The human condition has been one that has been defined by trends, some of which take and become part of our civilization ‘s advance— is cryptocurrency one of those?
When Eric Sanders came home on a crisp autumn day and declared that he was dropping out of college, his mother’s heart almost stopped.
It was the mid-1990s and thousands of young Americans, mostly young white men, were heading out to Silicon Valley to find their fortunes in a vast array of internet companies that were each seeking to revolutionize the world.
Sanders’ mother was understandably concerned that the “internet” revolution was nothing more than a trend.
A single mother who had raised Eric on her own when his father had abandoned the family, it took nothing short of a herculean effort to send her son to Berkeley, and now he was looking to give it all up.
“It’s not a trend Mom, it’ll revolutionize the world, me and a couple of friends are starting up a new company that’s going to let people buy stuff online. Just imagine, you’ll never have to step out of your house ever again if you don’t want to!”
“But Eric, are you sure this isn’t just a short term trend? Like bell bottom jeans?”
Fast forward over two decades later and Eric’s fledgling company was eventually acquired by another online shopping company selling books and he’s now one of a handful of the top venture capitalists on Sand Hill road.
The thing about trends is that while it’s easy to spot them with the benefit of hindsight, when you’re living through them, it’s hard to see the forest for the trees.
And even harder to see how a trend can become part of long term change.
A Day Does Not A Trend Make
Take the recent fallout from the coronavirus that has battered airlines globally.
The word “unprecedented” has been used repeatedly (and belabored) by everyone from airline CEOs to the International Aviation Transport Association or IATA.
But was a sudden shock to the airline industry really so unprecedented and unpredictable?
For anyone who can recall what flying and traveling was like will no doubt remember the hours spent at check-in counters with long snaking queues, only to pile in behind a line of aircraft waiting to take-off.
In the years running up to the coronavirus pandemic, flying was anything but glamorous for millions of people.
And against the backdrop of increased passenger numbers, the constant risk of a pandemic was always simmering.
We saw how the Middle East Respiratory Syndrome or MERS became a concern, and the Severe Acute Respiratory Syndrome or SARS was a sucker punch to the gut of Asian airlines.
And all this while, it wasn’t vigilance that prevented the spread of a global pandemic, but just plain luck that had kept people safe from a world that could not wait to take to the skies.
Well before the pandemic, China had been wielding its powerful tourist dollars as a weapon, cancelling or reducing the number of flights to neighboring Asian countries while the United States did the same for inbound flights from China.
And let’s not forget of course the terrorist attacks using airliners as weapons of destruction on September 11, 2001.
Airlines are a tricky business even in the best of times, and as Richard Branson once eloquently put it,
“If you want to be a millionaire, start with a billion dollars and launch a new airline.”
With so many moving parts, the sheer amount of human and financial capital required to operate an airline and with thin operating margins, has always made the business touch-and-go at best.
And so, when legendary value investor Warren Buffett, took up significant stakes in some of America’s biggest airlines in 2016, it raised more than a few eyebrows, especially given his very vocal shunning of the sector for many years prior.
Buffett has since sold his stakes in the airlines at the very height of the pandemic this year, booking substantial losses, but the writing was already on the wall for some time.
And it’s sometimes said that it was only the benefit of hindsight that it could be seen that airlines were a troubled business anyway, but that’s the thing about trends, evidence is all around, but you can’t always make sense of the signs.
Time For Tech
Which is why Buffett’s bet on the technology sector, primarily through his investment in Apple may also be headed in the wrong direction as well.
Today, the bulk of Berkshire Hathaway’s market value comes from its investment in Apple, the maker of the iPhone and Mac computers.
But Apple has been short on innovation ever since the unfortunate passing of its innovative co-founder Steve Jobs.
With each passing year, every iteration of the all-important iPhone has brought incremental, but not revolutionary advances — for one, Jobs would never have accepted an iPhone where the camera lens was not flush with the phone itself.
Then Apple ignored one of its most important customer demographics — the legions of creatives who use its products for anything from graphic design to film editing.
Abandoning far superior graphics technology from Nvidia, in favor of AMD’s Radeon on its Mac computers, Apple denied its customers access to Nvidia’s CUDA rendering technology, inadvertently pushing an entire generation of creative workers to Windows-based computers.
Today, many creative workers admit that while they may use a Mac for personal use, they use a PC for work.
And the rise of gaming has also left Mac users out in the cold.
For decades, Apple ignored the pleas of Mac users who were also gamers, never properly integrating the platform for gaming, despite both Windows and Mac OS being based off Linux operating systems.
And Apple’s announcement that it would be ditching Intel’s chips to design its own chips through a chip design licensing deal with United Kingdom-based chipmaker Arm, reflected the very height of the company’s hubris.
Apple had long relied on Intel for its chips, and while Intel has struggled, it’s still delivered the goods, whereas Apple, which has limited experience or expertise in chip design was wading into murky and expensive waters, where costly mistakes are marked in the billions not millions.
And now that Nvidia is set to purchase Arm from Softbank, Apple may have finally painted itself into a corner, because it would provide Nvidia a chance to settle old scores with the iPhone maker.
So it’s not without some degree of irony that 2016 was the year that Buffett, who had long professed to have missed opportunities in the technology sector because he didn’t understand it, also bought shares in Apple — the year he also bought airlines.
Because trends are there, but it’s hard to pick up and recognize how all the different disparate bits of information connect with each other.
The recent rally in Apple’s stock, following its decision to split its shares so as to make them more accessible to the retail investing public, merely marked a watershed moment in corporate opportunism that has seen both Tesla and Apple turn the fortunes of tech stocks which have fallen since.
Which brings us to cryptocurrencies.
Cryptocurrencies On Trend?
Buffett has long derided cryptocurrencies and in particular, Bitcoin, declaring that it is “rat poison squared.”
As a billionaire investor and one of the world’s richest men, Buffett’s views on Bitcoin necessarily influence the views of millions of people all over the world, and that is unfortunate.
Because there are plenty of clues that Bitcoin is not only here to stay, but that it may mark a decades’ long trend that will see the debasement of fiat currencies like the dollar herald in the rise of cryptocurrencies.
To understand why cryptocurrencies matter, it’s important to take a trip back through history, to 1971, when the Nixon administration decided to take the U.S. off the dollar’s backed by its equivalent value in gold.
In the aftermath of the Second World War, leaders of the victorious nations recognized that one of the major contributors to German belligerence was runaway inflation in Germany’s Weimar Republic.
Determined not to repeat the mistakes of the interwar years, foreign currencies were fixed versus the U.S. dollar, with the value of foreign currencies indirectly expressed in gold, as determined by Congress — the Bretton Woods system.
And that certainty of value of currency, led to an unprecedented period of relative peace and economic expansion (give or take a few regional conflicts and of course the Cold War).
But by the 1960s, a dollar surplus imperiled the Bretton Woods system because the U.S. didn’t have enough gold to cover the volume of dollars circulating around the world, leading to an overvaluation of the dollar.
Rather than get more gold to back the dollar, the Kennedy and Johnson administrations tried to deter foreign investment into the United States, limit foreign lending, and reform international monetary policy, all of which were largely unsuccessful.
By the late 1960s, anxiety over a possible dollar devaluation crept into the foreign exchange market, with traders selling ever greater amounts of dollars, and more frequently.
After several disastrous runs on the dollar, the Nixon administration decided to unceremoniously abandon the dollar’s peg with gold, and with it the Bretton Woods system.
And while the world has experienced inflation since then, free floating currencies in rich countries have not caused runaway inflation the likes of the Weimar Republic, nor has a dollar that’s not backed by gold ceased to serve as the global reserve currency.
Seems Safe, What’s The Worry?
But while the dollar is still very much around, what it represents has fundamentally changed.
Years of American profligacy has meant that long-held assumptions of Americans not spending more than they produce, and printing so many dollars that they would debase their currency have proved misled at best, and delusional at worse.
Sanctions and the centrality of the U.S. banking system have bred systemic resentment from allies and enemies of the United States alike, with even long-time ally Europe waxing lyrical about searching out dollar alternatives for years.
But it’s not just the dollar.
Globally, the existing fiat currency system has continued to entrench the interests of the rich and well-connected, at the expense of the poor and feckless.
Today, income inequality is at its civilizational nadir, fueling sectarian resentment and fanning the flames of populism.
Political institutions that could long have been counted on as being defenders of democracy and beacons of hope, that young nations could aspire to, have been deeply undermined.
While many point to the Trump administration, decades of corporate capture of American institutions have long undermined the strength of these institutions, nor is it an American problem either.
Globally, large companies rule the world more than governments, and are largely accountable to no one.
Automation and digitalization have meant that people are simultaneously more connected and disconnected than ever in human history, with a digital dollar carrying the psychologically equivalent value as a physical one.
Inflation fears, job insecurity, increased automation and excessive income inequality, when viewed independently mean little, but as part of a systemic trend are like a massive supertanker changing course in the middle of the ocean.
While the adjustments may seem subtle, the outcomes are magnified by the slightest cumulative shifts in politics, society and the economy.
Small Shifts, Large Outcomes
Today, the potential to transact value freely and without the intervention of government or company are driving a revolution in the cryptocurrency space.
And just like the internet revolution was in its early days, this change is in its infancy.
To be sure, blockchain technology, just as the internet was in its early days, is clunky and inelegant.
Transaction speed and capacity is slow, and the potential to make mistakes is high.
But that is changing and evolving, just as the internet did.
As behemoth tech companies increasingly control our attention, consciousness and finances, there will eventually come a time when decentralization — a return of the levers of power back to the people, will be too loud to be ignored.
Breaking up big tech is not the goal — it is the byproduct of a shift to decentralization.
And against that backdrop, cryptocurrencies suddenly make sense.
Today, smart contracts and decentralized finance already enable early cryptocurrency adopters to borrow, lend and trade freely, constructing complex derivative contracts without a single banker involved.
Payments can be made anonymously, without so much as a meeting with a bank manager.
Because there is an unmistakable distinction between freedom in word and freedom in action, cryptocurrencies represent that freedom in action.
Casual observers and critics who merely see cryptocurrencies as tools for speculation and instruments to facilitate fraud are missing the point.
The thing about trends is that they’re only obvious after the fact.
One day, when scores of academics in their ivory towers pour over tomes of research and point out that the signs portending the rise of cryptocurrencies were obvious and present all along, that pivotal moment would already have passed for years.
Detecting the trends while living through them, now that’s another story altogether.
Blink too quickly and you’ll miss it.
Just ask Buffett when he finally bets on Bitcoin.
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