Type
Article
Category
Economics
Politics

The lucky coin? Cryptocurrency in Australia

You may have noticed the rise of advertisements pushing cryptocurrency in Australia—posters on walls, trams adorned with ads for Independent Reserve (apparently the official crypto exchange of the Sydney Swans), and celebrity ‘shills’ like Matt Damon occupying prime-time television ad spots, strutting through a museum of entrepreneurial bravado to stare out, red-eyed, at Mars while doing his best Elon Musk impression. Like it or not, crypto currencies have gone mainstream and clumsily beached in Australia.

Part of the reason for the advertising blitz is the need for new investors in order to re-inflate the now-deflated value of crypto assets. Since reaching their peak in October and November of last year, cryptocurrencies like Bitcoin, Ethereum and many others dropped vertiginously, losing almost half their exchange value. For instance, Bitcoin was rated at $AUD 91,148 on 8 November, while on 13 May it was at only $AUD 41,729. Of course, as an inflated speculative asset, over the last three or four years the dominant cryptocurrencies still vastly outperform indices like the Dow Jones Industrial Average, but the bullish confidence has abated somewhat, as the Sydney Morning Herald reported.

Nevertheless, the enthusiasm for crypto— and consistent advertising saturation matched only by the United Australia Party— continues, and crypto-positive, pseudo-media sites like Cointelegraph have developed ways of presenting price data that keeps them in the green, forever rising, despite massive recent declines. For believers, these price dips are short-term setbacks in the flight ‘to the moon’, as cryptocultists put it. One Australian-founded Bitcoin mining firm, Iris Energy, revealed it could continue to profit even if the price dropped to around $12,000, and reaffirmed its faith in Bitcoin’s artificial scarcity to bolster the value.

However, I’m interested less in the zealots, techno-utopians or scammers and more in ordinary retail investors who might have been enticed from stocks into crypto with promises of high, quick returns and participating in a future others will miss out on. These people, who are rarely noted in the outcry and incredulity of most critiques of crypto, can tell us more about the special satisfactions and dissatisfactions with crypto which, I think, have much more in common with many of our ordinary ways of navigating neoliberal financial capitalism than we might think.

 

Promising the Moon

Much of the commentary and reporting on cryptocurrency trends is quick to point out its proximity to fraud. As with any speculative asset, crypto attracts unrealistic promises as well as blatant scams. The speculative logic relies on duping people into buying the asset to inflate the price just like, as Doug Henwood, Sohale Andrus Mortazavi and Jon Baldwin write, a Ponzi scheme.

Mortazavi is blunt, calling crypto ‘a scam. All of it, full stop…’ But he doesn’t consider why people might continue to buy in, unless we treat them condescendingly as duped. Baldwin reflects that crypto resembles a Ponzi scheme insofar as ‘the investment must be constantly talked up, the bubble inflated’ but recognises that the hyperbole associated with crypto is also related to more structural factors like the gig economy and its ‘uberification of money.’

Recent evidence that crypto is mostly a scam is not hard to find. As the Australian Financial Review reports, Australian Craig Sproule was recently charged with defrauding investors by promising, like many tech startups, technology that didn’t exist, a business plan that didn’t exist, and investments of $US 40 million that also probably didn’t exist, before the money disappeared into ‘African gold mines.’ Two startup exchanges based in Australia, ACX and Mycroptowallet also collapsed last year, losing $50 million in cryptocurrency.

Worse, cryptocurrencies reproduce the inequalities in traditional financial markets they make so much of disrupting. One study revised down earlier reports that 2 per cent of accounts controlled 95 per cent of all Bitcoin to estimate that around 2 per cent of people control around 70 per cent of Bitcoin, which means that around 5000 people at the top hold as much as the 22 million at the bottom (many of whom hold less than a single Bitcoin).

This reproduction of inequality makes clear that the apparent disruptive potential of cryptocurrencies, often touted under the obfuscating label ‘decentralisation,’ are a frustrating distraction from left-wing critiques of financial capitalism. Decentralisation appears to endorse quasi-democratic control, yet what it produces and indeed what its early supporters (including Friedrich Hayek, as Stefan Eich has detailed) intended was a wider distribution of private property, beyond any democratic control. Eich notes for instance ‘the way in which Bitcoin relies on recurrent attempts to hollow-out existing public goods from money to energy.’

Rather than merely lamenting this distraction, we should inquire into what the continued attraction of cryptocurrency is and why it distracts so effectively from the left-wing critique of financial capitalism and calls to democratise finance (even technologically-oriented ones, such as those suggested by Geert Lovink). Like the most recent critiques of finance and banking, cryptocurrency emerged after the 2008 financial crisis. However, its diagnosis and solutions are quite different.

While movements like Occupy called for the re-distribution of wealth, crypto offers instead the redistribution of transactional transparency, allowing every member in the ‘blockchain’ to verify exchanges. It seeks protection from the decisions of central banks, as well as from government intervention, especially tax. As Baldwin writes,

what looks equal, democratic and decentred in the diagram of the network, with simple links and lines of connectivity between indistinguishable nodes, conceals a massive distortion of power and power relations.

One prominent critic and commentator on both financial capitalism and cryptocurrency, Adam Tooze, has repeatedly warned that ‘Crypto is the libertarian spawn of neoliberalism’s ultimately doomed effort to depoliticise money.’ In his Chartbook newsletter, Tooze writes that ‘all money talk is political talk indulging in silly money talk is to indulge in silly and dangerous politics.’

Part of Tooze point is reinforced by Gili Vadan—that cryptocurrencies are reactionary substitutions for the explicit re-politicisation of money that targets

existing public institutions tasked with [increasing financial inclusion, including central banks]. If the Fed[eral Reserve, or Reserve Bank of Australia] is currently failing to achieve this mission, our political attention should focus on expanding its services rather than framing its very existence as the source of the problem… Bill Mauer has suggested this may be a time to solve money’s problems with “more democracy rather than more technology.”

Despite the scams and continued suspicion of crypto, mainstream institutional investors are beginning to enter the market and business media regularly reports crypto news as part of traditional market coverage. Digital Asset Capital Management flaunts its 2907 per cent returns from January 2018 to October 2021 in ‘courting’ the super wealthy. It is creating new wealth management products that buy shares in British Virgin Islands-domiciled funds but are ASIC-regulated. This gives it an aura of respectability, although what drives fund managers is apparently as banal as FOMO as much as any financial insight, according to Aleks Vickovich in AFR.

Business Insider reports that Rest Super, which manages $AUD 66 million, is ‘signalling’ future investment in crypto, and Liberal Senator Jane Hume, the Minister for Superannuation, Financial Services and Digital Economy since December 2020, was quoted saying ‘“Don’t be the person who thought the iPhone would never take off… Don’t be the person who was still doing their financial models by hand in 2001, rather than using Excel.’ Because apparently avoiding scams and refusing to participate in speculative financial bubbles is equivalent to being a tech dinosaur. 

With Commonwealth Bank offering customers the ability to trade crypto on its apps, Ivy League colleges investing in crypto (if Coindesk is to be believed) and crypto-sceptic Isabel Kaminska asking in the Financial Times whether crypto has gone ‘institutional’, even the articles that expressing scepticism of cryptocurrency have ads at the bottom of them from retail trading platforms like eToro with the constant refrain: ‘Top cryptos that are trending now.’

 

Of whales and minnows

The dominant narrative among both critics and cultists of crypto is its role in an alternative politics of economics to either mainstream financial capitalism, embodied by central banks, governments and major banking and financial institutions, and to the left-wing politicisation of finance. In reality, crypto dynamics largely reproduce those of mainstream finance, with the wealthy, powerful ‘whales’ using their institutional power to manipulate and profit, while the restless ‘minnows’ search for elusive opportunities to crack the code all the while helping inflate the market.

As speculative assets, crypto-currencies are blatantly unproductive investments. Moreover, it is well known that activities like Bitcoin mining burn about as much energy as a small developed country (Eich makes a conservative comparison with Ireland, others point to New Zealand). Along with decentralisation, one of crypto’s political promises is efficiency, but with this energy use and the clearly unproductive investment in an artificially scarce asset, Eich writes that crypto is ‘an enormous intentional waste of resources that produces a breathtaking energy footprint’—perhaps the embodiment of what Neil Vallelly calls ‘futilitarianism’: you can buy in, but there’s nothing much to buy with it, and buying out comes with costs.

Like non-fungible tokens (NFTs), crypto has becoming a place to dump surplus capital when interest rates are historically low. By capitalising on distrust in the financial system, crypto has carved out a relatively tax-sheltered haven where retail and institutional investors alike can indulge their fantasies. These fantasies, according to a survey performed on crypto exchange, were driven by the desire to ‘build wealth’, ‘take part in the financial way of the future’, and sheer ‘fear of missing out.’

These more venal desires work in the background of crypto’s claim to solve political problems through financial technology. Crypto claims to address issues like loose monetary policy, Raven Hart argues, ‘by vaguely advocating for some kind of digital gold standard.’ This ‘standard’ offers the phantasmatic guarantee of value, by virtue of its scarcity. The virtue of crypto is based on an undergraduate fallacy that ‘fiat’ money, like the US dollar or Australian dollar is based on ‘nothing’, since central banks can print money apparently at will (as the bank bailout response to the financial crisis of 2008, and more recently Covid stimulus packages demonstrated). Yet Tooze is adamant that the ‘nothing’ that backs fiat is ‘“Nothing” other than the trifling matter of tens of trillions of dollars in private credit, the rule of law and the power of the state, itself inserted into a state system. In other words the entire structure of global macrofinance.’

Hart insists that there is nothing inherently wrong with credit creation and, when governments inject stimulus, we should focus instead on how it is distributed, who controls it and who it is directed towards. Clearly, crypto addresses none of these issues politically, but instead creates a parallel world of credit creation from nothing. Stefan Eich proposes that the politics of crypto are

suspended between two contradictory goals: first, a radical politics that seeks to depoliticise the appearance of money and an attempt to turn cryptocurrencies into speculative assets beyond the regulatory grasp of monetary and fiscal authorities. From both perspectives, the attempt to remove money from political control is itself a supremely political act …

In a recent exchange, Adam Tooze and Evgeny Morozov debate whether crypto serves any useful political function in disrupting traditional finance. In response to the suggestion that crypto might erode the hegemony of the US dollar, Tooze links it to ‘a sovereigntist strategy’ but expresses doubt that it would have any ‘broader systemic effect.’ Morozov outlines the argument that crypto acts as a ‘barometer of distrust towards both central banks and Wall Street,’ but indicates similar reservations about crypto’s genuine effect.

The confluence of distrust and the fantasy of sovereignty seem highly relevant to the right-wing politics that have erupted during the pandemic. The pre-Covid economic stagnation has been exacerbated, while the far right has used lockdown to intensify its rhetoric of nihilistic libertarianism. Similarly, crypto-cultists have used the economic shutdown (as Tooze calls it) to heighten the search for economic loopholes and speculative assets. Each of these tendencies, the former explicitly political and the latter anti-political, work hand in hand in an escapist fantasy.

This escapism has found a conduit in the ‘sovereigntist’ fantasy at the level of the individual, the notorious ‘sovereign citizen’ to whom laws magically do not apply. Although disguised as a kind of civil disobedience, this ultra-libertarian position is congruent with the origin of crypto’s theoretical basis in the vision of what Quinn Slobodian calls

a vision of money without states … captured in a 1997 manifesto written by the investment adviser James Dale Davison and former Times editor William Rees-Mogg (father of the Conservative MP Jacob Rees-Mogg). Disguised as an airport paperback, The Sovereign Individual: How to survive and thrive during the collapse of the welfare state predicted that the internet would “denationalise” money. People could forgo reliance on the legal tender approved by governments and instead use immaterial “cybercash,” which … they argued, “will bring Hayek’s logic vividly to life.”

The cold irony of this sovereigntist rhetoric is that it conceals genuine demands for monetary sovereignty in former colonial nations and Global South countries, as scholars such as Fadhel Kaboub and Ndongo Samba Sylla have highlighted. One crypto-positive cartoonist presents Bitcoin as an alternative to the global financial system metonymised as the IMF, claiming ‘We’re helping people become financially sovereign.’

Yet it was precisely the historical Third-World demands for international monetary reform that neoliberalism stepped in to occlude from view, translating the call for equality into an offer of foreign direct investment at the cost of massive, harmful structural adjustment and extensive privatisation. Already true for Latin America and Africa, these effects were felt in the shock therapy introduction of capitalism to Eastern Europe, where cryptpocurrency farms, Alexander Clapp notes, have led to ‘elites and unemployed alike (in North Kosovo and along the Dniester River), now huddled around the dying embers of their gutted welfare state … to perform a caper on the capitalist world that triumphed over them …’

In a plot worthy of Breaking Bad, Clapp reports about ‘a high school mathematics teacher who had outfitted the basement of a bistro with two hundred rigs along with a bespoke cooling system—all together costing one hundred thousand euros and at one point kicking back the equivalent of five hundred euros a day.’ The background narrative of declining economic security and increasingly precarious conditions is often elided in assessments of the significance of crypto. So too, their effects on how ordinary people experience financial instability.

 

The anxiety of investment

The ongoing ad blitz, including Matt Damon’s lame walk-on role, has been dismissed by crypto insiders, but it is clearly not intended to preach to the converted. Rather, it is meant to add respectability, as well as cover the recent losses and general scam-like behaviour of most crypto coins and exchanges. In other words, it broadcasts to a wider audience: ordinary people living in anxious times and seeking to siphon their dreams of escaping financial insecurity into joining what appears to be a sure bet. Nothing more than the latest app, gamified financialisation, promising a guaranteed ‘passive income’ for those who can’t afford an investment property.

Slobodian notes that recent converts to crypto are not drawn by political motives like decentralisation but simply economic ones, and tends to appeal to those with ‘a willingness to take risks for speculative payoffs.’ Crypto exchanges have worked hard to present ‘user-friendly interfaces’, and embed themselves in fintech networks to make it easy for retail investors to hop on board. Mortazavi remarks that these exchanges have very low entry costs—only $US 2 for Coinbase, or a dollar for Robinhood. This makes oft-stated goal of financial inclusion (not equality or redistribution) readily achievable, if entirely pyrrhic.

Psychology researchers have compared the appeal of crypto trading to online sports-betting and day-trading, but also suggested that there are important differences. Delfabbro, King and Williams’ study, ‘The Psychology of Cryptocurrency Trading’, proposed that the global nature of the market, the cross-pollination with social media and its ecology of influence and emotion, along with the 24-hour availability of trading were determinants in price movements. Similarly, Max Grünberg refers to ‘Restless sleep, gambling addictions and emotional blunting’ as ‘externalities that are neither priced nor spoken about in the community directly’ but addressed instead ‘in the form of memes.’

The relentlessness of market movements touches on what is important to note about the crypto phenomenon in its effect of everyday experience, as it ratchets up the emotional anxiety about financial security, returns and competitiveness. As with gig economy workers, there is a persistent feeling that they could always be earning, always be monitoring opportunities, and always be missing out on a price rise.

In Class in Australia, Jessica Gerrard and David Farrugia draw attention to the ‘productive intensities’ of unemployed life, which subject people to a regime of hyperactivity in the effort to gain ‘employability’ (if not actually a job) to both satisfy the demands of a work-obsessed culture, and the welfare system. Yet unproductivity is no longer just applied to people outside of employment, but any hours and minutes and seconds not spent investing for a return.

Although many use the model of addiction to describe our sleepless 24/7 attachment to devices, social media and, as crypto demonstrates, fintech, Richard Seymour’s The Twittering Machine reminds us that we should not too quickly believe what platform capitalism believes about itself: that it’s so good it must be addictive. Rather, he insists that our own— sometimes ugly— desires are involved. With crypto, we must concede the incursion of economic rationality into the dark corners of our psyche, and contend with the pressures exacted on us to constantly ‘create value’, as Gerrard and Farrugia put it.

Crypto also connects financial desires with other longings in an affective landslide, promising a community (though as Adam Tooze suggests to Evgeny Morozov, they are far from ‘stable, robust … social groupings’), an outlet for frustration at the generalised situation of precarity, the promise of sexual desirability if you strike ‘alpha’ (or market advantage), or sheer magical thinking.

Clearly, the crypto community is not a stable refuge for lonely people to find fulfilling human connection. Rater, it can become a coercive and aggressively policed cult, which produces violently defensive responses to questions about its validity. As Grünberg shows, the ‘community’ treats Elon Musk, a ‘fallen Bitcoin saint’ as a ‘scapegoat for [a] recent crash because he reversed his decision to include Bitcoin on Tesla’s balance sheet.’ The ‘community’ has ‘nothing but hatred for these traitors, who dare damage the reputation of their church.’ Grünberg cites the example of Nico ZM, a YouTuber who spat at a panel moderator’s question about the toxicity in the community: ‘There is no other way … I think it is absolutely necessary. If you are against Bitcoin toxicity you are against Bitcoin and if you are against Bitcoin you are against freedom. Period.’

There is a desperation to such aggression, warranted because speculative assets rely on nothing more than the continuous flow of buyers and busy, accumulated confidence of owners. They cannot afford to let the cracks show. Part of the strategy is to link crypto proficiency with other desirable assets, like dating capital, as an eToro survey set out to demonstrate, reporting that 33 per cent of its respondents would be ‘more likely to go on a date with someone who mentioned #crypto in their dating profile.’ Although scholars like Lisa Adkins have critically analysed the impact of post-Fordist work and neoliberal politics on femininity, Leslie Salzinger also rethinks the role masculinity plays in fuelling the transitions of capitalism, from factory floors to financial trading desks.

If, for Salzinger, enforced yet shifting gender roles play a stabilising function in our everyday experience of economic crisis, so too does the kind of magical thinking that pervades the crypto community, as a study by Seung Cheol Lee outlines. Lee argues that crypto investors are unlike workers and ‘rational’ investors, insofar as they present themselves ‘not simply as calculative investors but also as enchanted gamblers who often rely upon magical formulas and rituals…’ But Lee does not dismiss these as ‘irrational exuberance.’ Rather, he locates them as a (quasi-rational) response to the appearance of the market, which relies on nothing more than the actual beliefs and actions of its participants. With no underlying reality, the assets can appear to float magically on the whims of the community.

Although crypto positions itself politically as decentralised and its authenticate-ability is meant to be distributed across the network of users, it is to some extent highly centralised and far from transparent (as the inequality, and its use in tax-dodging and crime suggest). Just as crypto is a political distraction, it is an emotional displacement of ‘trust in banks to trust in algorithms and encryption software,’ as Jon Baldwin puts it. Psychologists note the illusion of control in magical thinking, and Grünberg argues that crypto users develop attachments to specific coins to the point of ‘monogamous conviction’: ‘No other coin shall persist in the light of Bitcoin’s grace …’

It would be easy to dismiss crypto as the latest speculative asset designed to scam ordinary investors, driven by nothing but greed. Critics tend to do this without attending to the ways in which the experience of financial capitalism compels us to turn to these instruments of certainty and emblems of participation, even when the reality is far from what investors imagined. Nevertheless, it is also our reality, and, depending on your super fund, bank or investments, could be an asset you hold unwittingly. Moreover, it points to our enmeshment and captivation in the emotional currents of financial markets. They may be unproductive intensities, but they are intensities nonetheless, full of unsound hope and anxiety.

 

The ecology of crypto-imperialism

Walking home one afternoon, I spotted an ad beside the train line that read ‘Crypto. Vikings. Beer.’ It was hard to connect the dots. From what I can discern, a brewery appears to have saddled itself to a kind of Kickstarter-style investment platform that operates using crypto-currency. It is vague and unpromising at best. A warning at the top of their ‘farms’ list that allows projects to ‘farm liquidity’ from investors reads: ‘Farms are exposed to impermanent loss, be sure to do your own research.’ It is the kind of site that could disappear tomorrow.

I noted earlier that the crypto exchange Independent Reserve was the official crypto-broker of the Sydney Swans, another mystifying connection clarified only partially by the comment that their demographics are young, risk-tolerant men. What the growth of partnerships reveals, however, is that crypto could work as a private currency. By this I mean, it is like a loyalty system that rewards people who stay within a particular business ecosystem: ‘Give unto Caesar what is Caesar’s.’

I was also deceived by a bright-orange poster ad for ‘Sipcoin’, which I thought was an ‘altcoin,’ but appears to be a BWS- (or Woolworths-) operated rewards system. My mistake reveals a likeness. Facebook’s failed crypto venture intended to capture users within its ‘metaverse,’ while sceptical central banks such as those of India and China have investigated developing online currency of their own. If Adam Tooze is to be believed, this could be the long-term effect of crypto: accelerating the online transition of the existing financial system, as so-called ‘tether’ coins which are pegged to state-backed currency and are meant to hold fractional reserves effectively turn into regulated, credit-creating banks. As with banks, this promise of ‘backing’ or reserve holdings is flimsy, and the largest ‘stablecoin’, Tether, which boasts ‘market capitalisation of around $137 billion’ dropped off its peg to 99.3 cents to the dollar.

Currently, the network of crypto exchanges, coins and self-enclosed media outlets like CoinTelegraph are concerned with keeping users on board. As such, crypto coins operate like private currency, as railway and other industry bonds have in the past. Once you have bought in, it is difficult to simply trade out without convincing other people— as in Ponzi scams— to buy in. Crypto-currency, then, is something of a misnomer, since it fails to fulfil the functions of money.

This discredits the political claims made on behalf of crypto, including one suggestion that they could work in the ‘solidarity economy.’ For instance, Geert Lovink imagines what he calls a ‘social wallet’ as

an invitation to re-think finance in a collective way. The decision-making is decentralised … [But whereas] Bitcoin is pitched to the financial elite as an alternative to the dominating currencies, the social wallet has no ambition to compete … Bitcion is an extension of the traditional finance ratio where the winner takes all.

The mere existence of a restricted currency fails to distinguish attempts to construct an ‘alternative economy’ from leviathan-esque tech giants like Amazon, which create their own financial centre of gravity, as Evgeny Morozov warns.

Crypto is a convenient distraction from genuine fiscal reform. The Australian Government’s investigation of ways to regulate it, including a ‘licensing regime for crypto exchanges and custody rules for assets’, reportedly draws heavily on the ‘recommendations of a Senate inquiry chaired by fintech enthusiast Andrew Bragg.’ Crypto offers an alternative source of confidence when markets are uncertain, and politics may intervene.

It is clearly misplaced confidence, both prudentially and politically. Crypto is a cheap substitute for the work required to create communities that are able to sustain themselves outside the financial system. Tooze is right, I think, that we should embrace the politicisation of money, and rethink its role as a ‘tool of collective organisation.’ But the trick is that with crypto, the money comes before the community and so drives the purpose of collective organisation.

This turns money into an end in itself, recalling what Marx in Capital called a ‘passionate desire’ to hoard money rather than put it to any productive or consumptive use. The mere circulation of money, the very essence of crypto markets, becomes an ‘end in itself’, Marx wrote in his Economic and Philosophic Manuscripts of 1844. The circulation of coins becomes a sign of their health, even if their value spirals. And, importantly, this provides a rationale for the losses incurred by ordinary people who have invested in crypto.

Crypto can become a way to explore our fixation and entrapment within harmful economic systems. Max Grünberg’s use of the ‘cult’ framework to explain the behaviour of coiners helps show how an ‘economic burden’ can become ‘a sacrifice or testimony of faith.’ Like rewards systems in supermarkets, the belief in the coin makes losses (or spending) feel like a gain (you get points!) in the gamified world of consumption and speculation. These two forces— speculation and consumption— approach each other, like the symbiotic relationship between crypto and NFTs.

Perhaps we consume each other’s speculations, trading in the flimsy security of a community based in nothing but the hope of financial gain. The risk is not that we lose something—that is almost guaranteed. It is that we lose more than money: autonomy, accountability, equality and democracy. Ideals of justice have very little purchase in the world of crypto, which is what makes it a bleak vision for the future.

 

Image: a still from Matt Damon’s add for Crypto.com

Overland is a not-for-profit magazine with a proud history of supporting writers, and publishing ideas and voices often excluded from other places.

If you like this piece, or support Overland’s work in general, please subscribe or donate.

Leave a Reply

Your email address will not be published.