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No Mercy No Malice

A Unifying Theory of Everything

April 16, 2021

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.

28 comments

  1. NM says:

    Couldn’t you also argue that a lack of trust in institutions is driving a lot of these phenomenons? Many Americans no longer trust our government, our central bank, the stock market. Mistrust in government contributed to Trump’s election as a political outsider. Millions of Americans also don’t trust the COVID vaccines. Mistrust in our central bank drove a lot of the cryptocurrency run-up. Mistrust in the stock market drove a lot of the meme stocks up, with people feeling like the financial system is rigged against them.

  2. EJ says:

    BUT, what’s behind inequality AND money print AND crypto rise AND financial institution entitlement? Petro-dollar regime collapse and competitors’ success? Cultural deterioration? political stagnation?
    Tech is a big accelerator of everything, INCLUDING the culture of indulgence. Cannot compete with china on hard work and manufacturing? Produce debt. Cannot create onshore long-term jobs? Export them at the expense of dollars. Don’t know how to ensure social security liabilities, car manufacturers solvency, bank balance sheets or government expenses? Print!
    America (or at least big parts/”the elite”) does not remember how sweat and painful decisions create real innovation.
    It will come.

    • EJ says:

      What happens after a tsunami of money printing/QE/low interest rates? What happens after vast inequality? What happens after consumption and environmental change? What happens after political corruption and screen addiction? What happens after?… Just asking

  3. James says:

    Wow, very rich content, I like this part that says crypto came to close the gaps between the rich and and poor and fortunately the young seems to understand this intensively than the old.

  4. Olushola Ogunniyi says:

    Creative destruction, very apt!!! my take away.

    But how does an underdog challenge a big competition?

  5. Paul Gersten says:

    Dear Scott, very interesting.
    But let me added four words in line with your reflections, “revolution is already here”.
    Crypto currencies are the first big expression of this subersive revolution of the young generation.
    Even they still don’t realize that this have surpassed by far, the other battleground, that you clearly call “the border skirmishes” of meme stocks, let’s add Gamestop affair, etc.

    I love creative destruction, I am Schumpeterian.
    But unfortunately, I see in crypto-currencies “destruction uncreative”.

    The global economy has begun to play with fire, crypto-currencies in the long run will be a boomerang, and a pyramid of money illusion. And will be hacked millions of time.

    Ps: I agree with Michael Belsky and I quote:
    “….. the ‘principal’ or repayment would never come into play. No one would ever get their money back.”

    • Michael Belsky says:

      My group started talking about an alternative, global currency years ago. We never envisioned a b-coin that could be so volatile. I believe the volatility pushes this to an investment asset class rather than a currency.

      • EdMcG says:

        I agree. If you can’t use it to buy anything due to the lagging processing times, it is not really a currency. Right now it is just another bag to stuff cash into for speculation in a world with excess money. Like Gold. It is an unproductive asset – used to hold and speculate.

  6. Michael Belsky says:

    Your CryptoScheme would bankrupt the municipal bond business if Universities, Hospitals et al follow the strategy. There would be no need for the issuer of the coins to pay interest, and the ‘principal’ or repayment would never come into play. No one would ever get their money back.

  7. Nick says:

    The idea of a 4% fee being paid to an intermediary in what was supposed to be a revolution creating frictionless money transfer is not going to last. Commissions only ever go down. Also I would be forever in peoples debt if someone could explain to me the economic relationship between a token and the underlying blockchain technology for something like flow , many thanks , The Fat Gladiator

  8. Steve Hartig says:

    Do I understand the statistics right that half of young people are making more and half are making less? Not sure if the chart is indexed for inflation but if so doesn’t that mean that are roughly making the same?

  9. C Cook says:

    I agree with many of your thoughts here. But, some context is needed. Kids are not out-earning their parents because of one important fact…globalization. For those coming of age in the late 70s and 80s, competition from Japan and Europe was holding down wages. As Chinese imports do now. Just about then, the new left decided that worthless college degrees and massive loan debt were OK. Automation sucked down the ‘any college degree is good’ ethos. Now, a great education is, as you have pointed out, available to anyone free or nearly free. All it takes is a cheap PC or tablet and a lot of motivation. Not of it from the natives, but a lot from recent immigrants and those in third world. The lack of income growth among the natives seems to parallel the fall in drive/motivation. It also seems to track the massive improvements in manipulation by consumer products. You cannot be cool without the Air Jordans. Forget studying, sell a few bags on the street corner and buy the shoes. For that, many in ‘marketing’ lamenting income and racial inequality should be looking in the mirror.

  10. Daniel says:

    Always incredible quality. Thanks Scott.

  11. Pat says:

    Scott, what can we commoners do? Donate more money? Give it away? Earn less? Vote?

    I am angry, but I have been angry (at myself) for a while now. Thanks to you. So, help me. what can I do about income inequality?

    • C Cook says:

      You can do something. Stop being mad or feeling guilty. You will become bait for blm and other organizations that feed on people. BTW, did you read that the Marxist who ran the NY website for blm just bought her fourth multimillion dollar mansion in LA? Did anyone here really think their contributions helped poor black kids trying to climb out? What to do? Fight for Charter Schools. Tutor underserved kids, take them to work to see what life could be like. Focus their definition of happiness away from sneaker collections. Lot one can do…

  12. Jim says:

    While it is true that Netscape is no longer with us, and various movers and shakers have been blindsided by crypto, never forget that all power derives from the will to exercise that power. What makes the tech industry so concentrated is that there are a few companies with the will do to whatever it takes to win. The real battle is who will they side with? At this moment, the political class is ready to move beyond the quaint idea of democracy and take real control. Will tech join in? Why not? Think I’m kidding? Check out this excellent article by Jonathan Last https://thetriad.thebulwark.com/p/reading-the-republican-autopsy

  13. Julie says:

    Are you a Wilco fan? “Unified theory of everything” is a line in their song Laminated Cat. Or perhaps this is another reference?

  14. Steve Turano says:

    One smart guy.

  15. Chris COLES FRSA says:

    The planet has, in the recent past, less than two centuries, experienced at least one event where the Sun has sent us sufficient blasts of energy, which when repeated today; will destroy our entire electricity system . . . making crypto impossible to access. Every time in past history that a nation; empire if you will; has destroyed the value of their coin; the follow on has been to re-introduce a value stable coin produced from Gold and or Silver. History repeats itself; again and again and again.

    • c cook says:

      Great comment. The Carrington event in the 1850s caused telegraph stations to literally burn down as the expulsion from the Sun created massive currents on wires. Today it would knock out our entire infrastructure. And, yes disks and processors would be gone. I will tell the insurance company I had 10 Bitcoins. Of course all insurance companies would be BK…

  16. Sam says:

    This is an outstanding view on the current state of play. Thanks so much for pulling it together

  17. Cat says:

    Going to Barnes and Noble to buy a copy. Feeling old school today. Nice work per usual.

  18. Beau says:

    Is this influenced by Eric Weinstein’s theory of geometric unity he released this month?

  19. Phoebe says:

    Did Coinbase get to its IPO without any investment or underwriting from GS, JPMC, or Morgan Stanley? Or any other big old school bank?