Cryptomania and the Death of Money
2022 will mark my 9th year of involvement in the “crypto” ecosystem. It’s been a very strange ride that started with me day trading altcoins in college, ramped up to me dropping out of school to build my own project on Ethereum, and eventually led me back to being a Bitcoin-only investor and sound money advocate.
Throughout these (nearly) 9 years I’ve witnessed multiple waves of growth in the ecosystem and an increasing amount of consumer speculation. Er… adoption. While each wave has its own buzzwords: ICOs, DAOs, DeFi, NFTs, etc, the overall mechanisms and market behavior has remained relatively constant. The only thing that’s really changed has been the prevalence of crypto in mainstream culture.
In 2014 I was hard-pressed to find anybody I knew who was remotely interested in investing in cryptocurrencies. Today it’s the total opposite. Whenever I tell someone (under the age of 50) that I work in the bitcoin industry they immediately tell me about their DOGE position and the NFT horses they’re racing. Many of them share that they’re planning to quit their job to start trading crypto full-time… if they haven’t already.
What I find even crazier is ideas that were discounted years ago are now back in vogue. Projects like Polkadot and Solana are essentially a new spin on earlier 2016-17 projects like Lisk and Wings which themselves were inspired by Ethereum. The entire NFT space was born out of the (mostly defunct?) CryptoKitties project. SHIBA is merely a parody of Dogecoin which was, itself, a parody of the early altcoin ecosystem. Governance narratives like the “superiority of Proof-of-Stake” are just the newest obsession with a long line of narratives that purport that Proof-of-Work is dead. And the term “smart contracts” continues to be used alongside other word salads like “decentralization”, “private blockchains”, and the “internet of [insert word here]” with none of it really meaning anything at all.
“Decentralization” continues to be more of a meme than any sort of true ideal. Ethereum has been announcing its move to ETH2 since at least 2016. And Ripple continues to pretend as though banks actually give a shit about them.
The narrative that bitcoin is outdated technology has been going strong since that “outdated technology” was trading at $180/coin. Bitcoin mining has been bad for the environment since circa 2014. And ICO token launches have evolved into NFT pre-sales and DeFi airdrops. In fact, token launches have been rebranded to “Artist Auctions”!
As always, The Narrative is more important than releasing a product that actually achieves anything of value. You see, in crypto, an idea sells way better than a half-baked product based on that idea. When you promise the world to your investors and you can’t deliver, well… extend your launch dates and promise your investors the solar system.
Here’s the part where I guess I should insert the quote about this time being different?
What is different about this time around (which wasn’t the case in previous bull markets) is just how many Average Joes are getting involved in these markets. Random instagram accounts I follow are now selling NFTs. I know multiple people who have only been in crypto for a year who are now running groups to educate people about this Crazy New Asset Class. And the college landscape has changed dramatically. Now every college kid with fingers is trading shitcoins while they yield farm.
But the most disturbing stories to me are the ones I hear about friends of friends who are quitting their jobs to become full-time crypto traders. Many of them are leaving good jobs with REAL economic output to, well, speculate.
The more I engage with friends and strangers who find themselves caught in the crypto rat wheel, the more I can understand why they’re doing it. It was the same reasons that I got involved in 2014: Money. If you pick the right tokens, and get out at the right time, you can turn a couple thousand bucks into a fortune.
Don’t get me wrong, I think money is a totally admirable reason to get involved — or at the very least, it’s what got me involved way back when. But I don’t think that money is the only reason. I think they’re also doing it because of the money.
Here’s what I mean:
Speculation alone, while adding nothing to Germany’s wealth, became one of its largest activities. The fever to join in turning a quick mark infected nearly all classes…Everyone from the elevator operator up was playing the market.
~ Jens. O. Parssons, Dying of Money: Lessons of the Great German and American Inflations
Economic Historians like Parssons have written in rather gruesome detail what happens to a society when its money breaks down and hyperinflates. As the average German wage in the 1920s began to purchase less and less from rising prices, German citizens found themselves purchasing any asset that had the potential to improve their purchasing power. This led to an investment mania — everyone became a speculator in the financial markets.
It strikes a resoundingly similar note to today. Basically, without trying to sound hyperbolic, our money is dying.
It’s increasingly clear to me that the cryptomania craze has been brought about by a subliminal realization that all of us are becoming slaves to central bank monetary policy. As currencies inflate across the globe real wages have been entirely unable to keep up. This leaves anyone with a paycheck in a sticky situation, as they’re watching the things they’ve always been able to afford shoot out of their price range — while their dreams of retirement and owning their own home are quickly fading into the distance.
Furthermore, the government response to COVID has woken a lot of people up to the reality that their jobs are not nearly as stable as they’d previously thought. At any time the government can sign an edict and your ‘non-essential’ job essentially ceases to exist. Not only that, but when you’re finally allowed to go back to work to earn a living, corporations and governments instate a number of new arbitrary rules that make your work harder and more miserable. All for less than what you earned before (thanks inflation)!
In such an environment, why wouldn’t you turn to this New Asset Class that has grown from nothing into $1 trillion in a decade? It’s your best shot to become financially independent, to get out of the rat race, and hopefully achieve that luxurious retirement that the media promises on a weekly basis.
Even better, it lets you be your own money printer! You can mint NFTs, start a token project on Ethereum or Solana, and earn unbelievable percentage yields on tokens that promise to change the world. You can be a totally clueless beginner and still win. In this new paradigm, you’re no longer subject to the whims of the money printer… YOU are the money printer.
As our money breaks down even further, I think it is highly likely that crypto becomes more and more pervasive in the mainstream. When the monopoly on money breaks, everyone and their jpeg Rocks will jump to issue crypto money and put themselves at the front of the new money-printing spigot.
Again, none of this is new. As I look back on my time in the industry, that is always what crypto has been about. Why go through typical investment channels and gatekeepers to launch your idea when you can print money and turn to the internet?
I believe that most developers and creators in the crypto ecosystem are doing it because they believe their work will change the world. What’s more, I believe that as our money continues to debase we will see even more speculators enter into the crypto markets. The incentives are perfectly aligned. Hell, the speculative mania could even peak out with multiple cryptocurrencies holding higher market caps than bitcoin.
But as our money dies, federal agencies in the United States will also try to keep the nation’s wealth from fleeing out of the U.S. Dollar. These agencies will announce heavy restrictions on the purchasing of cryptocurrencies, and likely force the leaders of large crypto projects like Ethereum to testify in front of congress. It is this crackdown that will truly expose how little decentralization exists within these protocols — and subsequently cause the value in these protocols to finally seep back into Bitcoin.
After 9 years of being in these markets, I don’t think this cryptomania fades until a better money is truly able to preserve our wealth. Crypto will cease to be interesting once we can all return to earning a living wage by participating in the real economy. Until then, the real economy will continue to suffer as more and more of us spin the wheel in this digital casino.