The Garrulous Jay – Tales From The Crypto – Part III

While I was away last week, I read Zeke Faux’ fantastic exposé of the global cryptocurrency market, Number Go Up. The book is a fascinating exploration of what some have argued is a new financial paradigm in which cryptocurrencies supersede the currencies issued by countries; it is also extremely funny.

It is the book I wish I’d been able to buy when, in seeking to understand crypto, I bought a small portfolio of currencies in January 2022. The book cost me £10.99; my loss on Solana, Polygon and Request was considerably more.

In chapters with titles such as All My Apes Gone and Blorps and Fleezels, Faux uncovers and explains the inner workings of a world that to many of us remains remote and, we might think, irrelevant.

What is interesting, though, is that on its own terms the book is a failure…

Faux started out seeking to prove that a so-called ‘stablecoin’ called Tether didn’t have the assets it needed to back its currency. Stablecoins are supposed to trade one-for-one with the US dollar: you buy a Tether for a dollar, and when you exchange it you get a dollar back.

Given the absence of regulatory oversight, Faux suspected that Tether was investing people’s dollars in assets (including other cryptocurrencies) that had gone or would go down in value, and that owners of Tether would therefore never get all their dollars back.

By uncovering Tether as a fraud, or at least an extremely high-risk investment, my sense is that Faux was seeking to expose the entire cryptocurrency world as a mirage behind which there was nothing of real value.

Today Tether is the world’s third largest cryptocurrency, with a total value of $152 billion, and the price of a Tether is $0.9998. Furthermore, on the 17th February 2022, the date cited in Number Go Up’s prologue, the total value of all cryptocurrencies was $2 trillion; today that figure is $3.52 trillion. (Source: coinmarketcap.com)

The total value of Bitcoin alone is $2.2 trillion, which is almost exactly the same as Apple, the world’s third largest company. (Source: coinmarketcap.com, companiesmarketcap.com) Even if Faux has not been proved wrong about crypto, so far nor has he been right.

What that does not mean is that investors should own crypto. Number Go Up makes two convincing arguments in this respect.

First, there is no compelling ‘use case’ for cryptocurrencies. There is nothing I want to buy that I have to buy with crypto. Crypto represents a risky, clunky alternative, to other mainstream options.

Secondly, the book shows how cryptocurrencies remain vulnerable to criminality. Many of the currencies themselves may be valueless Ponzi schemes, and they are also used by criminals in a range of fraudulent activities: there is nothing funny about the chapters in the book about so-called “pig-butchering”.

I therefore continue to share Faux’ scepticism about crypto. I think much of it’s bonkers… For example a cryptocurrency called Fartcoin has a total value today of $1.6 billion! But I suspect crypto’s here to stay.