Crypto, As a Political Characteristic
The more that politicians talk about Bitcoin, the greater the chance they are frauds.
The first thing that needs to be said about cryptocurrency is that it has no socially redeeming reason to exist. The primary thing that it is actually useful for is buying things on the internet that are illegal. I guess there could be a situation where freedom fighters could use it to purchase weapons to wage a revolution against a repressive regime. That is a pretty niche scenario though. That is not the sort of thing that causes big banks and investment firms and institutional money managers to flock to something. That’s not why any of us are talking about this stuff.
Cryptocurrency is not a currency. How could it be? If it were, it would be the worst currency ever invented. Its value fluctuates wildly and unpredictably, which is one characteristic you do not want in a currency. Rather, it is a speculative asset. It is kind of like gold, or Dutch tulip bulbs, except for the fact that you can at least enjoy looking at a gold necklace and a tulip, whereas crypto you cannot enjoy at all. The whole spiel about how crypto is a medium of exchange that will become, through some vague process that is always too complicated to explain, the future of money is false. In reality, crypto is a digital bauble that speculators speculate on.
Unlike a stock, which represents a claim on a portion of a company that you can value based on the company’s profits, or a house, which you can live in or rent for a predictable sum, crypto has no fundamental value. It is worth whatever you can get someone else to pay for it. Therefore the entire crypto industry has as its core purpose “getting people to believe crypto is valuable.” If you pay money for crypto but cannot convince anyone else to pay you more for it, you have lost your investment. On the other hand, if you can convince a large number of people that the price of crypto will rise, many people will flock to buy it. Like all bubbles, the crypto bubble is a self-fulfilling prophecy. Fortunes have been made because people believe there are fortunes to be made. Fortunes have been lost when that faith ebbs. Bubbles inflate with greed, and deflate with fear. This is all a familiar story in the history of finance. You will notice, though, that it is not the story that the crypto industry tells about itself.
There are few things more intellectually incoherent than elected US politicians talking about how the US government needs to support crypto. Does it? Does the overseer of our national currency, which also happens to be the global reserve currency, need to go out of its way to promote this made up form of money that proclaims that its goal is to displace our national currency? Does that sound like a wise thing for the government to do? No it does not. Oh, we need virtual money? The Federal Reserve has that covered, my friends. Oh, but we need virtual money that is not backed by the full faith and credit of the US government—and the US government should spend its time building this inferior and less accountable form of money, for some reason? No. This is a hint that, almost always, crypto’s role in politics is not one of legitimate and deeply held beliefs about economics and finance, but rather a way for certain politicians to signal to the type of people who get deeply involved in crypto that they are fellow travelers in this specific area of the culture war.
When I say “people who get deeply involved in crypto,” I am speaking of two general groups: The hustlers, and the dupes. The dupes are the dumb money people who think that they will make their fortunes in crypto. Their presence props up the prices and creates the market. These are the people who believe all the vague slogans about how crypto is disrupting money and fighting Wall Street and blah blah blah. (None of this is true. If you want to conduct a class war against Wall Street, unionize your workplace.) This group is numerically larger, and they are all voters, so they’re worth buttering up, from the perspective of politicians.
The real action, though, comes from the crypto hustlers—the people with a lot of money in this, and a large financial interest in the continued growth of crypto prices. This group used to be “some weird far-flung internet denizens” and now it is that plus many of the biggest hedge funds and money managers on earth. So, in addition to whatever votes they can scrape from the true believers, the real prize for politicians is money from the crypto heavyweights. This is a straightforward money-for-influence situation of the sort that happens among all interest groups. The only notable thing about crypto as an interest group is how new it is, and how much money it has, and how full of bullshit it is.
I wish that I knew an economist who was also a talented insult comic so that I could interview them about Robert F. Kennedy Jr.’s proposal to have the US Treasury spend hundreds of billions of dollars (or more!) to build a reserve of four million Bitcoins. Why? Why would the United States government do this? “We could have, you know, public health care, but instead we have spent a mind-boggling amount of money to build a digital vault of made up money whose value is completely propped up by the fact that the US government is buying it.” I hope I am not being overly obvious by pointing out that this would be nothing more than a transfer of hundreds of billions of dollars into the pockets of rich people and entities who already own Bitcoin. With absolutely no social benefit at all! “Kennedy said his plan would ensure US dominance in the sector.” Dominance in the Bitcoin sector is not something necessary or even advisable for the US government to have. You might as well propose that the US government purchase a half trillion dollars worth of Beanie Babies. Yes, it would be a popular policy among current Beanie Baby owners. But perhaps not the wisest use of public funds.
Donald Trump followed up RFK’s gesture by speaking to a conference full of crypto people and and vowing to end the “persecution” of the crypto industry and make the US “the crypto capital of the planet.” It is worth noting that the “persecution” that the crypto industry is trying to evade could more accurately be referred to as “some sort of regulation to try to ensure that this scam-ridden world of speculation and outright fraud does not destroy the life savings of too many unsuspecting Americans.” Apart from that, the Trump-crypto alliance is pure Trump: Vague and meaningless word salad vowing to help some group that he thinks can help him, a barely concealed quid pro quo in which he promises to enrich these people in exchange for adequate bribes. I guarantee that Donald Trump does not know or care what crypto is or what theories there are about its value. He sees an opportunity to grab cash and votes so he says whatever. Crypto is ripe territory for him, because it features both unscrupulous rich and greedy people as well as ignorant people with wildly untrue beliefs about how the world works—his two most committed demographics.
Greed and fraud, rich people and marks, schemes and lies; this is the stuff the crypto industry is made of. The proper relationship of the government to crypto is to regulate it as much as possible to protect consumers from getting ripped off, and beyond that to treat it as another dangerous product that may be legal but should be minimized, like gambling or cigarettes. If the Republicans want to position themselves as the Party of Crypto, let them. It is similar to how they position themselves as The Party of Racism and the Party of Religious Zealots and the Party of Telling Lies about Election Fraud. These things actually reflect poorly on them, the Republicans. They are not things to be emulated. They are not areas in which the Democrats should feel compelled to compete.
Unfortunately, the less ideological portion of the Democratic establishment sees the pile of money in crypto and calculates that they should get some of it. The FT reported that “Kamala Harris’s advisers have approached top crypto companies to “reset” relations between her Democratic party and a sector that has come out as an important backer of Donald Trump… Members of the vice-president’s team have contacted people close to crypto companies about meeting in recent days.” Surprising? No. But let’s be very clear that this is no different from the Democrats who want to be close to the private equity industry, or the private health insurance industry, or any other industry that makes profits from activities that go against the public good. A perfect Democratic Party would entirely snub donations from these industries, because the donations simply buy the industries exclusions from regulations that would benefit and protect the public. In reality, there is a very strong ethos among SAVVY POLITICAL OPERATIVES that if the other side is getting money then we must also get the money, and that is how elections are won, so don’t be naive. Just understand, as you read about crypto and politics in the future, that this is a case of rich speculators talking their own book and trying to get richer, and a large number of dumb money investors who are the economic equivalent of religious people being ripped off by an oily preacher, and none of it is really about “democratizing finance” or whatever slogans you hear from the crypto people.
If you are unsure how to feel about crypto, a good exercise is to ask a true believer to explain to you why the US government should be promoting crypto rather than regulating and restricting it. Then they will say stuff that you don’t quite understand. Ask them to explain more clearly. And again, more clearly. And again, more clearly. Eventually you will be left with a mist of buzzwords and nothingness. Politically speaking, crypto is just another indicator of the cutthroat American determination to get rich no matter what. Can you make money on it? Yes. Does that mean it is in the public good? No.
More
Related: The Ticking Bomb of Crypto Fascism; Stupid Power; Capitalism’s Washing Machine.
One of the most disturbing things about crypto, to me, is that it funnels off a portion of the young people who understand that the American economy is fucked up, but don’t know quite what to do about it. Instead of buying Bitcoin, please become a socialist. Join a union. For a discussion of this at great length, read my book, “The Hammer,” now available wherever books are sold. Stay tuned for more book tour dates in coming weeks. I will make it to your city, one day!
Thank you for reading How Things Work. I started this site on the theory that I could make a publication that is free to read, and that the people who can afford to pay a modest subscription price would pay it, and therefore the whole thing would work. It’s a socialist model of media. Will this work? Or is it dumb? Please vote by taking a moment to become a paid subscriber right now. If you pay a few bucks to support the media you like, it will exist. If not, it won’t. I believe we can do it together.
I just want to add that the other major (maybe the biggest) use-case for Crypto is money laundering.
Thank you for exposing this modern-day Ponzi scheme. In addition to being another way to separate fools from their money, the process of "mining" bitcoin wastes huge amounts of energy and taxes the electrical grid, both of which we can ill afford as we burn up the planet.