With cryptocurrencies as with the internet and automobiles, collapse is the life of the industry

On June 6, 2021, I published a column entitled “We will know that cryptocurrencies are real when its coins start to crash.More than most would like to admit or realize, failure is growth. A “market” for cryptocurrencies defined by the various “currencies” that go up and up and up is less information-rich. It is real, but bullish speculation is a sign of many unknowns. A market defined by collapse signals reason and realization going into prices. Information is progress.

As I point out at the beginning and end of my new book, The mess of money, what was true in June of 2021 is true today. Carnage is the life of the cryptocurrency industry. It signals long-term resilience as investors get serious about grazing the bad in favor of the good. The story backs up this truth, at which point it’s helpful to digress, or move to the side.

In particular, it’s helpful to address what has so many weapons: the collapse of Sam Bankman-Fried’s former blue-chip cryptocurrency concept, FTX. There is a point of view that the latter is a signal of something wrong and, worse, artificial in the whole concept of private money. FTX’s decline has spawned endless skepticism.

Get the by Wall Street Journal Joseph Sternberg. Filled with certainty about the power of central banks, but perhaps some light on historical perspective or understanding of real-world markets, Sternberg writes that “easy money fuels speculative delusions as surely as night follows day.” “. By itself, this assumption fails impressively. If true, then it would certainly be true that the Japanese economy would have been characterized by endless speculation starting over 30 years ago when the Bank of Japan went to “zero”. In reality, the Nikkei is still well below its highs 1989.

From there, Sternberg taps into the popular idea of ​​a search for yield as “individual savers desperate for yield have poured billions of dollars into cryptocurrency ‘investments’.” See above to understand the fatuity of that belief, then imagine retail investors calling their brokers with “I can’t get enough yield now, so please buy Bitcoinbitcoins for me” is. It is not serious, nor is it to believe that retail buyers can move markets in this way. If possessed of that power, then it stands to reason that hedge funds working in concert with each other could forever move markets in any desired direction… Except they couldn’t.

After that, there is no evidence that central banks are capable of stimulating bull markets. If they could, the markets and the underlying economy would be so destroyed that they can’t argue. If anyone doubts the above truth, one need only look at the most valuable companies in the year 2000 to see how dire the US economy would be today if central bankers could artificially prop up prices in the way Sternberg once again envisions.

Sternberg believes that “the biggest financial fiasco so far of this business cycle could not have happened without the Fed,” which is Sternberg getting what has happened over the last few years squarely backwards. More realistically, it’s the happy truth that stock markets regularly shuffle the flow of capital that explains why cryptocurrencies have become a thing. Put simply, investors would never have found cryptocurrencies if the Fed’s zero rates were driving “individual investors desperate for yield” into high-yielding assets simply because they didn’t need to.

All of which brings us back to Bankman-Fried. While the assumption here is that the comment meant to denigrate him today will age as much as the one that extolled him not so long ago, and while this column would never condone lying, cheating, or stealing by assuming any of the three reveal themselves, the whole FTX saga will eventually be seen by sober minds as progress. George Gilder has long referred to what lazy and simplistic thoughts call “bubbles” as “growth spasms.” Exactly. It is through the production of information that we progress.

Looking back in time to the early 20’sth century thousands of automakers or would-be automakers were paired with capital. Almost every single company created failed. Fast forward to the end of 20th century, something similar happened with the Internet. One assumes that Sternberg would find the fingerprints of the “Fed” on both growth spurts, but the happier reality is that copious investments in world-changing technology of the automotive variety and the Internet have completely transformed the way we lived and live . In other words, what Sternberg claims is a creation of the Fed is actually history repeating itself as investors with a real skin in the game look for the future.

Like The mess of money he claims, something similar is going on now. Just don’t give the Fed credit for this investment wave. The simple truth is that if the Fed were in control of credit and its cost as the expert class imagines, there wouldn’t be enough credit for intrepid investments of this kind to begin with.