It is Time to Tell the Truth
For years, bitcoin and other cryptocurrencies have accumulated $2 trillion in market cap on a “token” that has absolutely no intrinsic substance. It tells us something about our society that these digital objects (I am not sure we can even call them assets) have been “threatening” the established currencies through what is pure marketing. The money that went into these values might have enriched investors, but contrary to a fiat currency, their economic and social impact has been nonexistent.
In the last ten days, almost half of those 2 trillion dollars evaporated.
Masayoshi Son: the Losing Investor
In 2019, Masayoshi Son made a huge personal bet on bitcoin just as prices for the digital currency peaked, losing more than $130 million when he sold out. He sold them before stating last week that “there’s a lot of discussion over if it’s a good thing or a bad thing, what’s the true value or is it in a bubble.” Bitcoin peaked at nearly $20,000 in mid-December 2017, and Mr. Son sold in early 2018 after Bitcoin had plummeted. Earlier this year, SoftBank Group’s telecommunications arm became a member of the Japanese Security Token Association, a group of advocacy and self-regulatory bodies that exist within the Japanese cryptocurrency and blockchain space. The Japanese tech incubator giant SoftBank has had an active May so far, making a series of low-key investments in a number of cryptos, non-fungible token (NFT), and decentralized finance (DeFi) projects.
At the end of 2019, Softbank, Masayoshi Son himself told Nikkei Business magazine that he was “embarrassed and flustered” by the track record of his flagship company SoftBank. SoftBank came under pressure from some investors for its bets on loss-making businesses. It lost $10 billion in 2020 because of its Silicon Valley technology investments in 2020.
With the Vision Fund, Masayoshi Son created a club with the Emir of Abu Dhabi, the Crown Prince of Saudi Arabia, Apple, and others like Qualcomm. A “family” of powerful and wealthy. They want the world to follow them. This bet has been disastrous, first WeWork, and more bad news for the Saudi Crown Prince. They have lost a colossal amount of money. Vision Fund 2 is up and running, but only thanks to the $38 billion from SoftBank Group. The $18 billion losses of the first fund has cooled enthusiasm.
Despite people’s view that SoftBank might be struggling, we continue to grow,” Son tells. “Don’t think about the past.” His investment adventure in bitcoin failed.
Based on this superficial and simplified review, one would expect a sobering tone from such an investment guru.
Mark Zuckerberg and Libra
When Facebook announced the “global digital currency” to the world, it was perceived as a cryptocurrency, enhancing the debate on what crypto actually is. Predictably, Mark Zuckerberg took a verbal beating over Libra (among other things), Facebook’s proposed cryptocurrency and payments system, when he testified before the U.S. House Financial Services Committee. On the background of the various signs of his refusal to accept to screen violent hate and political speech (including from his friend Donald Trump), he should have known that he had a trust deficit. It was all about his hubris and his new recruit, the French former CEO of PayPal, David Marcus. Steve Forbes amazingly said that Facebook’s Libra is a great concept and Zuckerberg is a hero for pursuing It.
I believe that the sovereign control of currency cannot be transferred to private entities. In the case of Libra, regulators and central banks have decided to coordinate their policies, which is good news.
While Libra was not crypto namely because it was representative of a basked of fiat currencies (USD, GBP, EUR, JPY) and bitcoin is not representative of anything, it is more in the space of stablecoins. Facebook realized that its Libra was misconceived, redefined it as Diem, and moved its association from Switzerland to the United States. The first Diem will be correlated to the US dollar.
The influence that Mark Zuckerberg had on the debate cannot be underestimated. It added to the confusion, and its grandiose plan is now defunct. What is the added value of Diem as a payment tool when central banks are attempting to do it themselves through central bank digital currencies, and banks are using blockchain technology? We have no answer yet to this existential question.
As an influencer, Mark Zuckerberg and his team lost their ability to change the game.
Elon Musk: the Illusionist
How Elon Musk managed to invest $1.5 billion in Bitcoin while announcing it would be possible to pay for Tesla cars in Bitcoins, only to retract it later. It seems to be the act of an illusionist.
The investment of $1.5 billion in bitcoin remains opaque. Tesla’s bitcoin bet from early 2021 had already increased in value by more than $1 billion by the end of March. On May 17, he confirmed that Tesla had not sold its Bitcoins: was it to influence the price that started crashing on March 19? Was he the seller? We might never know the answer.
Elon Musk announced that Tesla cars could be purchased in Bitcoins and retracted a few days later, on May 12. It boosted the price of Bitcoin by 10% for a day. The fascinating part is the justification: CEO Elon Musk’s cited reason was that mining bitcoin is too hard on the environment; he said Tesla would not accept it for EV purchases until the production of the coin becomes more environmentally friendly. This explanation does not convince.
First, mining is expensive and creates huge environmental costs. it will take 72,000 GW (or 72 Terawatts) -equivalent to half the electricity consumption of New York State for a year- to mine a bitcoin using the average power usage provided by miners. But the bitcoins in circulation have reached 19 out of the total of its maximum 21 million tokens. At the peak, bitcoins market capitalization amounted to $1.2 trillion, more than enough to pay without mining new bitcoins.
Second, the bitcoin did not succeed to become a means of payment or even a unit of account. Its volatility driven by supply and demand made it structurally unstable. This is why it is not a currency but simply an instrument of reserve. Once more, Elon Musk made incorrect statements.
Lessons from the Tech Idols…
Are they influencers or manipulators?
But this has market implications. Since the SEC considers that crypto assets can be regulated as securities (an extension of its jurisdiction), it might need to look at whether the last days have not been the theater of market manipulation. What is an adequate disclosure for those three listed companies?
These actions, disparate but somewhere linked to the fashion of the cryptos, have consequences. Did their authors ever ask themselves what their initiatives represent in the context of their core business? Are they a distraction or a marketing trick? They certainly made headlines and influenced public perception of cryptos, their companies, and themselves. Being rich and famous comes with social responsibility.
We live in a world where reputation has become disconnected from the actual performance of men whose reputation is greater than they deserve. This modern idolatry leads public opinion, influence by the trumpets of the media, to engage in investments that are empty, speculative, and potentially dangerous. The pictures of nonexistent bitcoins continue to be used by the media even though they are fake.
The manipulation of investors is happening in the market itself, but also outside, as we saw in recent cases as Glensill, Wirecard, or Archegos. The control of the market is in very strong hands, and Wall Street is desperately trying to obtain taxpayer money to support an insane level of market valuation. The reduction of the purchases of bonds by the Fed mich put an end to this market explosion during the pandemic.