Long Take: What do Bitcoin, Ethereum, GDP, unemployment, and Covid have in common in 2021?
Hi Fintech futurists --
This week, we look at:
The spectacular price increase in crypto assets, hitting new records for Bitcoin, as well as the comparable statistical situation around Covid cases
An explanation of the $1.5 trilion income effect in 2020, and how it has led to both capital acumulation and inequity (thanks NY Times!)
A discussion of all-time-highs and all-time-lows, why we need them, and their connections to the macro-economy, computer code, music, and the universe itself
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You are here, in 2021, and everything is roaring.
Bitcoin has never been more valuable, hitting $34,000 and $630 billion in market capitalization. Cool, smart, memetic digital gold. Ethereum has never been more functional and economic, and flying 10x since its lows back to $1,000, over $100 billion in market cap. $15 billion in collateralized assets (TVL), over $20 billion in stablecoins, and so it goes. Welcome to January 4th.
Meanwhile, the SEC grinds down Ripple and XRP, and the Treasury tries to bring to a stop non-custodial, permissionless, weird finance. Coinbase will IPO this year, yielding a dozen crypto billionaires and centa-millionaires, each of whom will seed the next crop of decentralized finance companies and projects. Generation Z, as well as the older Generation Zoom, will live in Fortnite and bank with the omnipresent, sprawling technium, financed by Goldman Sachs.
Maybe you feel rich. Maybe you feel poor. But you don’t get a break. No time for taking a breath.
Covid roars! There is a vaccine! There is a new viral variant! The Western crown itself is on fire!
The charts are up and to the right. The healthcare stocks soar. The British pound soars. Against all odds, there is Brexit. There is Europe. There is agreement, disagreement, all encapsulated by one squiggly line in an order book.
No time to dawdle. Onto the next calamity.
Remember unemployment — a spike to 15% during the lockdown of 2020. And yet, somehow, GDP has stabilized and unemployment has crept down. Remember also the money printer — a gigantic infusion of capital from the government into the hands of business and individual. Where did that money come from? Does it create inflation? Does it fuel the price of Bitcoin? Is Trump for stimulus, or against stimulus? Are Republicans pro-fiscal conservatism and balancing the budget, or against it?
Who cares! And anyway, neoliberal economics is dead. Long live Modern Monetary Theory! Reminder — the exclamation marks are for sarcasm. MMT holds that a sovereign can generate money without reprieve, that there is no “balance sheet” to balance. You don’t even need to be a Keynesian and implement taxes before growing spending.
There is now literally more money, by the trillions. Bizarrely, in a world where millions of people lost their jobs, others are now richer. Between lower spending and the stimulus payments, there is $1.5 trillion more in 2020 income than a year prior. It is being saved, not spent, thereby keeping inflation out of our economy and price indexes. The savings flow into the stock market, which continues its endless march towards some revolutionary asymptote. Crypto feasts on this capital appreciation — as well as its underlying narrative — too.
But wait. Aren’t those unemployment figures also saying that African Americans have twice the unemployment of white America? Or that Gen Z is triple the number? And doesn’t the fact that wages fell by a measly $43 billion while unemployment sky-rocketed suggest that it is largely low income workers that have been made redundant? The shape of recovery, and the ability to invest in the stock market and crypto, and then partake in its arithmetical appreciation (i.e., more supply of money) — like everything else — is amplifying the social layering our nations.
But wait yet again.
Aren’t we investment bankers, building wealth for the creative entrepreneur and technologist? Without Elon Musk, humanity is cut off from its galactic future. Aren’t we crypto-anarchists, liberating the world from Federal Reserve sovereignty? Without blockchain, we can never overthrow the techno-bank-industrial-monopoly-complex.
Why is there collectivism in our Fintech newsletter? Get all this poetry out of my economic research.
Finding the Music
We spent some time during the holiday break to listen to the philosophies of Alan Watts, and his interpretation of Eastern teachings in Buddhism and Taoism. There is also a lot of progress in neurology and artificial intelligence that connects human decision-making to theories of consciousness. All of a sudden, behavioral economics and complexity theory are less mysterious. The interplay between multi-disciplinary topics is less mystical, more mathematical.
One wonderful takeaway from Watts, which of course is not his, but beautifully plagiarized into the English language, is the duality of experience. The need for polar opposites, in a clock-like cycle. To have black, you must have white. To have the top of the wave, you need the bottom of the wave. To have a melody, you need equally the presence of the notes, and their absence in silence. To breathe in, you need to breath out. It is meaningless to have a data point without the context in which it exists.
Or we can visualize this with binary code. Meaning comes from the pattern of “on” and “off”. To get to some sort of meaning (i.e., a character like the letter M), you need both the on and the off state encoded over time in a pattern (i.e., 01001101).
If this is still too abstract, let’s revisit the market cycle. Those grey bars are recessions occurring periodically. Could we have growth without downturns? What types of innovations happen when Bitcoin is down 90%, and what types of investments happen when it is up to $30,000? Who is in the industry to build, and when? Recessions are like the silences between notes in a symphony.
One more example still of Ray Dalio’s model of the economic machine through the lens of debt cycles. Learn about the financial heartbeat of the economy as homework.
We can get lost in the competition of it all, in the race to be a winner of innovation, or defender of the incumbent. We maximize our own winnings at the expense of others, seeing ourselves as an individual agent. But without incumbents, there would be no disruptors and nothing to disrupt. And without disruptors, the world would calcify and turn to stone. Shouldn’t we give thanks to the obstacles for shaping our path?
Managing The Journey
2021 roars already with its stressful, fantastical data.
So many of us just want a reset button for 2021 after 2020. Will we find that reset under the Christmas tree? In our stimulus checks? On Twitter? Who will give it to us? Who will grant us permission and comfort? Certainly not the cold logic of biology, nor the rusty creaking of the political apparatus, nor the unblemished metallic skin of our technology giants. Systems do not see us, the individuals.
So here is the advice: Appreciate the peak, and the trough. Each is equally important to our forward momentum. Use it for yourself, in whichever way the ingredient fits.
The purpose of this year is to create the decade that you want. Starting now.
It has to be you. You have to give care and permission to yourself. And to whatever extent it matters, we give you permission too.