"Here Comes the Neighborhood"
Bitcoin ETFs and my mixed feelings about the institutional embrace of crypto
Prior to “going full-crypto,” one of my last assignments at my previous job was advising on a joint cryptocurrency-related announcement by several multinational companies, in which one client was a major participant.
With growing unease, I reviewed the draft news release multiple times before finally figuring out what was rubbing me the wrong way: It was shot through with the companies’ shared notion that the cryptocurrency category was “legitimized” (their modest term) merely through their participation.
Here comes the neighborhood, I thought.
I counseled against that framing because in a moment that called for a small amount of humility, these companies were deploying weapons-grade hubris. After all, while these companies were standing proudly on top of the work of uncountable, talented, dedicated volunteers — people whom they’d probably dislike if they ever deigned to meet them — it was perhaps a bit rich for them to claim to have “legitimized” their hard work.
Mind you, I’m not telling companies to stay away from crypto. This would run counter to my general philosophy and, if I’m honest, my business interests. I don’t presume to be a gatekeeper and I’m certainly no purist. Just as large companies were instrumental in the expansion of the Web and open-source, so too should they be welcomed into our world.
But it might behoove those companies to understand that the best posture is to approach the open-source community as equal partners. (And, yes, I believe that crypto will emerge as the open-source layer for conventional finance in a fat-protocol way.) I imagine that very few of the people who built the foundations for the great triumph these companies were celebrating ever woke up in the morning asking “How can I make the institutions, whose systems our movement is trying to replace, even wealthier?”
“Mastery of the details is too often mistaken — and too often intentionally — as a signal of low status.”
All of these memories resurfaced recently as I considered the chatter around whether the Securities & Exchange Commission will finally approve Bitcoin ETFs.
On one hand, providing familiar ways to access a relatively new asset class like Bitcoin is very welcome. The effects of bad monetary policy are all around us and Bitcoin at least offers a way forward.
On the other, I remain concerned about institutions’ duty-of-care when it comes to the ecosystems on which they are building financial instruments that will most certainly be popular.
Arthur Hayes posits one long-fuse doomsday scenario. As relayed by DL News:
Bitcoin miners, who maintain the blockchain, are rewarded for their efforts with transaction fees and an ever-decreasing amount of Bitcoin [from block rewards]. But from [year] 2140 onwards, miners will be solely subsidised through transaction fees [as the block rewards are halved every four years or so].
In other words, unlike other assets like gold, the Bitcoin network needs to remain active in order to keep existing.
According to Hayes, if too many people purchase Bitcoin ETF shares or other Bitcoin derivative products instead of actual Bitcoins, the network will stop producing enough fees to sustain miners and their costly energy bills.
This would result in miners unplugging their machines and Bitcoin becoming more vulnerable to network attacks.
The above scenario perhaps falls into the category of “unintended consequence” and, yes, it is a bit of an extreme scenario besides. And I don’t necessarily blame Blackrock for not considering this because, frankly, I’m not sure they know any better or even cared to look. Who was going to raise their hand in a planning meeting and say “But what happens to the Bitcoin network itself if we’re at all successful and, thus, somewhat responsible for ‘abstracting away’ the transaction fees that are necessary for long-term ecosystem growth?” Nobody. After all, mastery of the details is too often mistaken — and too often intentionally — as a signal of low status. I often feel that this phenomenon manifests itself when large companies in so-called “TradFi” approach crypto.
Major companies built out the Web. It’s inevitable that they will build out crypto. Some will do it for the right reasons. Others will do so in an vain attempt to hobble or forestall the decentralization that poses a threat to their businesses. (See Microsoft’s attempts to tie Sun’s Java programming language closer to Windows two decades ago.) Either way, they owe it to our ecosystem to think seriously about the long-term effects of their participation, again, approaching the builder community as equals.
Recommendations
“How Tom Wolfe Became … Tom Wolfe,” Vanity Fair — Given last year’s documentary Radical Wolfe and with Netflix releasing a miniseries based on his A Man in Full, I figured it made sense to share Michael Lewis’s 2015 profile on legendary author Tom Wolfe. Given this description, it’s easy to see the template with which Lewis crafted at least some part of his personal brand: “In the late 1960s a bunch of writers leapt into the void: George Plimpton, Joan Didion, Truman Capote, Gay Talese, Norman Mailer, Hunter S. Thompson, and the rest. Wolfe shepherded them into an uneasy group and labeled them the New Journalists. The New Journalists—with Wolfe in the lead—changed the balance of power between writers of fiction and writers of nonfiction, and they did it chiefly because of their willingness to submerge themselves in their subjects, and to steal from the novelist’s bag of tricks: scene-by-scene construction, use of dramatic dialogue, vivid characterization, shifting points of view, and so on.”
“Happiness is never having to ask for permission,” David Heinemeier Hansson — I had the challenge and great pleasure of “moderating” DHH (as least insofar as one might presume to do so) on a panel at the sadly now-defunct Flourish Conference, run by the engineering students at UIC. Last year, he controversially exited his business from the cloud. He’s starting 2024 with a call to break the walled gardens of the mobile app economy, such as those from Apple and Google. (The Apple app store rejected his business’s HEY Calendar app for the lamest of reasons.) “We can put peak native apps in the rearview mirror in 2024.”
“Chick-fil-A nears $19 billion in sales: Inside the evolution of a controversial brand,” Fast Company — Success sometimes comes from ignoring the extremes rather than “picking a side.” There’s no better summary than from the article itself: “Chick-fil-A now has the unenviable distinction of being perhaps the only major U.S. brand to be simultaneously boycotted by the left and the right. That is some heavy compression to put on a chicken sandwich—and Chick-fil-A already fries the breast in a commercial-grade pressure cooker.”
‘Mastery of the details (incorrectly) = low status’ - true, true