Bryan Barton stormed onstage at a bitcoin meetup in Sunnyvale last month to tell roughly 200 people about his Save Bitcoin Rally. What does bitcoin need to be saved from, exactly? Well, apparently, something called BitLicense, which only allows companies approved by the State of New York to traffic in cryptocurrency, a crushing blow to the libertarian ideals of the earliest adopters.
Barton wore a T-shirt emblazoned with the logo of the Silk Road, an online black market where bitcoin first gained traction as a currency, thanks to its untraceable and pseudo-anonymous nature. Bitcoin and other cryptocurrencies have seen a meteoric rise, culminating with one bitcoin exchanging for nearly $20,000 in December—pretty amazing for a currency created practically out of thin air by Satoshi Nakamoto, a person (or perhaps group of people operating under a collective name) who no one knows anything about.
Since then, the price of bitcoin has tumbled, down to $13,500 by mid-January, the last time GT covered the trend (“Bit of Wealth,” 1/17), at which time we thought it had “stabilized.” But in early February, it dipped down below $7,000. The price currently sits at $9,055, and it’s doubtful that number will be current by the time you pick up this paper.
For its believers, bitcoin represents the first sparks of a global revolution to democratize wealth, the internet and maybe even society as a whole. In theory, the underlying technology that bitcoin uses to store its data—the blockchain—has the power to decentralize all online information, storing it in cryptic jumbles across the hard drives of millions of computer users, freeing us from the tightening grip of greedy banks, monopolizing tech giants and overeager governments.
Will bitcoin and other cryptocurrencies reach their full utopian potential? Probably not, but that’s not a question to be answered for many years. The equation on the minds of the folks at the Sunnyvale meeting on Feb. 13 was: will this make me rich?
After what I saw that night, I wouldn’t bet on it.
The bitcoin Meetup took place at the Plug and Play Tech Center, a startup accelerator, where organizers have reserved parking spaces for “venture capital investors” 20 feet away from a massive brass statue of Siddhartha. It doesn’t seem there’s any irony intended.
The hallway walls feature the signatures of big money tech investors. And within these walls, there’s a sea of cubicles dedicated to the creation of startups—doing what, I honestly have no idea.
Upstairs are about 20 boxes of pizza and five icy metal bins of free beer and soft drinks, all of which were consumed during the two-hour event.
Over a slice of pizza, Fernando Serrano says he bought his first cryptocoin in October of 2017—in time for the big rise, but also the subsequent fall. I ask how the experience has been. “It sucks,” he acknowledges, but he thinks it should be “good” again by the end of the year.
“Why?” I ask.
Serrano compares cryptocurrency and the blockchain to the early internet, which also had its skeptics, but ultimately made trillions for its adopters. He also thinks cryptocurrency will gain holds in India and China and that one coin, Ripple (a BitLicense holder), is going to be worth a lot. I nod while drinking beer.
At the event, some of the day’s speakers make promises that seem to veer into the shadowy realm of get-rich-quick schemes. Honestly, when it comes to cryptocurrency, transparency can often be in short supply.
One cryptocurrency site, Prodeum, went down on Jan. 28, then replaced its webpage with one word: “penis.”
It’s All Rigged
Ed Zitron, the founder of EZPR, owns several cryptocurrency mining rigs—the loud, expensive supercomputers that pull coins from the digital ether by doing math problems. Zitron recently started a satirical e-newsletter where he lobs hot crypto takes as a fictional pundit who is both deeply in debt and fiercely devoted to cryptocurrency. Despite his foray into mining, Zitron thinks bitcoin—and, frankly, America’s whole investment system—is a bit of a crapshoot.
“There’s nothing to know with bitcoin,” he says. “There has never been. And let’s be honest, does any stock really follow much logic? It follows more logic than bitcoin. But it doesn’t follow much. Being able to read the tea leaves is pretty unlikely.”
Zitron got into mining by leveraging some bitcoin he purchased at a low price years ago. And as opposed to just buying the coins on internet exchanges, mining provides him some security because he consistently gets more coins, even if their values fluctuate. But he’s only put in money that he says he can afford to lose. He feels for those people who just want to make a quick buck during tough times.
Zitron thinks of buying cryptocurrencies as little more than glorified gambling. Like at a craps table, you place your bets and roll the dice, hoping that your gut prediction is rewarded. He compares it also to the Gold Rush—wherein a bunch of prospectors went broke looking for the gold that mostly ended up in the hands of larger conglomerates. He says now that the cost of getting into and staying in the game has gotten so high, it’s mostly a way for the rich to get richer.
Dr. Enrique Pumar, the sociology department chair at Santa Clara University, notes a variety of factors that could push people to engage in riskier investment behavior. In the current economic climate, only 39 percent of Americans report having $1,000 in savings, according to a report by Bankrate.
Pumar offers a few factors that may have contributed to that situation: mounting debt, scaled-back retirement plans, slow wage growth, and the rising costs of college and housing, as well as a lack of knowledge about investing—all this while public trust in major institutions flirts with all-time lows.
Although there’s not much quantitative data, Pumar thinks that all may lead to more risk-taking, especially since Americans are expecting to work much longer than prior generations. They may feel like they have time to save money for retirement.
“People say, ‘wait a minute, I’m not going to retire until 40 years from now. I can be entrepreneurial, and, if I have a little bit of money, I can play around with it. Because if it works out, I lucked out. If it doesn’t work out, I have plenty of time to make up the difference,’” he says.
So with all this financial uncertainty, some Americans have tossed their money at something they think promises to make them rich quickly, and cryptocurrencies can be a tremendous opportunity to make money. In January of 2017, this was an industry valued at more than $830 billion. Ten days later, that number dropped by more than $360 billion, and nobody knows why. But no one knows why the stock market does what it does, either. Wall Street’s last crash erased $19.2 trillion in household wealth from 2007 to 2009, according to the U.S. Department of the Treasury.
After the Meetup ended, I wandered the nearly empty facility, staring at hundreds of cubicles underneath dozens of signs bearing the logos of startups. There’s no guarantee they’ll make it—just like most of us have no guarantee we’ll get a raise, a promotion or even a job that will pay us as long as we need money. So with most of America facing a steep uphill climb to financial security, it’s hard to blame folks for investigating a shortcut.
“They just wanted a chance at a better life,” Zitron says. “On one hand, you could say it’s risky. And it absolutely was. It definitely was a stupid decision to invest in funny money. But what more human thing is there, than [thinking] ‘this is going to work’ and taking a chance? It’s not smart. But it’s human.”