Calling in the Big Guns
Shook Ones, Pt. II
As the digital asset market was dropping two days ago, I was scared (and still am to some degree), but not because I had lost conviction in the asset class. I was scared because I believed that the U.S. government, including its fourth branch, the mainstream media, were going to use what was happening as an opportunity to go for crypto’s throat. I knew that they were just waiting to see the asset class against the ropes so that they could begin with the “I told you so” diatribes. And what better team to set those in motion than The New York Times and their favorite “It’s-okay-we-can-print-all-the-money-we-want” op-ed writer, economist Paul Krugman.
Yesterday, NYT published a piece by Krugman entitled “Technobabble, Libertarian Derp and Bitcoin”. And before I strap on a fresh pair of Air Jordans and dunk all over Krugman, I will say that I have read pieces by Krugman in which I have agreed with his point of view. Hell, I even agree with some of the points that he made in yesterday’s piece. The man is a Nobel Prize-winning economist. I am not going to pretend like his voice doesn’t matter in a discussion about money. This is important to acknowledge because the tribalism that tends to override people’s ability to rationally debate the roles of traditional currencies and digital “currencies” in the modern world is toxic. There is a place in the world for both, and they each serve different functions. But, I will say that it is important to look at what Krugman has had to say about earlier iterations of digital technology to help contextualize his using words like “technobabble”. Let’s take a look at his take on the Internet from 1998:
(Source and Snopes Validation)
Ouch. That one has aged likely far worse than that chardonnay you’re drinking there, Mr. Krugman.
I would also like to share what essayist, scholar, mathematical statistician, and New York Times bestselling author Nicholas Nassim Taleb had to share about Krugman in his book Skin in the Game. After a long section of the text in which Taleb critiques the shortsightedness of French economist, Thomas Piketty, author of Capital in the Twenty-first Century, an ambitious text that followed many of the writings of Karl Marx, Taleb describes when he met Krugman and the two discussed Piketty. Taleb recalls how Krugman had gone on the record saying, “If you think you’ve found an obvious hole, empirical or logical, in Piketty, you’re probably very wrong. He’s done his homework!” Taleb then goes on to write,
“When I met him [Krugman] in person and pointed out the flaw to him - he evaded it - not necessarily out of malice, but most likely because probability and combinatorics eluded him, by his own admission.”
So, while we can all probably agree that Krugman is a very intelligent individual, maybe we can also agree there are also some topics on which maybe Krugman doesn’t have a fully informed perspective. But there is something else that we need to consider when listening to the likes of Krugman share his take on cryptocurrency.
Taleb continues,
“Now consider that the likes of Krugman and Piketty have no downside in their existence…Unless the university system or the French state goes bust, they will continue receiving their paychecks.”
And this brings me, in part, to my next point. When we hear wealthy, established American white men ranging from Paul Krugman to Charlie Munger to Bill Maher to Jeffrey Sachs discuss how bad Bitcoin is for the world, we are listening to the most financially privileged people in the world share their takes. This is where we, as Americans, need to zoom out. I highly suggest reading “Check Your Financial Privilege: While Those Comfortable in the Dollar Bubble Deride Bitcoin, the Stories of Three Emerging Market Users Demonstrate Why It Is So Important”, by Alex Gladstein to gain some deeper perspective. If you don’t have time to read the article, I suggest checking out the following thread:
Regarding the article and the thread above, feel free to replace the word “Bitcoin” with “digital assets” or even “stablecoins”. Either way, the technology is granting unbanked people a certain type of financial access and ability that they’ve never had before. I share this article and Tweet thread because the news coming out of the U.S. about the Biden administration targeting crypto in a tax crackdown plan and the news coming out of China about how it is cracking down on cryptocurrency is meant to stoke fear. The U.S. and China are two highly centralized global powers. Neither want to give up control, and both fear capital flight. And this is understandable. But the U.S. and China are only part of the digital asset story. Bitcoin and digital assets at large are globally-traded assets. Amazing things have begun to happen with blockchain technology in the “developing world" and will continue to happen (more on this in a future edition of the newsletter). We are in the early days of this technology, and countries/jurisdictions that choose to embrace it will likely be the winners in the Information Age.
Luckily, though, we have seen some bigger media outlets, like New York Magazine provide a more nuanced view of Bitcoin and its environmental impact. Hopefully, more mainstream media outlets will follow suit, and people with opposing views on Bitcoin or cryptocurrency’s role in the world can start to more peacefully coexist. Bitcoin and cryptocurrency aren’t going away - at least not in my humble opinion. Private equity billionaire David Rubenstein doesn’t think they are either:
What the mainstream media is doing right now to stoke fear is causing a shakeout of newcomers in the market, which is leading to more of these assets being absorbed by whales and large institutions, is a shame. Granted, we know that over-leveraged traders were the real cause of this recent crash, but most people who are new to the space don’t understand this, and the mainstream media isn’t helping them to do so. Instead, it’s just recycling old narratives to keep people shook.
Because my conviction about this asset class remains strong, I have yet to sell any of my positions. However, I am here to say that I, too, feel the sense of panic because of the sudden price drop and the subsequent media FUD pile on. This is the second time I’ve watched half of the value of my positions in digital assets disappear, as I also experienced this in the flash crash of March of 2020, but that time felt different than this time because legacy markets had crashed, as well. It wasn’t fun, but the price bounced back, as I believe it will this time. If you need to reconfigure your position in the market to something that you are more comfortable with, do it and don’t regret it. Just keep in mind that this likely isn’t the end.
Best,
Frank
Twitter: @frankcorva