Bitcoin Crash Explained: How Crypto Repeated Wall Street’s Mistakes
Crypto was supposed to be a fix to the problems that caused the 2008 financial crash. How's that going?
In the crypto economy, the 1% is old news. 0.1% of bitcoin holders hold 27% of all bitcoin. That’s 100 times the wealth concentration of the regular economy. Crypto, which was supposed to decentralize wealth power, has just made it worse. We investigated with Munecat. Below is the full transcript of the video, narrated by Munecat:
Everyone is panicking about cryptocurrency. We’re going to unpack what’s happening for you, by looking at the fallout of a different market crash. So let’s go back to January 2009.
President Obama had just been inaugurated and the whole world was reeling from the 2008 financial crisis. And the banks, which caused all this, were only saved by a taxpayer funded government bailout.
That made a wide variety of people very unhappy
[Bernie Sanders, 2009]: “I simply do not want to bail out wall street with taxpayers paying the bill.
That same month, the very first block of bitcoin was released by the pseudonymous Satoshi Nakamoto, with this cryptic message in the code: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
A clear sign: cryptocurrency was created, at least in part, as a reaction to the financial crisis and bailouts. But today, crypto is a mirror of the risky, unregulated system that caused the 2008 collapse.
[President Bush, 2008]: Major financial institutions have teetered on the edge of collapse.
[News, 2022]: Crypto collapsed over the weekend.
[News, 2008]: Every day they’re pounding it!
[News, 2022]: Crypto – it got crushed again on Monday.
[News, 2009]: Almost one out of every four mortgage holders in this country are now underwater.
[News, 2022]: 40% of bitcoin investors are now underwater.
How did we get here? And who does cryptocurrency really benefit? I’m Munecat, and this is The Class Room from More Perfect Union.
As early as the 1970s the financial industry was selling the ‘opportunity’ to invest in mortgage backed derivatives: a so-called “financial innovation” that would one day crash and bring the entire economy down with it.
Mortgage backed derivatives are just one of the many non-traditional investment opportunities that made up a vast shadow banking system.
Even the most savvy, experienced, money-hungry investors in the world believed these investments were worth trillions of dollars.
And they sold that optimism to the American working class, so they would bring all their money to the Wall Street casino.
And the whole scam was enabled by the government.
Congress repeatedly chose not to regulate the shadow banking world or limit its overlap with the real economy.
Which takes us back to 2008:
[AP News, 2008]: It was a record amount. $700 Billion to rescue the country’s failing banks.
On the left this brought about a nationwide movement to restrict the banks through democratic people power.
But another plan was brewing: on Halloween, 2008, Satoshi Nakamoto sent out an email to a cryptographers’ mailing list: “I’ve been working on a new electronic cash system that’s fully peer-to-peer.” Attached was the bitcoin white paper.
In a series of replies with curious cryptographers Satoshi revealed some potential economic political philosophy:
“[Bitcoin] is very attractive to the libertarian viewpoint if we can explain it properly”
“Governments are good at cutting off the heads of centrally controlled networks…, but pure P2P networks… seem to be holding their own.”
Crypto presents itself as a decentralization, something that offers open access to all, equally and equitably.
But in reality cryptocurrency is looking a lot like the unregulated shadow banking system that it was supposed to counter.
And, again like 2008, the people that come out ahead will be a small group of elites, like billionaire Paypal cofounder Peter Thiel.
He has invested in cryptocurrency exchange startups, blockchain apps, and of course plenty of actual crypto.
Thiel shares some of that anti-democracy Tim May philosophy, selling facism under the guise of freedom:
In 2009, Thiel wrote a piece where he said, “I no longer believe that freedom and democracy are compatible.”
And said of voting “the extension of the franchise to women” had made it impossible to have a “capitalist democracy.”
Speaking of Paypal, let’s look at the other founder:
[Elon Musk]: My hope for Crypto in general is that // money has less error. Where error is any kind of government interference or fraud.
[Elon Musk]: Government is just a corporation in the limit. you should really hate Government.
Again: Elon is saying “don’t give power to government, give it to the corporate elite..”
It’s part of the long-term project to keep billionaires free from public accountability, with power centralized in their cabal.
And they want you to pay for it. The industry has been making a massive push to get working people to invest in their new economy.
[Ad]: Old money’s not gonna pick us up. It systematically oppresses us.
[Ad]: You want to miss out on the crypto revolution?
[Ad]: Don’t miss this opportunity
[Ad]: Change your life
[Ad]: Fortune favors the brave
Remember the Super Bowl? The industry spent tens of millions of dollars on ads for a broadcast over 200 million people watched.
Crypto acolytes have a line: “We’re All Going to Make It” meant to suggest that crypto investors will all ride the market to the top.
But the reality is 0.01% of all bitcoin holders hold 27% of all bitcoin available — worth $232 billion – that’s one hundred times worse wealth concentration than the regular economy.
And it’s being hoarded too: 75% of bitcoin is illiquid meaning it hasn’t been moved in a long time.
The top cryptocurrency exchanges–venture capital backed tech companies that act as middlemen between working people and this supposedly open economy–hold a large portion of all available assets.
These exchanges are backed by the same folks as the last system: the Goldman Sachs’ and Bain’s of the world, private equity, financial services firms, “the big banks”.
If the financial institutions were a giant corrupt casino then the crypto pioneers didn’t try to change or destroy it. They just built another one next door.
But, hey. Maybe we’re completely wrong. Blockchain–the tech that bitcoin and other cryptocurrencies are built on–could be revolutionary. New tech always has skeptics and detractors.
So let’s look at the last time the internet was revolutionized.
People are calling blockchain-fueled tech Web 3.0.
Web 2.0 was also sold as democratization at the time: a move from internet being controlled by domain owners, to user-generated internet content like social media and YouTube.
Web 2.0 is everything we understand about the internet today.
Tim O’Reilly popularized that definition. You might not trust us on tech but Tim is a legend of tech media.
Tim O’Reilly: There are productive and unproductive bubbles. The dot com bubble was productive. We built out internet infrastructure. Contrast that now with the 2009 financial crisis, which was purely a bunch of grifters, when that bubble popped it was literally nothing left of value that had been created. With crypto, we should be asking ourselves if and when this bubble pops, what will be left over that is still valuable? And I would say it’s been long enough. All of the valuable use cases with crypto have basically been tied up with financial speculation. There may be things that happen with crypto that we’re going to go, “Oh, wow, yes, that.” But we’re not there yet.
We also talked to Grady Booch. He developed some of the most widely used coding languages everything else is built on. He points to the political philosophy driving most Web 3.0 development.
Grady Booch: All technology is political. Now I’m not a politician, I’m not a sociologist, but looking at it from the outside, you can see that there are some extreme libertarian politics that have fueled the creation of all cryptocurrencies Bitcoin in particular. All cryptocurrencies are just the same old power structures, but with shiny new technology.
So where is all this going?
A recent Citigroup report suggest crypto:
“balances at the tipping point of mainstream acceptance…or a speculative implosion,”
Which is… ominous. A 3 trillion dollar industry that could either become a new way of life, or it could collapse entirely, losing millions of Americans their investments.
In May of 2016, the global cryptocurrency market cap — the value of the entire industry — was $10 billion. By late 2021 it was near $3 trillion. And May 2022? Down to $1.23 trillion.
Crypto billionaires were united in their message: don’t panic, don’t sell, keep buying.
Crypto elites are already working on entwining the industry into the traditional financial systems they were trying to escape: there are crypto ETFs and crypto IRAs, union, public, and state pension funds are making crypto investments.
So, ironically, crypto could get to the point where the industry relies on the type of government bailouts that they were supposedly formed to combat.
So what can be done, realistically, to protect the finances of working Americans and keep crypto elites from seizing even more power?
What the progressives have been trying to do to the traditional financial industry all along:
Rein them in, regulate them, and truly decentralize things: break up the wealth and power of the elites robbing America’s working class.
Crypto acolytes may have taken the wrong lesson from the last financial crisis, but it’s not too late to stop them from causing the next one.