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Adam Lashinsky is a former editor of Fortune magazine and the author of “Inside Apple: How America’s Most Admired — and Secretive — Company Really Works.”

The bursting of the cryptocurrency bubble will end the way other speculative follies have ended: in a trail of wreckage across corporations, continents – and hapless investors. Crypto has had a horrible year. We have seen the erasure of the stablecoin terra in May, the collapse of the FTX trading exchange this week, and the shrinking of non-fungible token trading throughout the year.

Small investors have already fled, their grubstakes or their savings decimated. Well-heeled venture capitalists, badly burned by each successive meltdown, will wash their hands and move on to the next shiny object. The hustling crypto-ambassadors (insert any big name in pro sports here, please) will return behind the scenes. And regulators, as usual, will finally release their rules late, long after the damage is done.

There is, however, one critical difference with crypto from past bubbles: it had virtually no intrinsic merit.

Before and after their bubble burst in the mid-1600s, tulips were still pretty flowers. America’s railroads brought about massive (and positive) change long before the Panic of 1873 and are still vital nearly 150 years later. The promise of email in the 1990s – and its dot-com derivatives – was real and historic. Even subprime mortgages, however badly exploited, were a dismal innovation on hard-to-obtain loans for homebuyers – a market that survived the 2008 financial crisis.

“Crypto,” a still-misunderstood catch-all phrase for digital currencies and other non-government-controlled securities, won’t be able to make the same claim. Crypto was meant to be a safe haven in times of inflation, as hard metal commodities such as gold often are. Yet sweets like bitcoin and ethereum fell as inflation soared. They promised a way to store value. Obviously, they don’t.

Most glaringly, crypto was meant to have all sorts of other uses, from easy cross-border fund transfer to establishing value for newly created digital art forms. None of this has come true on any scale worth bragging about.

In our system, entrepreneurs and the investors who support them provide a valuable service by taking risks on unproven ideas. Without them, we wouldn’t have Apple, Google, or Post-its. But we now know that the crop of swaggering financiers who dreamed up the new category of investments known as web3 were wrong.

A common rationale for these investments was that they captured the fascination of software coders and entrepreneurs, leading to the dreamy conclusion that a real market for digital assets of all kinds was emerging.

What has emerged instead is another example of one of the worst ills plaguing Sand Hill Road, the heart of Silicon Valley’s venture capital industry: confirmation bias. The enthusiasm that VCs mistook for an investment thesis was often just the result of too much money for too few really good ideas.

Nerds aren’t stupid: if someone offers them a lot of money to follow a trend, they’ll start coding. Hence, crypto.

The last 15 or so years of venture capital investing can be explained in many ways by the low interest rate environment in which it exploded. With endowments and pension funds (and many ordinary multi-millionaires) unable to earn safe returns in bonds for more than a decade, their fund managers opted instead to place riskier bets.

Consider the Ontario Teachers’ Pension Plan, the third largest in Canada. Three years ago, she created a special fund to make investments at the venture capital stage. He invested $95 million in FTX, a leading crypto trading platform. On Thursday, he noted that “not all investments in this startup asset class are meeting expectations.” He added that his FTX investment – ​​which he will likely never see again – represents a tiny percentage of overall investments.

For years, the madness of such investment strategies has essentially resulted in free money for entrepreneurs. You didn’t have to be a genius to start a business when the cost of capital was close to zero.

Now that era is over. Higher interest rates will allow pension funds like Ontario’s to seek out safer investments. As a result, the flow of funds to VCs and start-ups will slow down. Only the best companies and VCs will emerge on the other side.

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