GameStop, Bitcoin, Tesla, NFTs: Victorious or Valueless?
Ah, good old Bitcoin. I’m sure you thought you’d be able to read a think piece on finance which did not contain any mention of this ubiquitous cryptocurrency. Or that of its successor in the public eye: NFTs.
So, GameStop and Bitcoin. Where’s the link? Both have been subject to essentially the same ‘hype cycle’ or ‘pump’ encouraged by institutional and retail investors. Anyone who frequents the r/Bitcoin subreddit, or scrolls through the hashtag on Twitter, is well aware of how easily the latest crypto influencer tweet can, actually, influence the cryptocurrency’s price. The advent of retail investors publicly eradicating the hegemony of hedge funds and forcing entry into the world of investing was a landmark event in the world of finance, but it was a long time coming, especially when you remember that r/WallStreetBets, the subreddit that kickstarted it, has existed since 2012. Fighting back against the absurdly rich is exactly what Bitcoin’s most ardent supporters claim they are doing; they believe Bitcoin cannot be compared to ‘dirty fiat’, their term for traditional forms of finance. It’s hard to say the same for the buyers and supporters of NFTs. However, let’s focus on Bitcoin, GameStop and value first.
No asset in the world seems to be beyond the influence of institutional investors. Bitcoin has not yet been openly lauded by institutional investors, despite the many speculative articles on this in the Financial Times. Indeed, Forbes disproved this in January 2021. ‘Real money’ has not bought into Bitcoin, according to them. It’s correct that institutional investors are interested in Bitcoin in the fund format; according to Coindesk, BlackRock has given two of their funds the authority to invest in Bitcoin futures. Senior leaders within BlackRock are already lauding Bitcoin as ‘more functional’ compared to gold, which while being correct at a surface level, does little to make an impact. Bitcoin’s functionality is extremely limited in comparison to other, less notorious cryptocurrencies such as Ethereum and other protocols that are part of the DeFi movement, such as MakerDAO. The hype around Bitcoin can be seen as a way to propel cryptocurrencies, protocols and DeFi projects that are working for the betterment of society into the spotlight. However, the value of Bitcoin itself is limited; those who claim that Bitcoin’s environmental impact should be a deterrent to its widespread use and ability to effectively solve problems would be correct.
Quite apart from the justified attack on hedge funds, institutional investors and whales by the r/WallStreetBets community, it remains that GameStop is hardly a company of transformative value in 2021. Neither is Bitcoin a cryptocurrency that will change the world, unless governments are committed to providing renewable energy access for all those mining Bitcoin, or running a node in their home office. The dramatic price rise of both GameStop and Bitcoin is indicative of a power that goes beyond the average hype: the power of people and a community. But who is influencing this community, and representing it to the outside world?
‘Technokings’ like Elon Musk and sensationalist crypto influencers such as Anthony Pompliano (@APompliano on Twitter) are seen by the mainstream media, and your typical social media user, as the ‘Holy Grail’ on cryptocurrency developments. This is the despite the fact that they have seemingly little involvement in actually working on improving various cryptocurrencies. At their whim, they are free to advocate whichever cryptocurrency they are in the mood to cheerlead for that day, whether it’s Dogecoin, Bitcoin, Ethereum, or, surprisingly, DeFi as a whole.
Many were drawn to the Bitcoin community due to its association with ‘freedom from fiat’. Bitcoin’s most ardent supporters across social media defend any criticism of the cryptocurrency with a negative, and often truthful, statement about the US dollar, or traditional payments corporations such as Visa, condemning ‘fiat currencies’ as they boost the signal of whichever cryptocurrency takes their fancy. Ultimately, the problem here is that we have several real, new economies coming into play — but the wrong people are influencing how these economies are currently working and how they are set to work in the future. Having a currency that moves in response to a tweet, accompanied or not by a buy-in from Elon Musk, is hardly any better than the present issue of inflation with the US dollar.
The interesting absurdity of the NFT hype is something that seems to be prevalent in cryptofinance these days. The latest DeFi project, the newest dApp (decentralized app) built on Ethereum — all of these creations are met with an outpouring of wild enthusiasm from some, a detailed criticism from others, or complete bafflement from everyone else. The arrival of NFTs as a popular, if not easily accessible, cryptoasset may result in providing artists with some extra money each month, in the form of BTC or ETH. They may gain recognition for previously underrated pieces, and more commissions in the future. However, it’s doubtful that NFTs will ensure the wealth of the digital art industry will reach those who are in most need of it. The purchase of the NFT Everydays: The First 5,000 Days by Beeple, a digital artist, for $69 million, by the pro-NFT fund Metapurse caused a huge stir earlier this month. Vignesh Sundaresan, or ‘MetaKovan’, the previously anonymous buyer of this NFT, declared that he revealed himself to ‘show Indians and people of colour they, too, could be patrons, that crypto was an equalising power between the West and the Rest, and that the global south was rising’.
I don’t doubt that the reveal of the ethnicity of ‘MetaKovan’ had an impact on your average (in other words: not particularly diverse) investment fund that may be hoping to get into NFTs. However, whether this purchase will have a positive impact on digital artists of NFTs remains to be seen, and it rather depends on the actions of those in the community and where these successful bids (so high for ownership of what is, in essence, a few lines of code) are allocated. If we have to wait for a trickle-down process to benefit a digital artist who is just starting out, the overall success of NFTs is likely to be weak. In the opinion of many, including Vignesh Sundaresan (who confesses to having been a Bitcoin maximalist previously) cryptocurrency is the only sure way to build wealth. Tokens lead to ‘rapid growth of capital, but the difference is early liquidity which leads to expedited compounding’. This may be true, but Vignesh would do well to recognise that the sale of tokens is not the only way, or the most reputable way, to raise capital for any business.
At the risk of sounding like an anti-coiner, I would like to remind Vignesh that his ability to invest in the Ethereum ICO does not indicate that cryptocurrencies, and by extension, NFTs, allow ‘unknowns’ to invest in a manner far easier than opening a Fidelity or Robinhood account. If you’ve never heard of something, you clearly can’t invest in it. And if you didn’t invest in it while it was ‘unknown’, you’re unlikely to benefit significantly from it — this is the case with high risk investments across the board. The quick use of the block button within the crypto community on Twitter in response to ‘anti-coiners’ and those who justifiably criticise NFTs, is hardly indicative of a community that is working to secure wealth for the many, or to raise public awareness of these opportunities. We have to thank the mainstream media for making the public aware of NFTs; not those who were in the space from the start.
Those who want Bitcoin to succeed are also those who successfully beat the hedge funds in their attempt to boost GameStop and short the hedge funds. The same people, those who have felt left out in the freezing wastelands of the financial world, do believe Bitcoin will be the great leveller. It won’t be. But other cryptocurrencies could be — if we are determined to build a more inclusive, welcoming community around them, ensuring that those who access them and influence them are representative of our society as a whole. Then, perhaps, we will see actual value creation: in our societies, not just our financial systems.