Cryptocurrency as a political economy
I want to talk about crypto, but before we go any further, let me ask you a quick question: Have you heard of Wordle?
As I will admit, off the record, I have not played this variation of the old Mastermind game as often as I would like to. Last month, when I began seeing it appear on my social media feeds, my contrarian instincts kicked in, and I was sceptical. Probably part of the reason may have been due to my aversion to something new, and part might have been because at a young age, I watched the episode “The Game” from “Star Trek: TNG” too many times.
I finally had to admit that I had a hard time resisting the temptation to try it. It is free, but it is a lot of fun, too. It was a nice diversion to have while waiting for my morning coffee to kick-start my brain in the morning. In a similar light, I learned that just because something is new doesn’t mean that it is automatically something that should be feared.
It is also important for me to change my mind concerning cryptocurrencies – I have always had an aversion to them. Let’s face it: as compared to Wordle, cryptocurrencies are old – as in, need I say, over a decade old. The first time bitcoin was covered in the general media, and I studied an understanding of the concept. One of my day jobs is to work out whether specific concepts should be included in my global political economy course. When it came to cryptography, I answered, “most of the time, no.”
The use of cryptocurrencies cannot be considered a replacement for widely accepted currencies. Consequently, they cannot be used as an alternative to widely accepted currencies. It should be noted that the use of crypto has some utility in terms of evading economic sanctions and engaging in illicit exchanges. With more and more people using them as a medium of exchange, their utility decreases, which is a very strange quality for a currency to have. They are very volatile, making them dubious as a store of value.
The crypto sector has gone on an ad-buying binge that seems to have overwhelmed the mainstream media, showing the massive ad budget allocated to the crypto sector. There was a time when this was happening. Now it may or may not be possible for crypto markets to be as efficient as they used to be. Either way, they have begun to gain a certain level of prominence in recent years. Currently, the amount of cryptocurrency invested in the market is estimated to be close to 2 trillion dollars.
The crypto industry is now attracting the attention of pension funds and sovereign wealth funds. This is a very deep market, such that large crypto ventures and crypto mining companies can launch super PACS campaigns to lobby against any regulation.
Matt Damon is cutting advertisements for crypto.com; David Ortiz, one of baseball’s greatest stars, appeared in a commercial for FTX.
Did you know that the cryptocurrency market is nearly $2 trillion? Back in October, its value was over $3 trillion. Although all of this prominence hasn’t stopped the volatility, it has made it more visible. Paul Krugman, an opinion columnist for the New York Times, issued a warning last week about possible comparisons with the subprime crisis of the 2000s.
I wouldn’t conclude that crypto threatens the financial system – the numbers aren’t large enough to create this kind of threat. However, there is growing evidence that the risks of crypto are falling disproportionately on people who are not familiar with what they are getting themselves into and are poorly positioned to manage the downside.
The survey data Krugman used to support his claim was backed up by survey data. NORC (National Opinion Research Corporation), in a survey conducted in July 2021, estimated that the average cryptocurrency trader is under 40 and does not have a college degree. The following news is even more concerning: “Investors get their information about cryptocurrency investing mostly through crypto exchanges themselves (26 percent), general trading platforms like Fidelity, Robinhood, or social media (24 percent).”
According to one rule of thumb I have concerning asset bubbles, if celebrities begin investing in the market, it might be a good time for the smart money to pull out. In the recent past, some famous people have already been sued for trying to promote digital currencies that turned out to be classic “pump and dump” Ponzi schemes. According to this pattern, while crypto will not disappear, we have now reached the bubble stage of its development.
It is still very early in the process of institutional investors becoming interested in the crypto space. The recent volatility in the market makes me wonder whether they will reduce their exposure to this market due to the recent volatility.
As he contended in his political economy book, the movie might stall Krugman’s concern that crypto would merely serve to buy congressional inaction. Either way, however, it seems as if there will be another generation of micro-investors like the day traders of the 1990s or the flippers of the 2000s who may become the new breed of bitcoin.
