A Unifying Theory of Everything
This week, New York Magazine let me go full stream of consciousness on … everything. Their editor pitched me the idea to articulate a unifying theory on “this whole crazy techno-fiscal moment.” Problem is, while I understand crypto better than 99 percent of people, I do not understand crypto.
On Wednesday, crypto pioneer Coinbase listed shares on the NASDAQ, and closed the day at an almost $100 billion valuation, making it nearly as valuable as Goldman Sachs. Coinbase’s big day made a bunch of wealthy people wealthier, but it also poked several bears — if a bear is Goldman, Morgan Stanley, and JPMorgan. The question board members at these firms should be asking: How did we let Coinbase happen?
Side note: Coinbase is a broken IPO, closing down 15 percent from the price of the first trade in which anybody could purchase private holder’s shares. The head fake of a “reference price” (meaningless) is a Facebook-like attempt to see if people are stupid enough to believe what you say … if you just say it earnestly. Direct listings have become a transfer of wealth (the “pop”) from institutions to VCs who fling feces at tourists to the Unicorn Zoo.
Anyway, it’s likely that the Wall Street firms, realizing they ceded too much of a head start to compete on the whole “innovation” thing, will weaponize their lobbyists to convince regulators to shift their gaze away from SPACs (harmless fun) and focus on the existential threat(s) of crypto.
Prediction: congressional hearings on crypto where committee members make the previous hearings on big tech look elegant and informed.
What happens next?
A quarter century ago, Netscape went public in a record-shattering IPO, and kicked off the internet era. Similar to Coinbase, Netscape Navigator, the company’s web browser, was an on-ramp to the digital future. And, similar to Coinbase, Netscape’s IPO poked the tech establishment, notably Microsoft, causing board members at those firms to ask: How did we let Netscape happen?
Well, in an AOL-like move (another early on-ramp to the future), Coinbase might unhappen. One of the tenets of crypto is decentralization, which doesn’t bode well for a middleman that charges 1990s-esque fees. (Coinbase fees can be over 4% per transaction, 10x or more the fees charged by competitors.)
The tech evolution that Netscape precipitated changed the world, but the firm no longer exists, and Microsoft is worth $2 trillion. Will history repeat itself? In the category of “Very Much Not a Coincidence,” the founder of Netscape, Marc Andreessen, is the lead investor and largest outside shareholder in Coinbase. Godzilla vs. Kong. I’m not sure who is who … just go with it.
The world today is wealthier, but less stable; more interconnected, but more divided. Ugh, I hate that last sentence. Anyway, that’s what I spoke with New York about (the world, not hate). Below is an excerpt from the interview, and you can get the full piece on the New York website, or on newsstands everywhere.
NYMag: One of the most valuable living artists is a guy who makes GIFs. A Reddit mob sent GameStop shares soaring. Meanwhile — in the midst of a once-in-a-century pandemic and an economic crisis — the stock market only goes up. Are these isolated things or part of something bigger?
I think it all comes back to one central theme: income inequality. Capitalism is sort of this gangster construct that leverages a species’ selfishness and creates all sorts of prosperity from that selfishness. But the key to successful capitalism has always been a middle class. At the turn of the millennium, America was the only superpower, and we had the most prosperous middle class in the world. In the past 20 years, the key feature of China’s rise to superpower has been adding several hundred million people to its middle class. But for the past 50 years in America, we have decided to transfer wealth from the middle class to the shareholder class. The lower and middle classes haven’t done any worse, and they haven’t done any better but the share of income controlled by the top one percent has exploded. And I believe that creates all sorts of externalities.
NYMag: Externalities like GameStop.
Gamestop was a mini-revolution. Young people want volatility. If you have assets and you’re already rich, you want to take volatility down. You want things to stay the way they are. But young people are willing to take risks because they can afford to lose everything. For the opportunity to double their money, they will risk losing everything.
People under the age of 40 are fed up. They have less than half of the economic security, as measured by the ratio of wealth to income, that their parents did at the same age. Their share of wealth has crashed. Many are bored. For the first time in our nation’s history, a 30-year-old isn’t doing as well as his or her parents were at 30. That creates shame and rage in households across America.
NYMag: So a phenomenon like GameStop is semi-disenfranchised young people with a little bit of money in their pockets finding a way to create volatility in a system that’s been rigged.
Creative destruction is good for young people and bad for the entrenched. The shedding of skin from existing players to new innovators — it’s a means of transferring wealth. Unless you let the winds of creative destruction blow, all you’re doing is cementing the wealth and status of the incumbents.
I see crypto as a mini-revolution, just like GameStop. The central banks and governments are all conspiring to create more money to keep the shareholder class wealthy. Young people think, “That’s not good for me, so I’m going to exit the ecosystem and create my own currency.”
The heat around crypto is going to result in a lot of innovation. It’s going to be both very interesting and very frightening.
NYMag: But all this innovation would only make the wealth gap worse, right? It’s rich people finding out how to get richer and further rig the game.
One hundred percent. Crypto’s innovation is its ability to create what I’ll call credible scarcity. The credible-scarcity component of our existing currencies — they’re losing the credibility part. When the government decides to print $4 trillion in debt, in new money that we don’t really have a discernible plan to pay back, the USD is losing its scarcity cred.
But crypto also taps into our species’ immediate transition from “I sense credible scarcity” to “I become obsessed with it.” We don’t go, “Oh, you know what? There just aren’t that many Ferraris, so I don’t like them. I’m not attracted to them.” We think, “They only make 700 Ferraris a year? My whole life, I’m going to work for a Ferrari. I want it, I’m obsessed with it.”
As you can see, though, all of this heads toward a dystopian future where income inequality is going to get even greater. And we’re going to have to get used to the notion of redistribution of income or make a massive investment in retraining or vocational education for young people.
NYMag: You must think that the child-care benefit in the latest stimulus is a step in the right direction, in that sense.
I would argue that the unsung hero of right now is Senator Michael Bennet of Colorado, who’s been talking about an earned-income tax credit for years. And I think his education and his proselytizing and work on it over the past several years resulted in it being a big part of this stimulus. It’s the best component. Households with less than $25,000 in income are going to increase their income by 20 percent, and a lot of that’s going to come from the child tax credit. It is overdue and outstanding — and a great investment.
The fact that young people have fewer prospects than we did at their age means the compact, the most important compact we have in any society, and that is hope for a younger generation, has been broken. And when that happens, you end up with revolution. Right now, we are having what I’ll call border skirmishes — meme stocks, for example — that could erupt into revolution.
Read the full article here.
Life is so rich,
P.S. Registration closes on Tuesday for Section4’s Product Strategy Sprint, taught by my esteemed and charming colleague Adam Alter. Get in there.