrency or is it faith in the underlying tech behind these digital coins??Are Blockchain and decentralization the unsung heroes here? Is Web 3.0 the real cutting-edge innovation they’re trying to prop up? Is this unabashed VC politics, when it comes to future innovation?

Is there a disconnect between the ambitions of VCs and the hopes of the common everyday investor? Is cryptocurrency an asset class for the masses?

The RBI (Reserve Bank of India) seem to have an unfriendly relationship with private cryptocurrencies. However, they’ve been unequivocal in their support for a CBDC (Central Bank Digital Currency), which would be based on blockchain technology. This would be different from your regular cryptos like Bitcoin, because while those would have no intrinsic value, the CBDC would be pegged on a 1:1 basis to the Indian rupee. This means that its value wouldn’t be subject to the level of speculation and volatility that private cryptos are cursed with. Furthermore, if anything goes wrong with a CBDC transaction, one has the RBI to follow up with.

It’s interesting and almost intriguing how the true crypto believers are wounded and bleeding, but are still standing and undaunted. The exhilaration in the cryptosphere seems abuzz, as people lambast a banking system they don’t trust. Some feel that inflation is devouring their fiat currency and that boomers have the world’s wealth on chokehold via death by a thousand cuts. It may also seem to be a reaction to all that transpired during the COVID-19 pandemic. The rich got richer. The financial system didn’t help everyone. Big tech continued to seem exploitative. All of this may have proselytized many to look up to a virtual object that’s basically just computer code or maybe that’s an oversimplification.

Is all of this a failure of cryptocurrency in terms of its premise? Because you can inflate stories about an asset class and put forth some beautiful marketing around it. You can have VCs inject billions of dollars into the space. But, a stamp of faith by VCs can only take crypto so far. There have to be more tangible mainstream problems being solved and nailed down. This is the Wild Wild West and the crypto enthusiasts are the sheriffs defending a beaten-down asset. Is this town big enough for this die-hard breed?

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