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1. FTX Go Boom
Noah Smith has a post wondering if maybe crypto might just, you know, go away?
Not literally go away. The blockchains will still exist. (Supposably?) But the idea of using blockchain for monetary and/or financial purposes could go away.
Now, thereās no reason the fall of one single exchange, or one single rich guy, has to be apocalyptic for the crypto space as a whole. There are still plenty of places you can easily trade crypto (Coinbase, Binance), and the whole ecosystem is probably less leveraged than it was when Terra and Luna crashed earlier this year. And yet friends who work in crypto tell me that people in the industry are more pessimistic than theyāve ever seen them. Some on Twitter wondered if this was the beginning of the end for crypto itself.
Thatās almost certainly overdone ā you canāt really kill crypto, given its decentralized nature, and lots of people will still work on it. But I think the pessimists are right to be pessimistic, because the way that FTX fell suggests that crypto simply hasnāt been able to overcome some of its central weaknesses.
There are, as I see it, three main problems for crypto.
(1) Itās yield-farming all the way down. As Smith puts it:
We often forget this fact in the modern world of hedge funds and trading platforms, but finance is supposed to actually finance stuff. Ultimately, the purpose of finance is to channel capital to productive businesses so that the economy can grow. The āhigh financeā of fancy derivatives and ETFs and hedge funds and junk bonds and all that stuff is just a superstructure thatās built on the foundation of real productive assets. Sometimes the superstructure can outgrow the foundation and collapse, as we saw in 2008. But the foundation is still there.
Crypto is basically just the superstructure without the foundation. . . .
Sam Bankman-Fried embraced the idea of high finance with no real foundation. In a startling interview with Bloomberg back in April, he admitted that much of the asset creation that went on on his platform ā called āyield farmingā ā was made up of pure Ponzi schemes. But in the end, it turned out that this was basically how his own trading company, Alameda, was making its money as well.
Not great.
(2) It canāt really be regulated. One of Matt Levineās running jokes about crypto is that the people doing it are in a speed-run of reinventing all of traditional finance. Just, like, on your phone or whatever.
One of the selling points of crypto is that it canāt be regulated.
But one of the truths of traditional finance is that if itās not regulated pretty rigorously, then it destroys value for the system.
People in finance hate government regulation. But if we didnāt have regulation, then the industry would fall apart under the cumulative weight of a million scams. Regulation builds trust. Trust attracts investment.
Saying that crypto is ātrustlessā sounds nice. But unless thereās someone with guns making rules and putting the rule-breakers in jail, itās not really trustless.
If crypto canāt effectively be regulated, then it will not be able to sustain investment in the long term.
(3) Criminals canāt use it anymore. The original killer-app for bitcoin was basically, āUh, you can buy drugs with it, dude.ā
Not just drugs, but anything that you wouldnāt want people to know you were buying. Cryptoās primary use-case was as a way to avoid law enforcement.
That doesnāt really work anymore. Crypto turns out not to be as anonymous as cash, because at some point you have to convert it out and the police can track your progress through the blockchain and then arrest you when you finally make your withdrawal.
So if criminals canāt use crypto, and big institutional investors wonāt touch crypto, and normal retail people canāt trust crypto . . . then who exactly is the market for this technology?
I genuinely wish him well. The problem is that over the last decade we have seen time and time again that mobs of people playing detective on social media do not lead to accuracy. They lead to people being falsely accused of the Boston Bombing. They lead to people being told about false flooding after Hurricane Sandy.
Facebook and Twitter and journalism publications have spent years trying to mitigate the negative truths about social media when it comes to spreading truth online.
But if Musk can fix that then great!
It would be great!
And I am going to say that and then put my night cap on and begin to go to bed and, uh ohā¦
On a call a friend of mine says that itās like the end of a fever dream. There was Trumpism and Trumpism seemed to be pointing in a very clear direction - towards a questioning of the legitimacy of the democratic process, towards political violence. And the takeaway from Tuesday was that enough people had finally had enough (at least for now). . . .
That sense of the fever dream breaking extended as well to the left. I was really shocked - I dedicated a whole Commentator piece to it - by the set of āretractionsā that appeared in legacy liberal publications over the last couple of weeks, with an implicit understanding that liberals had dropped the ball and allowed extremist progressive positions to push too close to the mainstream (these included a condoning of cancel culture and internet censorship, overzealous interventions during the pandemic and on global warming, as well as - although the articles discussed last week didnāt happen to be about this - an indulgence of defund and abolition movements). Defund - and the hands-off law enforcement practiced in San Francisco, Portland, etc - almost meant disaster for Democrats. Crime turned out to be a winning Republican issue, just as it had in the ā80s, nearly balancing out abortion and extremism. And Democratic politicians - the people who spent the whole cycle distancing themselves from defund positions - must have by now an acute sense of just how readily an association with progressivism can backfire and how quick the GOP has been to turn that to their advantage.
Thatās the mood this morning - relief, like the ghost of the old Democratic Party managed somehow to hold the line, Fetterman riding into battle like the Cid and still somehow winning a close election even without being able to, you know, debate or speak or do any of the things one would normally expect of a politician; Biden himself a bit like the Cid, no longer in fighting trim but keeping things together just enough for the cause to survive.
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"but something significant seems to have happened on the left, a distancing from extreme progressivist positions, a sort of note-to-self that elections, in the end, are won by retail politics and by appealing to voters who want stability, who are not fundamentally ideological."
As someone who has lived in Texas the past 45 years, I have always described myself as a proud bleeding-heart liberal to conservative friends I've made here. But I have absolutely come to abhor the extreme Progressive wing of the party, with their all-or-nothing attitudes, their over-abundance of wokeness to an absurd degree, and their utter lack of political intelligence.
They have always shielded themselves from accountability for lost majorities by claiming it was because the democrats didn't go far enough, never able to see that while most of them live in progressively-safe districts, the majority of office holders within the Democratic Party do not.
I hope with all my heart that you are right about the distancing, but my intellect tells me you're not. We will continue to go through this, along with every demographic within the party believing that "the Democrats wouldn't have won without us" - be it the progressives, the blacks, or the young, always threatening to "sit this one out" if they don't get everything they want.
A white, middle-class boomer who embraces diversity in our party, but abhors the constant threats - the truth remains that we win elections because of ALL of us, and if you are one who thinks your group should stay home - good luck with what results, because it's more likely to impact you negatively than it will most of us moderates.
From Sam Kahn's excellent piece:
"but something significant seems to have happened on the left, a distancing from extreme progressivist positions, a sort of note-to-self that elections, in the end, are won by retail politics and by appealing to voters who want stability, who are not fundamentally ideological."
As someone who has lived in Texas the past 45 years, I have always described myself as a proud bleeding-heart liberal to conservative friends I've made here. But I have absolutely come to abhor the extreme Progressive wing of the party, with their all-or-nothing attitudes, their over-abundance of wokeness to an absurd degree, and their utter lack of political intelligence.
They have always shielded themselves from accountability for lost majorities by claiming it was because the democrats didn't go far enough, never able to see that while most of them live in progressively-safe districts, the majority of office holders within the Democratic Party do not.
I hope with all my heart that you are right about the distancing, but my intellect tells me you're not. We will continue to go through this, along with every demographic within the party believing that "the Democrats wouldn't have won without us" - be it the progressives, the blacks, or the young, always threatening to "sit this one out" if they don't get everything they want.
A white, middle-class boomer who embraces diversity in our party, but abhors the constant threats - the truth remains that we win elections because of ALL of us, and if you are one who thinks your group should stay home - good luck with what results, because it's more likely to impact you negatively than it will most of us moderates.
Two more things to add to the "Christmas in November" list:
Brazil kicked Bolsonaro to the curb
Elon Musk and his idiot techbros are being exposed as the jackasses that they are