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15 June 2022

Cryptocurrency is a symptom of the death of the American dream

The collapse in social mobility is facilitating an age of shortcuts. Enter Bitcoin.

By James Bloodworth

How do con artists get people to believe their scams in 2022? One way is to have those scams endorsed by famous influencers.

This is more or less the story of cryptocurrency. The billionaire entrepreneur Elon Musk is a “supporter” of Bitcoin and his companies – Tesla and SpaceX – own Bitcoin. Other celebrity promoters of cryptocurrency include Kim Kardashian, the boxer Floyd Mayweather and the basketball player Paul Pierce. All three are being criticised for their promotion, with a lawsuit filed in January of this year accusing the stars of using their celebrity to “pump” a coin called Ethereum Max.

Celebrity endorsements also help to explain why the present cryptocurrency crash is unlikely to deter investors looking to get rich quick. Until recently crypto advocates were proclaiming a monetary revolution. Yet crypto has proven to be another speculative bubble. From its all-time high of $69,000 in November 2021, Bitcoin has plummeted by 66 per cent; it has crashed by more than 10 per cent just this week.

Social media partly helps us to explain the popularity of cryptocurrency and similar get-rich-quick schemes. As the Channel 4 journalist Symeon Brown writes in his recent book Get Rich or Lie Trying, platforms such as Instagram serve up a “never-ending feed of pyramid schemes, scams, network marketers and self-promoters making ‘motivational’ posts preaching that there is no excuse for being poor in the age of social media aimed at aspirational working-class internet users”.

Paradoxically, the popularity of such content – of the pull yourself up by the bootstraps kind – has coincided with a hollowing out of Western economies so that it has become harder than ever to bootstrap oneself out of poverty. Millennials in Britain are the first generation in more than a hundred years to be doing worse than the generation that preceded them, the Resolution Foundation think tank says. In the United States people born in 1980 have only a 45 per cent chance of out-earning their parents at the age of 30, compared with 93 per cent for those born in 1940, according to the World Economic Forum.

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This collapse in social mobility is facilitating an age of shortcuts, and cryptocurrencies like Bitcoin are emblematic of the phenomenon.

Some critics have called cryptocurrencies a Ponzi scheme: a type of fraud whereby investors are ripped off but the theft is masked by creating returns to clients from money contributed by newer investors. The most notorious Ponzi scheme was the Bernie Madoff scandal. Madoff drew investors in by guaranteeing high but not outrageous returns. He then cheated clients out of $65 billion over several decades and was sentenced to 150 years in prison in 2009. Few of Madoff’s victims have been able to regain all of their losses.

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Yet it’s not quite accurate to describe crypto as a Ponzi scheme. Bitcoin is more akin to a “Greater Fool” bubble whereby any value that cryptocurrency does have is founded on the belief that there is always a bigger fool who will pay you more for your Bitcoin than you paid.

Condemning Bitcoin investors as fools would be unfair for the reasons outlined above. Many of them are victims – both of the socio-economic forces listed above and of actual fraud. Consumers reported losing more than $1 billion to fraud involving cryptocurrencies from January 2021 to March 2022, according to America’s Federal Trade Commission. Young people reported losing more money to crypto investments than any other type of fraud.

Young men in particular have been keen to invest in crypto. More than four in ten (43 per cent) American men aged between 18 and 29 have bought digital currency, Pew Research found. More than a fifth (22 per cent) of men say they’ve used it, compared with just 10 per cent of women.

This young male demographic is sometimes disparagingly referred to as “crypto-bros” by the mainstream media. This forms part of a wider, unspoken war between the so-called legacy media (longstanding mainstream publications) and the internet’s autodidactic media ecosystem, the latter perhaps best epitomised by the Joe Rogan podcast.

Large sections of this new media ecosystem lean politically right; outlets tend to frame themselves as an alternative to the so-called liberal intellectual elite. Temperamentally distrusting of the mainstream, they can at times promote a credulous scepticism on everything from Covid vaccines to mainstream currencies.

To be sure, the allure of these channels is probably amplified by the idiotic rhetoric of some progressive activists, who are apt to cast men (young white men in particular) as a homogeneous bloc that enjoys tremendous privilege. It is also fuelled by a phenomenon we might call Young Man Syndrome. Alternative media channels are dominated by supposed “life hacks” catering to an audience of young males who long to believe they have some piece of inside knowledge the elites and the “normies” don’t.

Cryptocurrency fits this bill to a tee. “Elites and statists are at war with Bitcoin,” cries a recent post on Reddit. Statements like this are ubiquitous among crypto’s true believers. Bitcoin “will create a new economic future where today’s elites and statists are no longer in control”, according to the popular BitcoinExchangeGuide website.

Those who have swallowed the crypto Kool Aid are unlikely to listen to journalists such as myself. They might instead pay attention to the damning words of the cryptocurrency nobility. At a conference Mike Novogratz, the chief executive of Galaxy Investment Partners (a firm specialising in cryptocurrency investments) likened Bitcoin to a pyramid scheme (a pyramid scheme, like a Ponzi scheme, is designed to con unsuspecting investors). A December 2021 article on the digital currency news website CoinDesk was promoted with the line, “Yes, it’s a Ponzi scheme. But who cares?”

Ponzi schemes – and Greater Fool schemes – are typically kept afloat by investors bragging about how much money they’ve made. The cryptocurrency elite has been similarly unable to resist bragging about Bitcoin’s opaque financial structures. Yet they might also be the cryptocurrency’s undoing. As the journalist Greg Barker has pointed out, such bragging brings to mind the rhetoric of the subprime era, when “contemptible realtors wrote risky loans to the vulnerable, knowing they could never make payments, and sold them off to banks”.  

In his 1991 book The True and Only Heaven, the American social critic Christopher Lasch argued that a new theory of class had emerged which “enabled the right to attack ‘elites’ without attacking big business”. Lasch’s words are just as relevant today when it comes to the Bitcoin nobility’s posturing as an anti-elitist movement. As crypto-elites amass their multi-billion dollar fortunes, it is worth asking whether it really is the ordinary man or woman in the street who has benefited from cryptocurrency’s phony promise of “financial autonomy”.

[See also: Crypto crash: What the Terra collapse means for the future]

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