crypto, innovation, and markets
hi everyone. I hope you are okay.
So this will not be another VeryBigHotTake on crypto (I’ve made some YouTube videos (will make more), did a Bloomberg piece about it, have kept pretty extensive notes that I will continue to update) but I do want to very quickly address all of this, through the lens of the human experience. Which sounds goofy and dumb because thousands of innocent people are wrapped up into something that is causing massive, massive harm, but I think it’s important, maybe.
A Reflection on Crypto and Innovation
The reason I *personally* like some aspects of crypto (and this is my opinion) is because it dares to think about the world differently. What would it look like if there was more power distributed to people to control their own money, what does it look like to rethink privacy, what does it look like to redefine an ecosystem of money?
Of course, questions don’t always have immediate answers. And speculation can override any good intentions.
But even to ask a question into a world that boxes us up almost immediately - is brave. To the think beyond what we are and what we could be is inherently spectacular.
But of course, the world is woven from bad actors. They manage to thread themselves in, and when they unravel, so does everything else. Driven by greed, the endless pursuit for yield, the idea that nothing will ever be enough, so might as well take it all.
It’s really just begun to play out.
The exposure that FTX and Alameda had are interwoven into the VC industry (very specifically, Sequoia), the crypto industry, equities, and more. 134 affiliate companies creates a garden full of thorns. FTX was massive, and the funders behind them were too starstruck by number-go-up to notice the red flags - and if you’re not paying attention, the bull will charge you.
And with FTX and SBF, it’s worse than other times in crypto. It’s so much worse. They posed themselves as these people that were trying to make the world better. There’s a difference between crypto going down because no one believes in it and crypto going down because it’s systematically being rugged. As Vitalik said, “the fraud cuts deeper”.
(FTX has now been hacked, at time of writing and SBF built a backdoor, it really just gets to Netflix documentary levels of ridiculous)
The Stock Market
FTX is Enron but in a different land.
The financial industry is big and opaque. I mean, it’s abundantly clear with the recent proposal to broaden trading within Treasuries - going to ““all-to-all”’ trading, in which buyers and sellers would trade Treasury securities directly with each other rather than rely on big banks” as the WSJ wrote.
Get more people in the markets to reduce the amount of impact big banks have.
“It’s unfair to expect the same liquidity providers to be able to provide the same liquidity levels when the Treasury market has more than doubled in size but not seen any real innovation in the last twenty years”
And that’s what crypto is supposed to be, right? We haven’t seen a lot of financial innovation, unless you consider share buybacks and financial engineering radical progress (which some people do and I guess more power to you then).
There are so many fingers to point.
The private market is facing billions in capital calls. I don’t know.
Also, just to tie it in, there’s also something to be said about Elon’s Twitter and Frankenstein’s monster and how we are all the creatures we create in the end.
Elon and SBF are embodiments of “the most extreme manifestation of the post gfc, big tech era, social network & big short watching cultural zeitgeist” as Sophie said. They remind me a tiny bit of this passage from The Mysterious Tale of Gentle Jack and Lord Bumble Bee -
In this world, you must rob or be robbed, murder or be murdered, be a tyrant or a slave. It is up to you to choose: Do you wish to conserve wealth like the bees, amass it like the ants, or steal it like the hornets? The surest way, I believe, is to let others do the work and then take from them. Take, take, my boy, by force or by cunning; it’s the only way to achieve happiness.
Innovation is a necessary ingredient in the world - but it’s a very easy thing to fake.
Many innocent people got wrapped into this because they saw Tom Brady or they saw Sam’s face on a telephone pole - and it was supposed to be safe. But of course, of course, of course somehow the end had to justify the means. Regulation didn’t happen fast enough, there wasn’t clarity, bad actors weave themselves in, and trust is on a faultline, and an earthquake happened.
In a calibrating industry, it’s easy to find holes to exploit, which is what FTX did perfectly. They saw opportunity, the VCs saw that they saw an opportunity, and people that wanted to be in crypto believed all of them. And of course, it’s like - well why *wouldn’t* you believe them. And that’s the hardest part.
We do not exist in a vacuum. I think a lot about self-help gurus, and how it’s all internal. “Fix yourself, fix the world”. And to an extent, sure, yes. We are the climate we create, but also if the world is on fire, we are going to feel the flames.
And this is going to sound cheesy, and probably dumb and stupid, and I am aware, but that’s where kindness comes in.
The world is mean. We can be mean too. The world is unfair, unkind, and that’s how it is. But we can control how we respond to that. Of course, we cannot always be kind. We are not static, we are not consistent, we are human. As Maria Popova wrote -
When the world grows unsafe, when life charges at us with its stresses and its sorrows, our devotion to kindness can short-circuit with alarming ease. And yet, paradoxically, it is often in the laboratory of loss and uncertainty that we calibrate and supercharge our capacity for kindness. And it is always, as Kerouac intuited, a practice.
Kindness is not an overarching thematic, but a conscious choice we have to make.
It shows up - just like bad actors - in the threads of our world. Woven amongst the evil, there is the good. The small smile between strangers, someone putting the grocery cart back, the way the sun rises and sets each and everyday.
It is not easy to be kind. But it is important. As John Steinbeck wrote
Not that I have lost any hope. All the goodness and the heroisms will rise up again, then be cut down again and rise up. It isn’t that the evil thing wins — it never will — but that it doesn’t die. I don’t know why we should expect it to.
In Very Good News, Inflation has softened, and might have plateaued. There was softening in both goods and services (with a change in healthcare calculation contributing) but finally, it seems like the disinflationary things we’ve been seeing - excess inventories, freight costs, etc - are starting to show up. There are pressures on either side of course - energy costs are a giant question mark that could rear their ugly head. We need a few more months to determine exactly where the trend is, but this was promising.
Finally, as Victoria Erickson said “If you inherently long for something, become it first” - become a gardener if you want a garden, embody love, if you want love. Our identities get wrapped up into the things that we do and eventually, they become the things that we are. The time that we spend doing things define us. Spend that time wisely.
Thanks for reading.
Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.