I've called Bitcoin "an integer with a story", and the story part is what differentiates it from purely speculative bubbles like Beanie Babies. But I think that dynamic is more complicated and subtle than Krugman gives it credit for. There are layers!https://twitter.com/paulkrugman/status/1395073993967816705 …
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The bedrock of cryptocurrency belief is the group of people who find it compelling for either a) ideological reasons or b) because they are enchanted with the technology. Those true believers exist and they will talk your ear off.
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The layer around that is kind of the "meme layer"—people who are not directly beguiled by Merkle trees or anarchoderptarianism, but recognize that cryptocurrency is a form of sticking it to the Man, and find it a source of countercultural enjoyment and sometimes giant windfalls.
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Then there is a simply vast number of people who treat Bitcoin as a lottery ticket that can't lose. Their numbers grow as the bubble inflates. And then there's a final layer of savvy financial market types who are like wolves in a henhouse, going to town on easy winnings
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The important thing about this layered model is that you don't have to be a true believer in *bitcoin* to throw all your money into it. All you have to believe is that people in the next layer down will continue to hold fast to *their* beliefs. That's much easier to believe!
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So we get to the situation where the technical core features of cryptocurrencies (and their concomitant disruptive implications for global finance) sustain a whole inverted pyramid of belief. The technical details are not ipso facto important, but that they exist *is* important
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This is why I have been particularly fascinated with GameStop, whose stock has been co-opted into a de facto cryptocurrency that only goes down to the "meme" layer and stops there. And it's much easier to trade! They took the bottommost turtle out of the stack and are doing fine
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This search for the right pairing between story and speculative asset is the big research project in cryptocurrencies right now. Do you rebuild the motor with fancy new tech (Ethereum, Chia), or do you focus on the styling and fun? (Dogecoin). What story sells itself best?
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There's of course an alternative possible pathway for capital, which would be to fund innovation, build companies that created genuinely useful goods and services, and so on. But that pathway has been broken for over a decade, and so we get this bizarro economy instead
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On an artistic level, a currency that you can't trade, safely store, or buy things with, and a store of value that becomes instantly illiquid in any crisis, is a high achievement. And of course NFTs where you burn actual art after putting it on the blockchain make it next level
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The right way to think of cryptocurrency is not as a bubble, but a blister. It will just keep re-filling every time it pops, until we find a cure for the underlying problem.
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