Do you ever wonder whether the stock market is a massive pool of exit liquidity for baby boomers and corporate officers?
A whole system of tax incentives, broker commissions, social pressure, and government coercion designed to funnel 5% of everybody’s income into the stock market and keep it there for decades.
Why do people put money into stocks? They have no intrinsic value. The businesses may be worth something, but the stock price never reflects that. Robert Schiller won a Nobel Prize for proving that financial assets are not correlated to their underlying value or any “fundamental” metric. I have no reason to doubt him.
Maybe everybody keeps putting money into the stock market because they expect to one day sell their stocks for more than they bought them for. Along the way, they can pocket 2–3% in passive rewards each year, on average.
That’s more than $40 trillion (and trillions more in derivatives) sustained solely by people’s faith that its price will continue to go up.
Sounds like the same reason people buy cryptocurrency.
So why is the US stock market exalted despite losing $12 trillion in 2022 while crypto is despised despite losing only $2 trillion in 2022?
People think stocks are legitimate. Real businesses. Cash flow. Safe investments.
Cryptos? Fake. Fraudulent. Risky.
Looking at it the wrong way
One day, people will recognize that cryptocurrency is a stake in a financial network.
This is an entirely new asset class, technologically impossible until a decade ago, searching for meaningful metrics to substantiate valuations, prices, and yields.
Embrace that — and the uncertainty that comes with it.
If not for that uncertainty, you would not have an opportunity to build your stake in these financial networks. Somebody with more money, better connections, or deeper knowledge would beat you to it.
No backing? No problem
In my January issue of Crypto is Easy, I compared crypto’s journey to that of the Christian reformers of 15th-century Europe. They yearned for an alternative to a system they saw as corrupt, arrogant, hypocritical, and self-serving. So do we.
The separation of money and the state is every bit as significant as the separation of the church and the state.
Money, like religion, needs no backing.
It needs only faith — the same type of faith has sustained religions, government currencies, and commodity money like gold and silver for centuries.
These institutions need no proof that they’re legitimate. They give us something more than utility, fungibility, or some objective measure of value.
They give us the promise of a better future.
Maybe, like our government’s money and all of the financial assets we price in those terms, cryptocurrency only needs to do one thing: give us things that we really, truly, deeply want.
Everything else is just details we’ll fill in along the way.
This post is also available as an NFT on Mirror.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio and connect with him on Superpeer.