Welcome to Money Reimagined.
Well, this past week felt historic. As Bitcoin rose to an all-time high and found its way into television studios and front pages of newspapers, it felt like we had crossed the divide and moved into the mainstream. This was done in predictably weird and wild ways with memes and attention grabbing stunts – as detailed in the column below. Even so, it seemed like nobody could stop talking about Bitcoin.
Ethereum had a great week too. The Chicago Mercantile Exchange launched Ether futures, which also helped the token hit all-time highs. And the enthusiasm for decentralized finance (DeFi) and non-fungible tokens (NFTs) grew louder and louder.
All of these activities put more and more strain on the Ethereum network, where transaction costs – in the form of “gas fees” – rise (see below). In other words, the scalability promised by Ethereum’s long-awaited 2.0 upgrade is badly needed.
Sheila Warren and I discussed that on this week’s episode of our Money Reimagined podcast. We asked Danny Ryan, a key Ethereum nuclear researcher and communicator, to give us an overview of what’s happening with the massive upgrade, and more.
Listen to. After reading the newsletter below.
Elon’s masterful meme rally
When news broke on Monday that Elon Musk’s Tesla had invested $ 1.5 billion in Bitcoin, weeks of cryptic crypto tweets from the colorful CEO concluded and people were conveniently distracted by less positive news about his company. When it sparked a massive spike in Bitcoin prices, he proved that Musk’s greatest skill, among all his talents as an entrepreneur, is mastering the “attention economy”.
In the attention economy, everyone – literally all of us in the user-generated world of social media – is competing for one rare commodity that digital technology cannot replicate in abundance: our time. The attention we pay to entertainment and information is scarce; Command determines how money and power are distributed over the Internet.
Musk and others of its kind – think Dave Portnoy, Kim Kardashian or Donald J. Trump [no social link available anymore] – are the ones who win this competition. They have developed a huge audience and figured out how to use shareable memes, sexy images, or shock comments to trigger dopamine releases in their followers, whether it be because of amusement, anger, arousal, or any other emotion.
Along the way, their hyper-engaged communities share their leader’s work, which leads to viral effects and ultimately inspires people to buy things: stocks, country club memberships, celebrity-branded perfume, or crypto tokens. This is how the game is played, how the dominance of news and its social distribution are converted into money and power.
More and more of these attention masters are switching their virality machines to crypto. Mark Cuban, Gene Simmons, Snoop Dogg, and Lindsay Lohan’s celebrity impacts each had a noticeable impact on specific crypto assets over the past week. The winning meme in all of this certainly went to rapper Snoop Dogg, with a compliment to Dogecoin which included a greeting to Musk:
Scarce attention meets digital scarcity
As Felix Salmon noted in his newsletter for Axios this week, crypto is made for because it enables attention masters to essentially convert clicks, likes, and shares into concrete rewards. The activity and enthusiasm that they bring to a project generates excitement and directs buyers to tokens. Essentially, they draw the attention of those in short supply to digital assets in short supply, a marriage that leads to price gains.
This type of behavior goes well beyond crypto. Attention economy has been a thing for a while, long before Reddit group WallStreetBets sparked a strong move two weeks ago with “Meme Investing” to boost GameStop’s stocks. (“The Attention Economy”, a book by Thomas Davenport and John Beck, was published in 2001.) The use of viral, social network-based communication is truly the foundation of the information economy.
And it’s not necessarily a positive development. This business model creates massive social distortions and shifts incentives for both those in control of power within the system and those who do not.
Beyoncé can make $ 1 million from a single short Instagram post and picture. It’s a far more efficient way to generate money than the intense work that goes into a music album. How does this affect your priorities? (Note: the compromise is very different for the vast majority of musicians who don’t have nearly 165 million Queen Bey followers.)
Also think of Donald Trump and what he represents. I would argue that his presidency was not about political power in the traditional sense; It was a mechanism to increase his alertness. His tweets appeared to be purposely designed to arouse outrage and division among his millions of loyal supporters as well as his vehement opponents. The relentless, unsolvable arguments he fueled generated traffic and engagement that he monetized in various ways.
Community = value
This crypto is fueled and stirred up by all this noise. It’s not necessarily bad, but for those who believe in the potential of the technology, some key questions about who can influence its development become clear. Crypto is proud of its meritocracy: the best developers, the best ideas should win. It’s not about reputation, seniority, and definitely not fame. How do we reconcile this ethos with all this nondescript self-promotion?
On the negative side, a Musk-led rally looks and feels to some like an empty “pump and dump” moment that the Tesla impresario or anyone in his circle could take advantage of, leaving meme-following investors with their pockets Hold hands. Crypto doesn’t look great in general.
However, if you join the idea that one day Bitcoin will be a reserve asset for businesses and people, regardless of how it gets there, Tesla’s purchase can be seen more positively. Musk motivates masses of ordinary Joes in a democratization process. The massive social participation in these price rallies is a decentralized force, simply because it reduces the dominance of young institutions.
What makes these arguments difficult is a circularity problem of where the value in crypto projects is coming from. Unlike a stock like GameStop, where value is ultimately determined by expectations of whether the company can generate profits in the future, the value of a cryptocurrency like Bitcoin is inextricably linked to the expansion of the user network. The wider the acceptance, the larger the network, the more is at stake, the more secure it is and the more it is accepted as a store of value and possibly ultimately as a medium of exchange.
Building a community is the most important factor that determines the value of a cryptocurrency. In theory, an episode of meme-driven social vitality that evokes widespread engagement, as silly as it may seem, can be a road to success.
Ultimately, however, the value cannot be separated from the values, but from the underlying representation of why it is worth owning a crypto-asset. When a crypto community expands solely on the basis of a viral sales pitch, the core technical features of the project are diminished and overshadowed – for example, the censorship resistance of Bitcoin or the principles of self-management and peer-to-peer exchanges.
Do meme rallies make it more or less likely for regulators to intervene in a crypto token’s growth? And what does that mean for the long-term goals that many of us want to achieve, such as financial inclusion? Or is expansion and adoption, regardless of how it grows, the only thing that matters at this point?
What we can say is that the technology itself doesn’t care what we do with it. It is up to us to decide whether to go “to the moon” with Elon or take a more prosaic path to mainstream acceptance.
A freaking 7,000 years in the making
As I have already written, it is unfair to judge Bitcoin’s efforts to become a store of value for “digital gold” based on its current, volatile price development. It will be some time before Bitcoin is widely accepted as a universal reserve asset, just as it certainly took a long time for gold to become a widely accepted currency thousands of years ago. Bitcoin is not yet digital gold. It’s going to be digital gold.
Author Grant Bartel has found a simple method to track this becoming: a proxy called “Flip Progress”, which measures the value of Bitcoin compared to gold based on market capitalization. This is from his bitcoinflips.gold website.
(bitcoinflips.gold)
The acceleration is of course noticeable. At 7%, the flip progress ratio still has a long way to go. However, compared to the 1% rate a year ago, this suggests that a real shift in narrative could occur.
The conversation: ETH gas fees
(Rachel Sun / CoinDesk)
While Bitcoiner, Dogecoiner, and NFTer were obsessed with Elon Musk, Snoop Dogg, and Gene Simmons this week, the “degens” that sparked the DeFi craze on Ethereum were consumed on a different theme: gas fees. Due to the increasing activity, the already overloaded Ethereum blockchain is becoming even more overloaded. In this case, the miners who run the computer network charge higher fees as users increase the rates to complete transactions.
DeFi enthusiast @JeanneDeBit put the math problem of high gas charges in stark terms:
And then she offered a rationalization that, though joking, was spot on. Fees are indeed a form of natural regulation in the chain. They increase the friction of the system in order to keep the activity within the capacity limits.
Meanwhile, Ryan Selkis, CEO of Messari, offered a different point of view: if you are smart, you can join the “income growers” who play the DeFi market to take advantage of interest rate arbitrage opportunities while the bigger one is Ethereum fees problem turns out to be by itself.
But in the end, said Ryan Sean Adams, there isn’t much you can do in a booming market.
Relevant readings: the blue chips dive in
The story flow during this week of crypto mainstreaming was full of blue chip companies.
Tesla announced a $ 1.5 billion investment in Bitcoin …
MasterCard said it would enable crypto payments for merchants on its network …
Amazon announced plans to develop a digital currency in Mexico …
And prison giant BNY Mellon said it would start providing crypto custody services …
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