The curious case of the crypto comeback

Customers stand in lines at the cashiers of a store that accepts the Venezuelan cryptocurrency Petro, in Caracas, in 2019. AFP

In Going Infinite, Michael Lewis’s account of the rise and fall of Sam Bankman-Fried’s FTX empire published late last year, one of its footnotes seeks to explain the workings of cryptocurrencies to the general reader. There can be few better authors to structure an annotation that illuminates and informs than Lewis, who has turned them into an art form.

Think of the show-stopping digressions that made their way into the film version of his 2010 book The Big Short, including the one featuring Anthony Bourdain decoding collateralised debt obligations via preparing a fish stew or Margot Robbie describing mortgage bonds in a bubble bath while sipping champagne.

But not even Lewis can simplify crypto in Going Infinite – and he ends up doing something akin to giving up.

In the book’s main text, Lewis briefly reviews the 2008 paper published by the enigmatic Satoshi Nakamoto – the person behind the electronic coin known as Bitcoin – before deciding that “how Bitcoin worked was interesting chiefly to technologists; what it might do was interesting to a much broader audience”, and applying an asterisk. But what the reader finds further down the page is an admission rather than an explainer.

Lewis footnotes that so many have tried to unpack crypto in layperson’s terms that there is little point in attempting to crack the same nut in Going Infinite. “What is curious is how elusive Bitcoin is as a thing to understand,” he writes.

He then adds that “Bitcoin often gets explained but somehow never stays explained. You nod along and think you are getting it but then wake up the next morning needing to hear the explanation all over again” – thereby thoroughly skewering the confusing nature of crypto by confessing he has no idea how to make it clear whatsoever.

Former FTX chief executive Sam Bankman-Fried arrives at the Manhattan federal court in New York City last February. Reuters

Many mainstream financial instruments are also difficult to explain and several unusual asset classes – not just crypto – can and do lose money

It’s a memorable moment in an engaging book that has been criticised for being too easy on SBF – who awaits sentencing in the US after being convicted of fraud and conspiracy last year – but which also offers a gripping inside-the-machine account of the implosion of a multi-billion dollar entity.

That footnote also speaks to something else about crypto.

I suspect many people don’t fully understand Bitcoin or even use it (or any other cryptocoin for that matter) to settle transactions in their daily life, despite the obvious appeal that a decentralised payment system theoretically offers. But that doesn’t stop them being crypto curious.

Some do use crypto as currency, of course, including an entrepreneur who told The National recently that he’d paid for his wedding using Bitcoin, but he may be an exception. The majority only seem to consider it as a speculative instrument rather than as a token or coin.

I am one of the many who can’t completely pin down how crypto works, but who has also spent a few dollars over the years on buying tiny fractions of cryptocoins, which have almost all lost money in the time that I’ve held them. It’s up to you whether you see that as me being crypto curious or a fear-of-missing-out fool.

In mitigation, many mainstream investment vehicles and financial instruments are also difficult to explain and several unusual asset classes – not just crypto – can and do lose money. Just ask a sample of people who may have made a speculative play on classic cars or any other unconventional market. Some will have done well, others not so much.

I’ve also taken losses on nominally safe and regular investment funds before, and on the shares of individual companies, so very little is guaranteed, either in the mainstream or at the so-called fringes, where you will find crypto. The opaque nature of many financial instruments has also helped Lewis sell vast quantities of books over the years.

The fervour that surrounds crypto does not seem to have been dimmed by SBF’s conviction last year, nor by the “mistakes and misguided decisions” that Binance, the world’s largest cryptocurrency exchange, admitted to, and the settlement it reached with the US Department of Justice. Respected economist Nouriel Roubini has, for many years, been crypto’s critic-in-chief, labelling it with a variety of unflattering names.

Last week, the US Securities and Exchange Commission gave the go-ahead to spot Bitcoin exchange-traded funds – or ETFs – which experts believe will make it “easier, cheaper and safer” to invest in crypto by removing the complexities and obstacles associated with buying and storing the asset safely. Others say the ETFs will bring credibility and legitimacy to crypto and that the decision represents a big-bang moment for the industry.

So, what are you really meant to think when presented with all these strands? In all likelihood, what you thought beforehand. Most people have predetermined views when it comes to risk and personal finance, meaning they are more likely to shape the latest news to match their existing viewpoint.

Returning to Lewis’s point about “what it might do”, that also means many will remain crypto curious, particularly if the entire industry continues to give off strong and exciting frontierland vibes.

But if you do roam around that space – and don’t forget this is an opinion piece rather than representing any form of investment advice – keep your eyes wide open, especially if the explanatory footnotes leave you just as confused as you were before you started reading them.