22 November 2021

Stephen Diehl: “The Intellectual Incoherence of Cryptoassets”

Crypto tokens are not all that dissimilar from equity investments in companies, except the underlying company has no business. This is strictly inferior than assets like stocks which either pay dividends from their revenue, buy back their own stock, or have mergers and acquisition events which introduce new cash in the system to reward investors for holding their stock. There are no fundamentals to any crypto token and it’s discounted future cashflows are all strictly zero and thus its present value must be strictly zero. It does not sell or do anything to bring in external revenue, it exists purely to grow the pool of greater fools to buy the token so that early token holders can be paid out by later token holders. There are no underlying cashflows in the enterprise by which to value the token. It’s effectively as if a penny stock company existed solely to pump, sell, and dump its own penny stock.

Setting all these models aside, there are two far more coherent perspectives on the crypto assets that have far more explanatory power for the behavior we see. Crypto assets are the synthesis of a speculative mania and a financial scam built around an opaque technology, phoney populism, with a tolerance for intellectual incoherence at its core. And it is a novel type of a scam, one that we don’t have a precise term of art for. They share the obscured and circular payouts of Ponzi schemes, the cult-like recruiting of multilevel marketing schemes, the ephemeral nature of high-yield investment fraud, and payout mechanics of pyramid schemes but strictly speaking they aren’t exactly like any of the classical scams. They’re something entirely new that we don’t have a word for yet.

Stephen Diehl

Bitcoin: neither currency, nor commodity, vaguely similar to securities for an inexistent company with no business – and thus zero value – or an absurd work of art masquerading as something else… The second paragraph though captures the essence of Bitcoin perfectly.

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