Cryptocurrencies, Religion, States, and Corporations

Investment guru Paul Singer of Elliott Management recently wrote this about Bitcoin

FOMO (fear of missing out) has solidly trumped WTHIT (what the hell is this??). When the history is written, cryptocurrencies will likely be described as one of the most brilliant scams in history. . . .

We all laugh at primitive tribes which used large stones (or pigs) as currency. Well, laugh as you will, but a stone or a healthy pig is something. Cryptocurrencies are nothing except the marketing power of inventors, financiers and others who love the idea of buying a black box (which is obviously empty) for the price of a Kia and dreaming that it will turn into a Mercedes. There have been times recently when this dream has materialized within hours. This is not just a bubble. It is not just a fraud. It is perhaps the outer limit, the ultimate expression, of the ability of humans to seize upon ether and hope to ride it to the stars.

Which led Matt Levine to write this:

I mean look. If I told you "X is a scam," you probably wouldn't buy X, because you are a savvy Money Stuff reader and you don't buy into scams. But maybe you should! What if I told you "X is a really good scam, and it's just getting started"? The stereotypical pump-and-dump scheme starts with some fraudster hyping a stock, and ends with a bunch of retail investors holding the bag when that stock crashes. But in between there are usually savvy people who buy the stock on the hype, knowing that it's a scam, but believing correctly that they'll be able to sell it to someone else on the way up and get out before the crash. Sometimes the right trade is to short a scam, but often it's to go along with the scam for a while.

But cryptocurrencies, in Elliott's telling, are not just a scam, or a good scam. They are "one of the most brilliant scams in history." What else is on that list? I like Yuval Noah Harari's argument, in "Sapiens," that Homo sapiens's major advantage as a species is our ability to generate collective fictions . . .

Harari argues that fiction "has enabled us not merely to imagine things, but to do so collectively," and thus given us "the unprecedented ability to cooperate flexibly in large numbers." Harari's list of powerful fictions includes religion, nation-states, human rights, money and the limited liability corporation. Laugh as you will, but the limited liability corporation is not a stone, or a healthy pig. It is just an example of the ability of humans to generate abstract concepts and use them to coordinate action, "to seize upon ether and hope to ride it to the stars." Viewed in a certain light the corporation, or money, or nation-states, or religion, are some "of the most brilliant scams in history." Being on that list augurs well for a scam's longevity, and for its real value. If Bitcoin lasts for 10,000 years and facilitates a freer and more productive economy, then it really will be one of the most brilliant scams in history. And you'll be glad you bought Bitcoins.

That doesn't mean that Elliott is right! What do I know? Maybe cryptocurrency is not one of the most brilliant scams in history, but just a regular scam. This is not investing advice. My point is only that it is not a good objection, to an innovation in human culture, to say that it has no basis in physical reality. That's the whole point of culture, the defining feature of humanity.