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About 20 minutes into his last interview with Bloomberg, crypto’s favorite entrepreneur Sam Bankman-Fried said something revealing about the industry: Crypto is mostly a shell game.
“You know where do you start? They start out with a company that builds a box, and in practice they probably dress that box up to look like a life-changing, you know, world-changing protocol that’s going to replace all the big banks in 38 days or whatever. Maybe you’re actually ignoring what it’s doing for now, or pretending it’s doing literally nothing. It’s just a box,” Bankman-Fried said.
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Crypto, especially “yield farming” or the generative process of turning tokens into more tokens, is full of machines printing money or granting voting rights via money printers or promising future returns through things like airdrops. You put a token in the “box”, you take something out, he said. And everyone can build their own box.
The exchange — prompted by a question from Bloomberg finance magnate Matt Levine for a “sophisticated” explanation of yield farming — took a little longer. “Skilled investors” were mentioned, but the definition remained fairly rudimentary. (“You’re just like, well, I’m in the Ponzi business and it’s pretty good,” Levine said in summary.)
Of course, crypto is more than just an empty box — it’s a fundamental reimagining of how economic activity could be channeled away from centralized gatekeepers and into community-owned structures. It touches on wherever developers and entrepreneurs see “market inefficiency” or rental pressures. In theory.
But Bankman-Fried’s comments are not hollow. Crypto is also heavily associated with branding or the stories people tell about it. Ask what Ethereum is for, and you might get hundreds of ideas for possible uses – from blockchain cities to unbanked banking – but rarely an answer as distinct or obvious as Bankman-Fried’s money machine.
The story goes on
There is at least one possible theory about crypto that more people should think about: Crypto is a luxury commodity. With all the long reads in Bitcoin Magazine about how people in developing countries use BTC to protect or transfer their wealth, or similar stories about crypto dissidents or non-fungible tokens (NFTs) being used for charity, there are Hundreds of examples of crypto beings to be used for self-promotion or personal gain.
Crypto isn’t a necessary tool for many people who use it, but it’s often a way to denote a lifestyle or an alignment with a specific movement or set of ideas. Crypto users are often conspicuous consumers — sometimes due to the fact that blockchains are public records — and often more concerned about using the right application or coin.
Last year I blogged about how “Crypto is a luxury commodity and Gucci hasn’t realized it yet”. Just today, the Italian luxury brand announced it would accept crypto at certain US stores. Other Highfalutin brands have also entered the crypto world.
High-end watchmakers Hubolt, Franck Muller, and Norqain, among others, accept crypto payments. As does travel agency Travala.com, automaker Tesla and yacht dealer TJB Super Yachts. Luxury brand conglomerate LVMH, manager of labels Louis Vuitton and Hennessy, uses blockchain to authenticate some of its products.
Other examples abound, with some companies building in the metaverse and shaping branded NFTs. The gamble, while perhaps risky, is that crypto has made many people very wealthy, and the crypto wealthy might tend to patronize companies that endorse the industry.
In fact, Chronicle of Capitalism Bloomberg has published a series of stories about crypto people as influential buyers – in housing, in travel, in luxury services. Your money, even if it is fake internet money, is just as good.
But crypto is not just a means, it is a luxury in itself. Pamela N. Danziger, author of Putting the Luxe Back in Luxury, identifies 10 attributes that make a brand “luxury.” These can truly be distilled into a sense of superiority or sophistication, rarity and pedigree, and a shared delusion. These qualities are not necessary to exist, but are objects of desire.
See also: “How can information be free but expensive?”: Holly Herndon
Market analysts sometimes refer to digital assets as Veblen goods, or items that see increasing demand as prices rise. Perceived value is at stake here — and a form of that exists in crypto hype cycles, where more people are willing to buy a hot asset as it becomes more expensive. Sure, there are other psychological and market factors at play, but the data shows that at its all-time high of over $60,000, there were more Bitcoin buyers than today. (Some even say BTC is trading at a discount.)
The problem with understanding luxury goods in the post-modern, post-industrial economy is that everything can suddenly become hip. Luxury today is less about brand origin or craftsmanship and more about identity and sophisticated signalling.
Writing recently in the Harvard Business Review about this trend, Michael J. Silverstein, senior partner at Boston Consulting Group (BCG), and Neil Fiske, CEO of Bath & Body Works, argued that there is a new breed of luxury goods that “ a sweet spot between mass and class” – these are articles that are between “super premium” but are priced well above the discount bin.
“[Consumers] are looking for merchandise that makes positive statements about who they are and what they want to be, and that helps them manage the stresses of everyday life,” they wrote. This “love affair” with “products” is largely “emotional.”
Luxury goods, they write, creep into your brain and make promises that they can “take care of you” by relieving the burden of having too much work and not enough time; “take you on a quest”, offer new experiences and overcome challenges; “Connecting you to others” while practically helping you to be self-fulfilling, “to capitalize on the sophistication and timeliness of one’s consumption choices,” to demonstrate success, and to express “individuality and personal values.”
“Spending on luxury goods is like burning money in public to convince others that you really have a lot of money,” Wharton marketing professors Z. John Zhang and Pinar Yildirim said in a recent interview. Her new book, A Theory of Minimalist Luxury, also examines Veblen goods in the modern age, when more people have more money and counterfeit goods have gotten really good.
Bitcoin is a luxury good in the sense that its value is literally tied to energy consumption. It offers a market and a tool, but the energy burned really fundamentally signals that this thing, BTC, is desirable and valuable. Some studies have found that knowing or investing in crypto is sexually attractive, as wealth always is.
The Wharton pros also note that today — in the face of counterfeiting and a range of alternatives — luxury brands need to keep their brands “as clear and undiluted as possible to the consumer.” Perhaps this speaks to the Bitcoin maximalists’ attempts to discredit BTC from “[rhymes with pit] Coins” or any maximalist coin tribe denigrating a competitive chain.
See also: Decision time: Are you an investor or a player? | Opinion
Additionally, Zhang and Yildirim note that for many people, the pandemic has been an “opportunity to reevaluate our values.” Perhaps this moment of re-evaluation of commodities and society was a time for some to consider money itself – given that we are buying less and less.
This isn’t a blanket theory – as much as crypto is about signaling belonging or one’s wealth, it’s also a powerful tool for financial inclusion – just an attempt to open the box and see what’s inside .
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