Well, that was interesting.
I get many more private emails in response to blog posts than comments. Yesterday, in response to Reflecting on Ponzi Schemes, I got a few that said anyone under 35 needs a net native currency, and that’s crypto. A few others said some versions of all governments are Ponzi schemes. And I got a few that implied I hated crypto.
Earlier last year, one of my partners told me that I’d developed a reputation with other VCs (presumably our partner funds) that I hate crypto. At the time, I deflected and said that I didn’t hate crypto; I just thought there was considerable Ponzi-like behavior in crypto. I’m regularly cynical about things on our internal Slack channel and periodically post about big blowups, including in crypto.
I realize that I’m conflating speculation vs. investment. The part of crypto I don’t like is the rampant speculation. This morning, a friend of mine sent me an email about some money I owed him for a thing we are doing together. He said, “If you paypal me I’ll buy some bitcoin with it. Looks like it’s starting to firm up.”
Here were the bitcoin prices when he sent me the email and when I Paypalled him the money ($1,456.42).
1/15/23 9:51 PM MT: $21,158.55
1/16/23 7:28 PM MT: $20,879.14
That’s a 1.33% difference. It cost me nothing to Paypal him the money. It would have cost me $19.37 to pay him via Bitcoin just because of the timing difference. That has nothing to do with the transaction cost. It’s entirely a result of speculative activity.
I mean, c’mon. Yeah, I know credit cards have fees, and endless payment rails in the system extract money along the way. But there are also ACH and Debit Cards. And free checking accounts, although I guess it would cost me $0.60 for a stamp. Wait, $0.60 for a stamp? The last time I bought a stamp, they were $0.29. And yes, I know some of you out there have never bought a stamp.
It’s hard for me to hate crypto. It’s been economically very good to me. I accidentally bought twice as many bitcoins as I needed for an online programming course I took in 2013 for about $100 each. I sold the FIL I got from investing in their SAFT as it vested (daily) and was amazed at how much money resulted. The Helium that I earned, which seemed to have no functional utility whatsoever, generated a nice multiple on the cost of all the routers I bought, even though today I earn nothing because of whatever algorithm changes they’ve made, so the network is now functionally and economically worthless. And, the crypto funds we have invested in have done exceptionally well … mostly.
I regularly hear to be patient. It’s like the Internet was in 1999 – ahead of its time. The builders are building, and it’ll take over everything in the future.
Ok. That’s cool. Just beware of the Ponzi schemes.
Others, especially those in the crypto industry, were saying some version of “Well, FTX Might Looking Like a Ponzi Scheme, But Crypto is Legit and Isn’t a Ponzi Scheme.” But then someone else in the Crypto industry, on the same website, wrote Crypto Ponzi Schemes: How to Identify and Protect Yourself From These Scams. Ok. How confusing.
What should an investor believe? The SEC has an official publication, Ponzi schemes Using virtual Currencies. It’s … not helpful … and implies almost everything in crypto is a Ponzi scheme. At least it has some phone numbers you can call if you have questions. Yeah, still not helpful.
Yesterday, I binge-watched MADOFF: The Monster of Wall Street. I was tired, so I just sat around and absorbed four hours of a $65 billion, over 20-year Ponzi scheme. It’s worth watching for historical context.
While longer and less dramatic, it’s more informative than The Wizard of Lies, which stars Robert De Niro and Michelle Pfeiffer as Bernie and Ruth Madoff. However, De Niro completely nails the role of the monster of wall street.
As crypto continues to evolve, it’s worth remembering the part human nature and greed play in all of this. Whenever an economic bubble bursts, Ponzi’s and fraud are revealed. And there’s plenty of it, especially human nature and greed, all the time, everywhere, in finance.
Amy and I watch The Big Short every couple of years to stay grounded in reality.
Pro tip: whenever you see the phrase “guaranteed returns,” close your browser tab.